Value Investing 01 (May 08 - Dec 08)

[millionairemind]

With the right combination of earnings growth rate, discount rates and period of investment, DCF can make any purchase at any price justified, even with a margin of safety built into it.

La Pap,

Thanks for the post. Your highlighted ending is a good reminder that data can be manipulated.

I don't do the DCF, earnings growth rate kind of calcs for 2yrs, let alone 5 yrs..

Y? Nobody can see that far into the future (unless the stock has a global monopoly). Conditions change, competitors emerge, global growth will slow etc.. and the list is endless.

This is just my 2cts in my little investing/trading world.

Cheers,
mm

[Musicwhiz]

La Pap,

Thanks for the post. Your highlighted ending is a good reminder that data can be manipulated.

I don't do the DCF, earnings growth rate kind of calcs for 2yrs, let alone 5 yrs..

Y? Nobody can see that far into the future (unless the stock has a global monopoly). Conditions change, competitors emerge, global growth will slow etc.. and the list is endless.

This is just my 2cts in my little investing/trading world.

Cheers,
mm

Hi MM, I think I can summarize it in one short sentence: "Investing is not easy".

[la papillion]

Hi mm,

How about using the above calculation to track the company? Once we assume a certain EPS growth rate of say 10% pa, we can check against the reality. If it goes above that assumed value, we can be more certain of the calculation (hence more certain of the initial buy in price and future returns). I like to do a range of figures, using different discount rates and different EPS growth rates to get a feel of the range of intrinsic values. Something like this:

viewtopic.php?f=47&t=607#p24730

But it's impt to realise that this calculated value is:

1. First of all, not even an exact value. It's more like a range
2. It changes periodically to reflect the on-going concerns of the business in question
3. Like the over enthusiastic staff eager to please the boss, the calculation can be manipulated using different inputs to justify any price you want to buy. It's good to check against with other forms of value analysis. Protect yourself from yourself

[fclim]

wow La Pap,

super man... now i know who is another true blue FA/VA... powderful one somemore...
thanks for sharing that, the figures does not reveal all... and it is so true! another thing abt modern accounting is the treatment of depreciation... it is non-discriminating... coz depreciating car makes sense, while depreciating land and building, most of the times does not make sense... hee... so hor, what u see and is always what you get lar...

oki, time for story telling again... from my impression, mr WB was greatly influenced by mr Munger in some of his star purchases, including coke...

the difficult part was almost always about whether the biz had a sustainable and defendable moat... if it does, then the EPS and growth is almost a certainty.... except for disasters (nature or man-made)...

finding the moat is much much more biz-like and less investing-like... so, it is not easy to replace mr WB... even with a few new CEOs... becoz judgement of the biz moat is not easy at all and not everybody can think like mr WB or mr Munger... they are almost like multi-variate thinkers... looking at multiple dimensions of the biz at the same time and assessing, adjusting the impacts to the moat... in other words, they are superstars in their own rights... they have the super skills of multi-dimen thinking...

oh ya, anyway mr Munger wrote in his book hor, he super insecure / indecisive also when it comes to big bet.... there was few times, when mr WB would share with mr Munger what he wants to buy.. and jio him to share share... but mr Munger would analyse (until paralyse) and then say no to mr WB for as many as 3 times... but hor, when mr WB finally go ahead and buy, mr Munger would ask mr WB : "hor wa tam po ai side bo? (hokkien -> share with me a bit can or not)?"...

so, mr Munger wrote that he is sometimes super paranoid... which is something for me to ponder over....

have fun,
fc

[chaibu]

i much prefer mr munger's explanation of the stock market being the horse-racing track (sortof)...

from my impression, mr munger compares the stock market to the horse-race, where the odds and bets are always changing.... and there are always people who bet against and bet for the particular horse....

anyway, there are occasions, when the odds is very skewed, to the benefit of the gambler, but it takes a very experience guy to figure out when such a situation arises... most of the times, i think mr munger just sifts through the numbers, understand them and try to wait out for the appropriate situation...

so, it is not impossible to beat the house and win big, just that it takes a lot of hardwork and experience... even then, there is always the risk of mis-calculating the odds...even for very experienced guys...

have fun,
fc

May be a good time here to bring back some of what fcl said earlier. It makes a lot of sense as I cannot recognise a moat when I see one. Coming down to the wire it the odds that count and the strike rate...for me

[Cheng]

Hi all,

Didnt expect to generate so much comments in 1 day haha, just came back from class chalet.

I agree on views that no matter whether it is TA/FA/VA or whatever analysis, as long as it makes you money over the long term better than market average, we should be satisfied. Everybody are wired differently and some might not have the characteristic to be a VA. Better off with TA maybe.

I'm still learning and searching for my own investment philosophy. If anyone would like to teach me their trading secrets, i'll gladly accept it.

Huat arh!
Cheng

[blid2def]

Cheng, I'm hardcore TA*. I'll gladly share with you my trading secret... 50-50 success rate so far.

*TA = Ti-Kong Analysis (Punt and Pray) (天公分析法)

[Cheng]

Hi Cheng,
Today I'm in a mood to post my comment and here goes.
I can tell that you are young and still very new to this trading game. Notice that I use trading and game and not others, something for you to ponder. Next, I guess I'm exactly like you 15 years ago when i started out, meaning you still have a long way to go. If you rely on others wisdom and technical tools, you will not be able to see thru the veil. Just to share, I have developed my own strading ystem which you can't get from any books. To be sustainable for the long term you need to do that too. If you can understand what I mean you will shorten your learning curve to maybe three years and not 15 years like me.

Oh yes - I don invest in local stocks, if i do, I'll ask bro millionairmind for recommendation as he is a guru in the local market.

sesdaqfan bro, I sort of get what you mean, no offense taken.

I stopped reading about Buffett long time ago. He always says the same thing and all the other books written about him have almost the same concepts. This year, I've explored more into TA stuffs. I'm reading almost every investment books I can get my hands on. I'm still new to the market and I felt that I need to know more, so books are still one of my major source of wisdom.

Agree on the part that we need to develop our own trading system. However, the market always repeats itself. If investment gurus can teach me how to look for good companies with potential multi-baggers. Why not? I just have to modify their systems and strategies a bit to suit myself. Great investors are all independent thinkers and sometimes their strategies do overlap, as in they learn from each other too.

And yes! Investing is a game and I love it!

PS: I really wont mind if you wana teach me your trading system.

Cheers!
Cheng

[Cheng]

Cheng, I'm hardcore TA*. I'll gladly share with you my trading secret... 50-50 success rate so far.

*TA = Ti-Kong Analysis (Punt and Pray) (天公分析法)

Boss grandrake 50-50 success very good already. You can make very good returns! Provided that you cut loss at <8% when you think that the market is against you.

[la papillion]

fclim,

Haha, you damn funny lah Munger and WB also speak hokkien one ah? Ya hor, WB got chinese name, he's called 我人不肥, no wonder everyday drink cherry coke and eat diary's ice cream also won't get fat!

But you highlighted an important thing. What's the point of thinking if not to act? While not doing anything itself is an act, it will be fruitless if one thinks a lot, reaches the logical conclusions, sees the opportunity and froze.



Who has the number for Bruce Wayne?