My Trading Adventure
Valuations of stocks
CP TEH
Publish date: Sat, 26 May 2012, 07:49 AM
CP TEH
0 2,918
All the writings in this weblog are mainly for PLEASURE reading purposes. I am in NO position to recommend a call(BUY/SELL). Please check with those know-hows before you make a decision. Yes, I am just a learner, with only five years experiences in KLSE. So, please BEAR with me.
It is Sat ... I do have classes from 9 am to 11am, 11am to 12.30pm ... then lunch with some of my tratles ... before have a meeting(my cohort 5) and analysing some charts with them. When we practise in do things regularly, we could improve ... and to me, that is the only way to improve. Theories remain as theories ... without practices, it is empty.
Quote : Theory without practice is empty, practise without theory is blind.
Markets are VERY huge ... there is no way a person could claim he knew it all. Not possible. May it be FA or TA or combination of both, there are simple so much things to learn. To check on one indicator itself, back-testing our theory ... may take us months or even years(as market environment changes). So, if anyone telling me that trading or investing in market is easy ... I do wonder what he meant.
Valuation parameters
Imagine this ... many use PER as a valuation ... but it is not as simple as that. Low PE doesnt mean cheap to buy, high PE stocks are popular and hot. We have historical PER, average PER ... forwarded PER ... and if a newbie is to read those broker reports, we could easily get confused. Yes, I speaking about myself ... imagine digesting those reports, without any knowledge in accounting.
One good example of low PE-valuations stocks are those chinese-shoe-stocks. Many are trading way below their IPO and trading below PE-5. Yet ... investors shun these stocks due to fear of a/c malpratice and the 'Made in China' stigma. It is interesting to read that ... many such companies are actually empty-shells, cooking up some good accounts and beautify their annual reports.
On the other hand, we have those ACTUAL empty-shell-stocks, loss-making companies ... or with very high PER(heck ... I was wondering about Facebook, trading at PER 70+ when it was listed, tanking to USD31 today and it is still extremely expensive and ridiculous to invest in). Counters like MTronic, Harvest ... AGlobal ... these are new darlings of so-called investors in KLSE. Someone asked me(a newbie) how do we identify a speculative empty-shell stocks to avoid? Well ... how would you answer him?
Every good investor will tell you that we should NOT use PER alone as to value a company. Yes ... the leader of the sectors will have higher PER(seen as leader ma, so ... deserve higher valuations). When we compare a company to another company, we need to speak about their business ... it is apple-to-apple comparison.
Another yardstick many investors will look into is P/B ... generally the low the 'better'. So, low PE and low PB is preferred. Yet ... hhmm .. it is not really a buy?!
I used to check NTA ... and order book. Well, you know ... when an analyst want to be bullish about a counter, and placing a BUY in their reports ... they will come out with many other ways to convince you why it is a buy. So, they will even mention that the stock is trading way below its NTA(Lionind in mind) or the company has strong order-book, to occupy them for another few years!
Low PE, low PB ... high NTA ... swelling OrderBook ... is a buy? Heck ... it is still not a buy?!
How about cashflow ... strong cash counters are always preferred. Yes, I do like cash positive counters a lot ... until a friend of mine(an accountant) told me that we need to check where those cash from?!! Arrghhh ... as newbies, we will be confused by now. Ok .... we check their debt/gearing ratio ... it simply means that if I have RM1k in hand, but I owe someone RM2k ... that is not good. But, if I have RM2k cash in hands, with no debts ... yes, that is positive pointer. GasMalaysia in their prospectus stating they are debt free. So ...apply and see can get a lot of two, if you are lucky.
Dividends do not lie ... fully agreed with this book. I like. As investors, we do look into dividends as we are going to buy-n-hold. If I m putting my money in FD, getting 3% ... it is certainly more logical to put our money in a stock which gives us more than 3% p.a. There are SO MANY of these good companies giving us such a return. If my aunties/mom know about compound-interest, and discover these good companies ... putting in FD for past 30+ years, they should be very rich now. Yes, as they save every penny, buying only during market crashing ... how to lose money, right?
I have to go ... otherwise, I would have blah-blah longer ...
Just remember, DO NOT read broker reports to buy/sell. Learn to value the companies, business-wise. Buy those blue-chips if u dont know. Buy only during market crashing.
Happy Investing
TEH
Quote : Theory without practice is empty, practise without theory is blind.
Markets are VERY huge ... there is no way a person could claim he knew it all. Not possible. May it be FA or TA or combination of both, there are simple so much things to learn. To check on one indicator itself, back-testing our theory ... may take us months or even years(as market environment changes). So, if anyone telling me that trading or investing in market is easy ... I do wonder what he meant.
Valuation parameters
Imagine this ... many use PER as a valuation ... but it is not as simple as that. Low PE doesnt mean cheap to buy, high PE stocks are popular and hot. We have historical PER, average PER ... forwarded PER ... and if a newbie is to read those broker reports, we could easily get confused. Yes, I speaking about myself ... imagine digesting those reports, without any knowledge in accounting.
One good example of low PE-valuations stocks are those chinese-shoe-stocks. Many are trading way below their IPO and trading below PE-5. Yet ... investors shun these stocks due to fear of a/c malpratice and the 'Made in China' stigma. It is interesting to read that ... many such companies are actually empty-shells, cooking up some good accounts and beautify their annual reports.
On the other hand, we have those ACTUAL empty-shell-stocks, loss-making companies ... or with very high PER(heck ... I was wondering about Facebook, trading at PER 70+ when it was listed, tanking to USD31 today and it is still extremely expensive and ridiculous to invest in). Counters like MTronic, Harvest ... AGlobal ... these are new darlings of so-called investors in KLSE. Someone asked me(a newbie) how do we identify a speculative empty-shell stocks to avoid? Well ... how would you answer him?
Every good investor will tell you that we should NOT use PER alone as to value a company. Yes ... the leader of the sectors will have higher PER(seen as leader ma, so ... deserve higher valuations). When we compare a company to another company, we need to speak about their business ... it is apple-to-apple comparison.
Another yardstick many investors will look into is P/B ... generally the low the 'better'. So, low PE and low PB is preferred. Yet ... hhmm .. it is not really a buy?!
I used to check NTA ... and order book. Well, you know ... when an analyst want to be bullish about a counter, and placing a BUY in their reports ... they will come out with many other ways to convince you why it is a buy. So, they will even mention that the stock is trading way below its NTA(Lionind in mind) or the company has strong order-book, to occupy them for another few years!
Low PE, low PB ... high NTA ... swelling OrderBook ... is a buy? Heck ... it is still not a buy?!
How about cashflow ... strong cash counters are always preferred. Yes, I do like cash positive counters a lot ... until a friend of mine(an accountant) told me that we need to check where those cash from?!! Arrghhh ... as newbies, we will be confused by now. Ok .... we check their debt/gearing ratio ... it simply means that if I have RM1k in hand, but I owe someone RM2k ... that is not good. But, if I have RM2k cash in hands, with no debts ... yes, that is positive pointer. GasMalaysia in their prospectus stating they are debt free. So ...apply and see can get a lot of two, if you are lucky.
Dividends do not lie ... fully agreed with this book. I like. As investors, we do look into dividends as we are going to buy-n-hold. If I m putting my money in FD, getting 3% ... it is certainly more logical to put our money in a stock which gives us more than 3% p.a. There are SO MANY of these good companies giving us such a return. If my aunties/mom know about compound-interest, and discover these good companies ... putting in FD for past 30+ years, they should be very rich now. Yes, as they save every penny, buying only during market crashing ... how to lose money, right?
I have to go ... otherwise, I would have blah-blah longer ...
Just remember, DO NOT read broker reports to buy/sell. Learn to value the companies, business-wise. Buy those blue-chips if u dont know. Buy only during market crashing.
Happy Investing
TEH
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Discussions
Be the first to like this. Showing 16 of 16 comments
You wanna invest in shares. You see me, but I'm gonna charge 10% of your profits. Just kidding you.
2012-05-26 11:03
Eagleis, how about 5%, and wht is the t&c if we dont make money @ loose? Did the 5% work on reverse? I.e back charge to you?
2012-05-26 11:08
Are you a Nihon jin? I have Aeoncredit and Tasco, both are Japanese companies.
2012-05-26 11:16
Nope. Im not Nihon Jin. Same, have some indx Nikkei counter as well.
2012-05-26 11:35
Look at Nestle,the PE already very very high,but their yearly(consistant for 5 years) Revenue and Profit growth and DY also high,so this type of counter is safe to enter le.
2012-05-27 11:03
How about Digi? Most of research firm comment sell/hold. May i anti-direction of investment without follow their suggest? since Digi PE ratio so high compare with similar industries. But their dividend fair, potential capital growth, good mgmt team (especially western people) etc. May i quote Digi for worth of investment ideal same with Nestle?
2012-05-27 13:22
JT,GAB,BAT,Dlady and .... all their profits still keep on growing,so Digi still worth to look at .
2012-05-28 08:47
thank you michael, but Digi PE so high @ around 24 somthing. Do i need to care this PE and consider either worth to buy it? since i have check their report, except PE high, other thing like dividend yield around 5%(fair), cash flow around 1 bil, net cash, and potential capital repayment in 2013...
2012-05-28 09:15
Digi may miss their dividend this term according to their CFO's meeting with funds managers recently. They are reeling now from Maxis aggressive fightback to regain market share. It should still be sliding if the dividend miss actually occurs. So better to wait until more clarity before entering at the moment.
2012-05-31 04:34
Yes. If they stop using offsetting share buy backs by issuing esos. Buy share @ 2.70 and issue esos @ 1.90.
2012-05-31 07:54
Please advice, is it positive to buy now DIGI? current buying price @ 4.18.
2012-06-26 16:32
Leekee1976, if there are no surprise in the 2nd quarter of digi and earning is better than usual, I do expect iit to touch the 4.30pm range. Best of luck to you
2012-06-27 06:03
Harcharanjit, be a little patient. Mudajaya will probably come through during first quarter next year. Status quo expected, albeit reduced majority for the ruling coalition in GE13 and provided no political risk from India
2012-06-27 06:06
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
hiuyl
"DO NOT read broker reports to buy/sell" Fully agreed. Followed the consensus rating in the weekly magazine, the Edge, many years ago ending up losing money and more confused. Nowadays I don't read these reports anymore.
2012-05-26 09:41