Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-06 22:42 | Report Abuse

BARGAINS MUST ALSO SATISFY OTHER CONDITIONS.

Just because a stock sells at or below its net asset value does not warrant that it is a sound purchase.

In addition to below market values, the investor also must demand
- a strong financial position,
- a satisfactory p/e ratio, and
- an assurance that the firm’s earnings will be sustained over the years.

This is not an entirely difficult bill to fill except under dangerously high market conditions.

However, the investor will forgo the most brilliant, high growth prospects."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 16:12 | Report Abuse

The US market has rallied a bit since the start of 2023.

Is this a new bull? Or is this a bear rally, to fizzle out after a few weeks or couple of months?

In any event, a value investor, seeks out good businesses to invests regularly and also believe in dollar cost averaging. Market timing is a fool's game.

Whether it is a new bull or a bear's rally, the value investor looks at the value of the company and when he can gets it at a good price (discount and margin of safety), he invests his hard earned money into it for the long term.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 16:15 | Report Abuse

Each year, my portfolio throws up dividends. These add up to a good sum yearly. Ever since I own a portfolio of stock, I have always reinvested these dividends back into the stock market.

Will I ever need to spend some of these dividends in the future? Probably, low probability. I am in a happy situation for now.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 16:16 | Report Abuse

Robert Kuok is approaching a 100. He has already restructured his companies into able hands. A particular nephew seems apt in handling his empire. Likewise, those invested into his company, can derive comfort that his listed companies are in good hands.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 16:21 | Report Abuse

Public Bank remains strong and resilient. Its business is an oligopoly, and well managed. There is growth and the profit margins are maintained high, costs are efficiently controlled. Lending are conservative and have been sound, impairment and provision for losses low. The transition from Teh Hong Piow to his lieutenant has been occurring over many years already and the transition has been seemless.

LPI is a well managed insurance company. It enjoys some pass over business from PBB. Insurance sector is now openly competitive. It is in a more competitive sector than PBB. Knowing this is important.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 17:24 | Report Abuse

Investor's Checklist: Banks

The business model of banks can be summed up as the management of three types of risk: credit, liquidity, and interest rate.

Investors should focus on conservatively run institutions. They should seek out firms that hold large equity bases relative to competitors and provision conservatively for future loan losses

Different components of banks' income statements can show volatile swings depending on a number of factors such as the interest rate and credit environment. However, well-run banks should generally show steady net income growth through varying environments. Investors are well served to seek out firms with a good track record.

Well-run banks focus heavily on matching the duration of assets with the duration of liabilities. For instance, banks should fund long-term loans with liabilities such as long-term debt or deposits, not short-term funding. Avoid lenders that don't.

Banks have numerous competitive advantages. They can borrow money at rates lower than even the federal government. There are large economies of scale in this business derived from having an established distribution network. the capital-intensive nature of banking deters new competitors. Customer-switching costs are high, and there are limited barriers to exit money-losing endeavors.

Investors should seek out banks with a strong equity base, consistently solid ROEs and ROAs, and an ability to grow revenues at a steady pace.


Comparing similar banks on a price-to-book measure can be a good way to make sure you're not overpaying for a bank stock.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 17:35 | Report Abuse

Investor's Checklist: Insurance

Be wary of any insurance firm that grows faster than the industry average (unless the growth can be explained by acquisitions).

One of the best ways to protect against investment risk in the life insurance world is to consider companies with diversified revenue bases. Some products, such as variable annuities, have exhibited a good degree of cyclicality.

Look for life insurers with high credit ratings (AA) and a consistent ability to realise ROEs above their cost of capital.

Seek out property/casualty insurers who consistently achieve ROEs above 15 percent. This is a good indication of underwriting discipline and cost control.

Avoid insurers who take repeated reserving charges. This often indicates pricing below cost or deteriorating cost inflation.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 17:37 | Report Abuse

Investor's Checklist: Asset Management

Look for diversity in asset management companies. Firms that manage a number of asset classes - such as stocks, bonds, and hedge funds - are more stable during market gyrations. One-hit wonders are much more volatile and are subject to wild swings.

Keep an eye on asset growth. Make sure an asset manager is successful in consistently bringing in inflows greater than outflows.

Look for money managers with attractive niche markets, such as tax-managed funds or international investing.

Sticky assets add stability. Look for firms with a high percentage of stable assets, such as institutional money managers or fund firms who specialize in retirement savings.

Bigger is often better. Firms with more assets, longer track records, and multiple asset classes have much more to offer finicky customers.

Look for management teams committed to building shareholder value. These teams often have significant personal wealth invested in the businesses they run.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-12 17:43 | Report Abuse

Checklist for Buying Good Companies at Reasonable Prices

Here is a summary of the questions an investor should ask for investing in good companies at fair prices.


Questions 1 - 19: Focus on the areas of the business.

Business Nature
1. Do I understand the business?
2. What is the economic moat that protects the company so it can sell the same or a similar product five or ten years from today?
3. Is this a fast-changing industry?
4. Does the company have a diversified customer base?
5. Is this an asset-light business?
6. Is it a cyclical business?
7. Does the company still have room to grow?

Business Performance
8. Has the company been consistently profitable over the past ten years, through good times and bad?
9. Does the company have a stable double-digit operating margin?
10. Does the company have a higher margin than competitors?
11. Does the company have a return on investment capital of 15% or higher over the past decade?
12. Has the company been consistently growing its revenue and earnings at double digits?

Business Financial Strength
13. Does the company have a strong balance sheet?

Business Management
14. Do company executives own decent shares of stock of the company?
15. How are the executives paid compared with other similarly sized companies?
16. Are insiders buying?

Business Valuation
17. Is the stock valuation reasonable as measured by intrinsic value, or P/E ratio?
18. How is the current valuation relative to historical range?
19. How did the company's stock price fare during the previous recessions?


Question 20: Confidence in Your Business Analysis or Research

20. How much confidence do I have in my research?




The final question centers on how you feel about your research. Though it is not directly related to the company, your own analysis is a vital consideration. It determines your action once the stock suddenly drops 50% after you buy.

That same 50% drop can trigger opposing actions depending on your level of confidence.

If you are assured in your research, the 50% drop in price is a great opportunity to buy more of the stock at half the price.
If you don't have confidence, you will likely be scared into selling at a 50% loss.

It will happen after you buy the stock and, paradoxically, it happens only after you buy. So, get prepared!


The checkup questions are based on the company's financial data. None of them should replace your work of understanding the business and learning about its products, its customers, its suppliers, its competitors, and the people who work in the company. The warning signs serve as reminders of where you are. They are not meant to substitute for understanding. If we paid attention only to the numbers and signs and ignore the business itself, understanding of the company business is incomplete.

If we gain a solid understanding of the business, these numbers and signs will help us to appreciate where we are and where we are probably going. If business understanding is qualitative and the numbers are quantitative, both are needed to gain the confidence we need for our research.

The checklist is a useful tool for investors to maintain discipline in their stock picking.

Posted by stockraider > 2023-01-13 18:09 | Report Abuse

If u test check the 15 stocks below selected by 3iii selected more than 5 yrs ago, the majority underperformed loh!

If benchmark agst Insas for the same period these stock performed over a mile mah!

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 1 week ago | Report Abuse

>>>>

Posted by 3iii > 2017-08-22 17:27 | Report Abuse

The thrill of investing in stocks, using Peter Lynch's classification of companies.


1. Dutch Lady

A fast grower in its early days. Now a stalwart.


2. Nestle

A stalwart and slow grower. Generating high FCF with little capex requirement.

3. Aeon Credit.

A fast grower. Financial stock. High risk sector.

4. Guinness

A stalwart or slow grower.

5. Petdag

A fast grower over the last decade. Smaller company then, adding 50+ new petrol stations per year. Now a slow grower or stalwart.

6. HaiO

A gruesome stock that turned around in 2005 / 2006. Those who spotted this then would have a lot of gains when others started to show interest in it. Presently, a slow grower stock. Not to be dismissed.

7. KAF

For years, this stock lingered at price below its net asset value. In its book was a piece of land in Jalan Kia Peng which was worth a lot more. This land was subsequently repriced and the company eventually taken over by the majority shareholders. This was an asset play stock.

8. Topglove and Hartalega

These companies were fast growers. They are also in a cyclical sector. Essentially, they are cyclical growth stocks. Those who have own these stocks over the long term would have multibagger gains.

9. Tongher

A cyclical stock. Not easy to play in this sector. Presently, it is in its cyclical high.

10. Public Bank

A stalwart or slow grower.

11. Guan Chong

A turnaround and fast grower (but only for a year or so). Cyclical sector. Not easy to play these stocks but for those who spotted it in 2009, it did climbed 200% or so. However, to protect your gains, you need to sell and not hold long term. Not easy to play cyclical stocks. You need to buy right and also to sell right.

12. Pentamaster

A fast grower for the moment. A fast growth stock maybe highly priced. Be careful, but if you have spotted this before its price climbed, the rewards have been and can be huge.

13. GENM

Slow grower.

14. LPI

Slow grower that has delivered superior returns.

15. Scientex

Slow grower

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-17 09:01 | Report Abuse

Compounding is a powerful tool in investing, as it allows returns on an investment to generate their own returns in the future. The longer the time horizon for an investment, the more powerful the effects of compounding can be.

To capture the power of compounding, you can do the following:

Start early: The earlier you begin investing, the more time your money has to compound.

Invest regularly: Regularly investing, such as through a dollar-cost averaging strategy, can help you capture the power of compounding over time.

Invest for the long-term: The longer you stay invested, the more time your money has to compound.

Invest in assets that have the potential to grow: Investing in assets that have the potential to grow, such as stocks, can help increase the size of your investment over time, thereby increasing the power of compounding.

Avoid unnecessary fees and taxes: Any fees or taxes that you pay on your investments can reduce the power of compounding. So, it's important to keep them as low as possible.

It's important to remember that compounding is a slow and steady process and the power of compounding is more pronounced over a long time horizon. It's important to have a long-term perspective when investing and not to get swayed by short-term market movements.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-01-19 08:28 | Report Abuse

Some good advice for the hero of Netx, calvintaneng.

Here are a few pieces of advice for someone who has had difficulty with stock investing in the past:

Educate yourself: Learn as much as you can about the stock market and different types of investments. Understand the risks and potential rewards associated with different stocks and sectors.

Have a plan: Develop a strategy and stick to it. Decide on your risk tolerance, investment goals, and the types of stocks you want to invest in.

Diversify your portfolio: Don't put all your eggs in one basket. Spread your investments across different sectors and companies to reduce the risk of losing all your money if one stock performs poorly.

Keep a long-term perspective: Investing in the stock market is a long-term game. Don't make impulsive decisions based on short-term market fluctuations. Stay patient and stay the course.

Keep your emotions in check: Don't let fear or greed guide your investment decisions. Stick to your plan and don't let emotions cloud your judgement.

Be patient: Stocks can be volatile, so it may take some time before you see a return on your investment. Investing is a long-term process, so be patient and stay the course.

Use stop loss: ?

Have a proper risk management plan.

It's also important to remember that investing in the stock market comes with risk, and there's no guarantee of returns. It's important to only invest money that you can afford to lose.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-01 10:27 | Report Abuse

SIGNS AT THE BOTTOM

The bottom – or near enough the bottom – of a market cycle theoretically should be easier to call than the top or near top. The evidence is found in the corporate balance sheets, income statements, PE ratios, dividend yields, and other quantitative measures. It is likewise reflected in low ratios for the market as a whole. The quantitative factors speak for themselves.

The dividend yield on the Dow Jones Industrial Average, for example, usually cycles between a high yield of 6 percent at the market’s bottom and a low yield of 3 percent at the top. The Dow’s average dividend yield sometimes stretches beyond these boundaries, but historically this is a trustworthy parameter of undervalue and overvalue.

Unfortunately, this is the time when investors are feeling most beat up by the markets. Fear and negative thinking prevail, and anyone who has faced down a bear knows how paralyzing fear can be. This, at the depths of a bear market, is the time to buy as many stocks as are affordable. “Value bargains aren’t found in strong markets,” writes money manager Charles Brandes. “A good rule is to examine stock markets that have reacted adversely for a year or so.”

Undervalued stocks quite often lie dormant for months – many months – on end. The only way to anticipate and catch the surge is to identify the undervalued situation, then take a position, and wait, Graham said.

-----
Buying a neglected and therefore undervalued issue for profit generally proves a protracted and patience-trying experience.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-01 10:28 | Report Abuse

BELIEVING A BULL MARKET

When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.

Most bull markets have well-defined characteristics. These include:


Price levels are historically high.
Price to earnings ratios are high.
Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-01 10:30 | Report Abuse

There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.

· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.

· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.

But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.

As for the hot stocks, when they take a hard hit the investor is cornered. If the stock is sold, the loss becomes permanent. The lost money cannot grow. If the investor hangs on to the deflated stock, the long trail back to the original purchase price will deeply erode the overall return.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:09 | Report Abuse

"Believe it or not, history offers surprisingly good news about what the stock market will likely do from here. No, history doesn't always repeat itself, but, as the saying goes, it rhymes. So please don't cash in your stocks for CDs until you read the rest of this article. To ignore history would be folly."

"Do things seem worse than they were during other bear markets? If so, it's partly because of our tendency to forget the distant past and focus instead on the recent past. I submit that the events surrounding many past bear markets were at least as frightening as those of this one. I certainly remember the anxiety surrounding the 1987 crash, when the Dow Jones industrial average plunged 22.6% in one day—eclipsing the 1929 crash. I thought we might well enter a depression. Instead, stocks hit bottom less than two months later."

"Yet, soon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average."

How can the market advance so much so quickly when stocks tumble another 11% after hitting the 20% bear market threshold?

It's because bear markets tend to be "V"-shaped in their final stages. That is, share prices tend to decline dramatically and quickly as investors capitulate, then rebound just as quickly. "Once a bear market ends, the rally out of that bottom is very sharp and very, very profitable."

Yes, we all know that averages and statistics can be misleading. After all, the returns above are for the average bear market. What's to say that this will turn out to be an average bear market, with all the bad news still out there?

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:16 | Report Abuse

Growth Stocks: Searching for the Sprinters

Investors who focus on growth try to predict which companies will grow faster in the future -- faster than the rest of the stocks in the market, or faster than other stocks in the same industry. If you're successful in buying a company that does grow faster than other companies, then it's likely that the price of that company's stock will increase as well, and you can make a profit.
(My comment: Provided you did not pay too high a price to buy it.)

The stock of a company that grows its earnings and revenues faster than average is known as a growth stock. These companies usually pay few or no dividends, since they prefer to reinvest their profits in their business.

Peter Lynch primarily used a growth stock approach in managing the Magellan mutual fund. Individuals who invest in growth stocks often prefer it because their portfolio will be made up of established, well-managed companies that can be held onto for many years.

Companies like XYZ, OPQ, and TUV have demonstrated great growth over the years, and are the cornerstones of many portfolios.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:19 | Report Abuse

Evaluating Changing Fundamentals
· Don't automatically buy because a stock falls in price; re-evaluate as if new.

Ask ourselves:
Is the correction a true bargain?
Maybe the price uptrend would resume?
Or, maybe not, this being a reversal of the uptrend?
Obviously, having an idea of where the "fair value" of the stock is, helps.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:23 | Report Abuse

EVALUATING CHANGING FUNDAMENTALS

REASONS CONSIDERATIONS

o EPS or revenue growth is slowing or falling.
· Company may be entering a new stage of slower growth or stagnation.
· If considering additional purchase, use caution. The worse a company performs, the better a value it may appear.

o Quarterly pre-tax profits are falling.
· Use PERT graph to evaluate PTP.
· Three quarters of consecutive declining PTP are a danger sign.
· Five consecutive declining quarters are usually a definitive sign to sell.

o Cash flow is diverging from net income.
· If free cash flow is falling while net income is stable or rising, company may be "propping up" profits.

o Other fundamentals are deteriorating.
· Accounts receivable rising faster than sales.
· Inventories rising faster than sales.

o There has been an uncertain change of management.
· Dynamic company leader retires, replacement has questionable qualifications.
· Senior executives leave en masse.
· Those responsible for past success are no longer with the company.

o Company faces direct or indirect competition.
· Competitors threaten to affect the company's long-term prosperity.
· Companies with very high profit margins are often susceptible to increased, cutthroat competition.

o Company faces uncertain product cycle.
· Company is too dependent on single product.
· No new products in pipeline (such as pharmaceutical companies).

o Company has uncontrolled raw material costs.
· Can harm profit margins.
· If company doesn't hedge, they may have no option but to pay higher prices for necessary materials.

o Company is the victim of fraud or "accounting irregularities."
· If the books are being cooked, investors will be last to know.
· No way for investors to know if management is lying, or auditors are covering up.
· Get out fast; these are not quality companies.

o Company's debt rating has been lowered.
· Can often be an early warning sign of greater problems in the future.



D. FINAL CONSIDERATIONS

· Don't hesitate to sell in retirement accounts where taxes aren't an issue.
· Don't automatically buy because a stock falls in price; re-evaluate as if new.
· If you won't purchase additional shares of a fallen stock, why would you continue to hold it?
· Don't "wait to get your money back" from the stock – it doesn't know you own it.
· Don't be paralyzed by uncertainty.
· Don't be an ostrich with your head in the sand – face up to the problem.
· Remember the Rule of Five.
· Use Challenge Tree to continually upgrade your portfolio.
· Think "replace,"

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:27 | Report Abuse

PRICE: is frequently an essential element, so that a stock (and even a bond) may have investment merit at one price level but not at another.

______________________________________

Having selected the company to invest based on various parameters, the next consideration will be the price we are willing to pay for owning part of its business.

Price is always an important consideration in investing. At a certain price, the company can be acquired at a bargain, at a fair price or at a high price. Each scenario will impact on our investment returns.

We should ALWAYS buy a good quality company at a BARGAIN PRICE (margin of safety). This allows us to lock in our potential gains at the time of buying at a favourable reward/risk ratio. This maybe when the upside gain: downside loss is at least 3:1.

There maybe FEW exceptional occasions when we may be willing to pay a FAIR PRICE for a good quality company. This is often the case when a good quality company is fancied by many investors and is often quoted in normal time at a high price.

However, we should NEVER (NEVER, NEVER) buy a good quality company at HIGH PRICE, whatever its earnings and growth prospects maybe. To do so will not only diminishes our potential investment returns, but may even results in a loss of our capital due to the unfavourable reward/risk ratio.

Don't time the market, it is difficult. However, there will be time when the market is on sale and the prices of stocks are at a bargain and there will be time when the market is exuberant and the prices of stocks are high or very high.

The market will always be there and we should choose when to buy and when to sell. We should only buy a stock when the PRICE IS RIGHT FOR US and sell a stock when the PRICE IS RIGHT FOR US.


(What is market timing? Timing is a term that refers to investing by buying everything or selling everything on the basis of the (faulty) assumption that one can predict the market's next move. Attempts to time are common, but academicians and practitioners have concluded that success happens through luck only on occasions that are quickly reversed and very costly.)

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:28 | Report Abuse

A crisis mentality among investors

Professionals, even the most seasoned, have the same emotions as everyone else. Learning the ropes professionally does not eliminate human emotion, nor does it elimate urges to buy or sell emotionally. Faced with uncertainties, the tide of emotion surges. How can one resist the surging tide of emotion? Only if one has a framework of disciplines and knowledge within. Controlling emotions and replacing them with the elements of this framework are the secret.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:29 | Report Abuse

Understanding Stock Market Return

Stock market return
= fundamental return + speculative return
= (earnings growth + dividend yield) + (change in PE ratio)

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:32 | Report Abuse

Is the Firm Cyclical?

Firms that go through boom and bust cycles - semiconductor companies and auto manufacturers are good examples - require a bit more care. Although you'd typically think of a firm with a very low trailing P/E as cheap, this is precisely the wrong time to buy a cyclical firm because it means earnings have been very high in the recent past, which in turn means they're likely to fall off soon.

For cyclical stocks, your best bet is to look at the most recent cyclical peak, make a judgment whether the next peak is likely to be lower or higher than the last one, and calculate a P/E based on the current price relative to what you think earnings per share will be at the next peak.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:36 | Report Abuse

What to do when the stock markets decline sharply?

According to one theory you should stay calm and do nothing. The stock market will eventually climb to new heights. And it is impossible for you to time your investments – the short term development of the stock market is unpredictable, most of the time the market is flat and stable, and positive and negative price developments occur so fast you are not able to react.

According to a second theory you should rebalance your portfolio and buy more stocks. Rebalancing is necessary because you have an investment strategy or an asset allocation, which you believe is just right for you. When the stock market decline the relative value of your stocks diminish and you need to buy more stocks to re-establish the right proportions.

According to a third theory – advanced by a.o. Warren Buffett - you should “be greedy when everybody else is fearful” – i.e. you should buy more stocks. When stock markets decline, investors tend to overreact, and stocks fall to prices well below their long term value.

According to a fourth theory you should have stop losses on all your shares and sell immediately when the price drops below the indicated level. Since this theory mainly applies to individual stocks and not stock markets in general, perhaps we may neglect it when considering declines on the stock market.

According to a fifths theory you should never buy stocks as long as they are falling in prices, but wait until the price fall has stopped. Then you should be an active investor.

According to a sixth theory you should sell your stocks when the short term moving average price falls below the long term moving average price, and only start buying again when the opposite occurs.


What do private investors actually do when the stock market decline?

Most of us stop trading. Most of us act according to the new trend of the stock market with a 6 months delay – both when the stock market collapse, and when a new bull market begins. Most of us overreact based on our short term experience – at one time we are too optimistic, and at another time we are too pessimistic. Some of us loose a terrible lot of money because we have committed a number of sins – we have too few stocks in our portfolio, have stocks in poor quality companies, have illiquid stocks, or have been investing based on borrowed money or money we need for daily consumption.

Conclusion

It is difficult to tell which of the theories is the right one, but looking at our normal behaviour it seems clear to me that we need to invest in a more rational manner – do our homework before choosing the companies in which we invest, base our investment on long term perspectives, base our investment on fundamentals such as p/e figures over a long period of time, base our investments on demographics and macroeconomics, learn about the stock market fundamentals, and last but not least base our investments on our individual investment profile and strategy, and not on whether the stock market goes up or down.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 06:54 | Report Abuse

Investing: When to bet the farm

Big payoffs often require big risks. Bet wrong, and you could lose everything. Do you have what it takes? And how do you assess whether a dicey investment is worth it?


You want a big return? How big a risk do you want to take to get it? Gauging the risks associated with really promising investments, and handling those risks appropriately, can change your life.

"It's never safe to take a risk, by definition." Yet successful investors take major risks all the time. They succeed because they do their research, can afford to lose the money they invest in high-risk schemes and are able to make up any losses they incur with other investments, which frequently involve complementary or counterbalancing risks.

Whether considering an investment in a stock, a privately held startup or a hedge fund -- all high-risk propositions -- investors should start by digging through the details of the business case to figure out how the return on investment is likely to be generated. How big a payoff might the investment produce? And how likely is success?

Successful investors look hard at the downside as well. What would the price of failure be? And how likely is that?

Just jump in and take a risk
And what about all the outcomes in between?

Successful investors tend to have a broad view, taking the downside into account with the upside. They plan on an outcome somewhere in the middle of the range of possibilities. That is their "expected return."
"An expected return is an average," "It's the probability of all of the outcomes."

Risk assessment gets pretty sophisticated at risk-oriented hedge funds. These funds combine and counterbalance risks to put together exotic investment strategies that increase an investor's upside while controlling the downside -- all for a price. But the basics are just common sense.

A chief investment officer for an asset management company spends his days researching investments both risky and safe for the wealthy families in the firm's client base. He researches basic business practices as well as the big-picture business opportunity.

"The No. 1 most overlooked aspect of hedge fund due diligence is on the operational side," "The things that can be potential risks and pitfalls are not always easy to spot."

Among the not-so-obvious business risks, are high employee turnover, sloppy accounting and computers that aren't backed up. A mistake in the office can wipe out an investment's potential return even in the most promising environment.

Our own personalities add complexity to high-risk situations. Know the risks associated with overly emotional reactions.
"What you don't want to happen is for people to get emotional with the market."
The more emotional we get, the more likely it is we will make a mistake.
A company's business prospects can be measured and evaluated statistically, but there is no easy measure for mood swings. Before making any moves, people contemplating high-risk investments should come to grips with their emotional makeup and know how they are likely to react.

Three ways to analyze a company (Quantitative, Qualitative and Technical Analysis)
Where risk is high, the investor needs to analyze his or her life situation.

Is financial risk really risky?
"There are times in your life when it's appropriate to take different levels of risk."
Age is a big factor. Age changes us in a lot of ways. We gain emotional maturity. At the same time, the nature of our financial obligations changes, and the time horizon for risk gets tighter.
"Let's say you're young, in your mid-20s." "If you take a big risk and something goes wrong, you have time to recover." On the other hand, the middle-aged homeowner probably needs a bigger safety net, especially if there are kids who need braces or there are college costs to consider.
Even a high-risk investment can be a very positive part of a portfolio when it's appropriate to a person's situation and is well-managed.
"In investing and in life, you have to look at everything on a risk-and-reward basis." "Volatility is not the end of the world."

Risk lesson from the OPQ
OPQ is a good example. He left the investment firm of X in 2003 to start his own firm. He knew most new businesses fail, but he had a lot of confidence in his own investment skills. If the business went under, he reasoned, he could always get a job with another firm.
"Careers are actually the easiest place to take risks, as long as you don't burn your bridges."
Younger investors, particularly, should be ready to gamble with their careers. But be aware, as professional investors often do: Risk only as much as you can afford to lose.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:04 | Report Abuse

Note that different PE ratios can be calculated for the same stock at any given point in time:

PE ratio based on last year's reported earnings
PE ratio based on trailing 12 months earnings
PE ratio based on current year's expected earnings
PE ratio based on the following year's expected earnings

*We will generally use the PE ratio based on current year's expected earnings.*

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:06 | Report Abuse

Determine a Value Anchor and a Value Range
1. Determine a Value Anchor

The value anchor is obtained as follows:

= Projected EPS x Appropriate PE ratio

In our illustration, the projected EPS is 5.00 and the appropriate PE multiple is 6.87. Hence the value anchor is 34.35. However, as valuation is inherently an uncertain and imprecise exercise, it would be naive to put great faith in a single point intrinsic value estimate. Practical wisdom calls for defining an intrinsic value range around the single point estimate.

2. Determine a Value Range

For example, in the above illustration, where an intrinsic value estimate of 34.35 has been arrived at, it may be more sensible to talk of an intrinsic value range of say 30 to 38. When you define a range like this, you are essentially saying that a "there may be a bias and error in my estimate. In view of this, feel that the value range is 30 to 38." Given this value range, your decision rule may be as follows:

Market Price*** (Decision)
< 30***********(Buy)
30 to 28********(Hold)
>38************(Sell)

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:10 | Report Abuse

Establishing a PE Ratio
The PE ratio maybe derived from the
constant growth dividend model, or
cross-section analysis, or
historical analysis.

Constant Growth Dividend Model.

We derive the PE ratio for a constant growth firm from the constant growth dividend discount model.

PE Ratio
= Dividend payout ratio/ (Required return on equity - Expected growth rate in dividends)

Cross-Section Analysis

You can look at the PE ratios of similar firms in the industry and take a view on what is a reasonable PE ratio for the subject company.

Historical Analysis.

You can look at the historical PE ratio of the subject company and take a view on what is a reasonable PE ratio, taking into account the changes in the capital market and the evolving competition.


The Weighted PE Ratio

We arrived at two PE ratio estimates:
PE ratio based on the constant growth dividend discount model: 6.36
PE ratio based on historical analysis: 7.37
We can combine these two estimates by taking a simple arithmetic average of them - this means that both the estimates are accorded equal weight. Doing so, we get the weighted PE ratio of:
(6.36+7.37)/2 = 6.87

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:15 | Report Abuse

Business risk

As a holder of corporate securities (equity shares or debentures), you are exposed to the risk of poor business performance.

This may be caused by a variety of factors like
heightened competition,
emergence of new technologies,
development of substitute products,
shifts in consumer preferences,
inadequate supply of essential inputs,
changes in government policies and so on.

Often, of course, the principal factor may be inept and incompetent management.

The poor business performance definitely affects the interest of equity shareholders, who have a residual claim on the income and wealth of the firm.

It can also affect the interest of debenture holders if the ability of the firm to meet its interest and principal payment obligation is impaired. In such a case, debenture holders face the prospect of default risk.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:15 | Report Abuse

Interest Rate Risk

The changes in interest rate have a bearing on the welfare of investors. As the interest rate goes up, the market price of existing fixed income securities falls, and vice versa.

This happens because the buyer of a fixed income security would not buy it at its par value or face value if its fixed interest rate is lower than the prevailing interest rate on a similar security.

For example, a debenture that has a face value of MR 100 and a fixed rate of 12% will sell at a discount if the interest rate moves up from, say, 1% to 14%.

While the changes in interest rate have a direct bearing on the prices of fixed income securities, they affect equity prices too, albeit somewhat indirectly.

The changes in the relative yields of debentures and equity shares influence equity prices.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 07:19 | Report Abuse

Market Risk

Even if the earning power of the corporate sector and the interest rate structure remain more or less unchanged, prices of securities, equity shares in particular, tend to fluctuate.

While there can be several reasons for this fluctuation, a major cause appears to be the changing psychology of the investors.

There are periods when the investors become bullish and their investment horizons lengthen. Investor optimism, which may border on euphoria, during such periods drives share prices to great heights. The buoyancy created in the wake of this development is pervasive, affecting almost all the shares.

On the other hand, when a wave of pessimism (which often is an exaggerated response to some unfavourable political or economic development) sweeps the market, investors turn bearish and myopic. Prices of almost all equity shares register decline as fear and uncertainty pervade the market.

The market tends to move in cycles.

"You need to get deeply into your bones the sense that any market, and certainly the stock market, moves in cycles, so that you will infallibly get wonderful bargains every few years, and have a chance to sell again at ridiculously high prices a few years later."

The cycles are caused by mass psychology.

"The ebb and flow of mass emotion is quite regular: Panic is followed by relief, and relief by optimism; then comes enthusiasm, then euphoria and rapture, then the bubble bursts, and public feeling slides off again into concern, desperation, and finally a new panic."

One would expect large scale participation of institutions to dampen the price fluctuations in the market. After all institutional investors have core professional expertise to do fundamental analysis and greater financial resources to act on fundamental analysis. However, nothing of ths kind has happened.

On the contrary, price fluctuations seem to have become wider after the arrival of institutional investors in larger numbers.

Why? Perhaps the institutions and their analysts have not displayed more prudence and rationality than the general investing public and have succumbed in equal measure to the temptation to speculate.

As John Maynard Keynes had argued, factors that contribute to the volatility of the market are not likely to diminish when expert professionals supposedly possessing better judgment and knowledge compete in the market place.

Why? According to Keynes, even these peope are concerned with speculation (the activity of forecasting the psychology of the market) and not enterprise (the activity of forecasting the prospective yield of assets over their whole life).

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 20:20 | Report Abuse

Emulating the mindset of a business owner as a value investor
One of the biggest misconceptions of value investing and investing as a whole I see is the idea that investing is about buying a stock, waiting or hoping for the stock price to go up, and selling the stock for a profit. This misses the point of value investing, specifically Warren Buffett’s way of value investing (at least after he met Charlie Munger, and shifted his mindset from buying cigar butts to wonderful companies at fair prices. Even if you did thorough research into determining what the fair value of a stock should be, buying a stock with the intention of profiting by selling it if and when it goes up is not how Warren Buffett invests and can prevent you from truly compounding your money.
Warren Buffett owns businesses.
Warren Buffett owns businesses and pockets the money it generates from selling goods and services. He does not invest in stocks to sell them later when their share price increases. This mindset has allowed Warren Buffett to compound and multiply his money at incredible rates:
A thousand dollars invested with Warren Buffett since 1965 would be worth more than $27 million today, while the comparable amount for the S&P 500 is roughly $200,000. That’s over 100x more.
The toxic obsession with fair value
Value investors and aspiring value investors are familiar with or will come across the idea of fair value. Fair value is a price (or range of prices) a company is worth. The most common method to derive this number is calculating how much money a company will make for the rest of its life and then adjusting that money for inflation. And investors — retail and professionals alike — are constantly trying to figure out this number.
While the concept of fair value is undoubtedly useful, not just in investing but in life as a whole, I find that it ironically can blind investors and prevent them from compounding their money.
By focusing on fair value, we overly obsess with a "buy" price and a "sell" price. In doing so, we miss the point of what investing is: owning a business so you can sit back while the company makes money for you. Selling a stock, even if it has doubled or tripled in price, also prevents you from compounding your money.
If the business is still making money or, better yet, even more money than when you initially bought it, why would you sell it and forego all the profits the business can generate for you just because its stock price went up?
Of course, selling it might be a good idea if the business is unable to generate significant profits in the future because of steeper competition or changing consumer preferences. But if this isn’t the case, you should not only not sell the business but continue to own more of it. This is why Warren Buffett has repeatedly said it is “far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and that his favorite holding period is forever.
Emulating the same mindset as Warren Buffett
One way I have been able to move away from this and emulate the mindset of Warren Buffett is by visualizing that owning a single stock is just like owning (but not necessarily managing) a coffee shop.
As a cafe owner, I want to sell excellent coffee that people are willing to pay a premium for to as many people as possible. I also want to use that money to open new stores instead of spending it on everyday costs to keep the business running and ultimately pocket as much profit as possible.
Bottom line, I want to make more and more money by selling coffee and not by selling the coffee shop to someone else. This way, I will have a stable stream of money which I can use to either grow the business or invest/start other ones.
This same principle applies to investing in stocks.
Growth capEx: Money spent to open new stores
Maintenance capEx: Money I have to spend to keep the business running
Free Cash Flow: Money I get to keep for myself
Owner’s earnings: Money that I would keep if I decided to stop opening new stores
This does not mean I will never sell my coffee shop if someone offered way more money than what it is currently making or will realistically make in the next decade. It means that I don't invest with the expectation and hope that someone will come along and offer way more money for it.
Sound investing should be about buying and owning a business and making money from its profits. The problem I see is that many value investors aren’t business owners. Even if they really do dig deep in a company's fundamentals and business operations, many investors see fundamental analysis as a means to calculate fair value and sell the stock later on.
I’m interested to hear your thoughts on this? One argument that I hear is that money is just a tool and what's the point of owning a business if I don't sell it for cash that I can pocket.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 20:21 | Report Abuse

https://www.facebook.com/groups/53286054621/permalink/10162544535029622/?mibextid=Nif5oz

Posted by stockraider > 2023-03-07 20:21 | Report Abuse

Lesson learn here, is do not overpay loh...Dlady, Petdag, Nestle, Padini all trading at veli high valuation loh!

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 21:02 | Report Abuse

Allow me to smile quietly at this post of stockraider. Of course, he will never be able to invest like me. I have quite a number of multi-baggers in my portfolio. I believe my investing philosophy and strategy are safe and very rewarding indeed. :-)

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:08 | Report Abuse

It just takes few winners to make wonders

"The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And yes, it helps to start early and live into your 90s as well."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:20 | Report Abuse

Be 'business-pickers'

"We own publicly-traded stocks based on our expectations about their long-term business performance, not becasue we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:22 | Report Abuse

Make meaningful investments

"Make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:25 | Report Abuse

Leverage is dangerous

"There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerious. A string of wonderful numbers times zero will always equal zero. Don't count on getting rich twice."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:26 | Report Abuse

Find a smart partner

"Find a very smart high-grade partner - preferably slightly older than you - and then listen very carefully to what he says."

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-07 22:28 | Report Abuse

Source: Warren Buffet's Annual Letter 2023.
Warren Buffett gave away gems that may serve as guiding light to many who believe in investing for wealth creation.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 06:40 | Report Abuse

The toxic obsession with fair value

Value investors and aspiring value investors are familiar with or will come across the idea of fair value. Fair value is a price (or range of prices) a company is worth. The most common method to derive this number is calculating how much money a company will make for the rest of its life and then adjusting that money for inflation. And investors — retail and professionals alike — are constantly trying to figure out this number.

While the concept of fair value is undoubtedly useful, not just in investing but in life as a whole, I find that it ironically can blind investors and prevent them from compounding their money.

By focusing on fair value, we overly obsess with a "buy" price and a "sell" price. In doing so, we miss the point of what investing is: owning a business so you can sit back while the company makes money for you. Selling a stock, even if it has doubled or tripled in price, also prevents you from compounding your money.

If the business is still making money or, better yet, even more money than when you initially bought it, why would you sell it and forego all the profits the business can generate for you just because its stock price went up?

Of course, selling it might be a good idea if the business is unable to generate significant profits in the future because of steeper competition or changing consumer preferences. But if this isn’t the case, you should not only not sell the business but continue to own more of it. This is why Warren Buffett has repeatedly said it is “far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and that his favorite holding period is forever.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 06:45 | Report Abuse

Emulating the same mindset as Warren Buffett

One way I have been able to move away from this and emulate the mindset of Warren Buffett is by visualizing that owning a single stock is just like owning (but not necessarily managing) a coffee shop.

As a cafe owner, I want to sell excellent coffee that people are willing to pay a premium for to as many people as possible. I also want to use that money to open new stores instead of spending it on everyday costs to keep the business running and ultimately pocket as much profit as possible.

Bottom line, I want to make more and more money by selling coffee and not by selling the coffee shop to someone else. This way, I will have a *stable stream of money* which I can use to either grow the business or invest/start other ones.

This same principle applies to investing in stocks.

Growth capEx: Money spent to open new stores
Maintenance capEx: Money I have to spend to keep the business running
Free Cash Flow: Money I get to keep for myself
Owner’s earnings: Money that I would keep if I decided to stop opening new stores

This does not mean I will never sell my coffee shop if someone offered way more money than what it is currently making or will realistically make in the *next decade*. It means that I don't invest with the expectation and hope that someone will come along and offer way more money for it.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 06:48 | Report Abuse

Emulating the mindset of a business owner as a value investor

One of the biggest misconceptions of value investing and investing as a whole I see is the idea that investing is about buying a stock, waiting or hoping for the stock price to go up, and selling the stock for a profit. This misses the point of value investing, specifically Warren Buffett’s way of value investing (at least after he met Charlie Munger, and shifted his mindset from buying cigar butts to wonderful companies at fair prices. Even if you did thorough research into determining what the fair value of a stock should be, buying a stock with the intention of profiting by selling it if and when it goes up is not how Warren Buffett invests and *can prevent you from truly compounding your money. *

Warren Buffett owns businesses.

Warren Buffett owns businesses and pockets the money it generates from selling goods and services. He does not invest in stocks to sell them later when their share price increases. This mindset has allowed Warren Buffett to compound and multiply his money at incredible rates:

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 06:53 | Report Abuse

Warren Buffett owns businesses

Sound investing should be about buying and owning a business and making money from its profits. The problem I see is that many value investors aren’t business owners. Even if they really do dig deep in a company's fundamentals and business operations, many investors see fundamental analysis as a means to calculate fair value and sell the stock later on.

Even if you did thorough research into determining what the fair value of a stock should be, buying a stock with the intention of profiting by selling it if and when it goes up is not how Warren Buffett invests and *can prevent you from truly compounding your money. *

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 07:13 | Report Abuse

Hawkish Fed Chairman’s Jerome Powell’s testimony

Bigger rate hike
Faster rate hike
Higher terminal interest rate

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-08 07:25 | Report Abuse

Feds is targeting inflation rate of 2%.
Anticipated to keep hiking rates.

Actions available: accelerate, decelerate, pause or flip and flop rate hikes

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-15 08:13 | Report Abuse

Investing isn't easy, but the important parts are simple.

Buy an asset when it's expensive, and future returns will likely be low.
Buy cheap, and you'll probably do all right.

There are ups and downs and booms and busts and lost decades throughout, but a basic appreciation of how valuation dictates the future can go a long way.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-15 08:17 | Report Abuse

No one knows what any market will do in the future.

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ > 2023-03-15 08:21 | Report Abuse

https://www.multpl.com/shiller-pe

Shiller PE Ratio

Current Shiller PE Ratio: 27.99 +0.45 (1.65%)
4:00 PM EDT, Tue Mar 14
Mean: 17.01
Median: 15.91
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)
Shiller PE ratio for the S&P 500.

Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10 — FAQ.

Data courtesy of Robert Shiller from his book, Irrational Exuberance.