# Fundamental Analysis Techniques



## carpets (6 February 2006)

I thought I'd create this thread in response to the Technical V. Fundamental discussion. IMO a combination of both are essential to a good trading plan however, I mostly use technical analysis with some fundamental because i understand the indicators and have a few methods of technical  anaylsis that have worked for me so far. I do some research into a company before buying and often consult various sources of information.  
I am interested to hear from those guys who use alot of fundamental analysis and if they could share some of their techniques that they use before buying/selling and also to interpret market trends. 
Conversly, I'd be interested to hear some of the indicators/techniques that people use in technical analysis. 
Carpetss.


----------



## bullmarket (6 February 2006)

Hi carpets

I think a similar topic has been started elsewhere (but can't remember where).

Anyway, I'm in the camp that use both fundamental and technical analysis and please bear in mind I am an investor and not a trader.

Below is a summary of what I do to try to determine whether a company is fundamentally good value or not.

Basically I go through a series of 5 tests and a company has to gain a score of 70%+ in these tests for me to rate it as ok to buy fundamentally. I've set up an Excel spreadsheet to model these 5 tests. Then I look at the company's price chart to help time buying points if the stock passes my funamental tests.

1) I use the Altman-Z Factor to gauge whether a company is financially sound or not. For info on how the Altman-Z Factor model works, maybe have a look at http://www.nysscpa.org/cpajournal/old/16641866.htm if interested

2) I look at various financial ratios including, working capital ratio, Debt/Equity, Gearing, ROA, ROE, interest cover, EBIT margin etc

3) I then look at the PER and PEG ratios to make sure they are within reasonable limits.

4) I then look at what total returns (cap gain + divs) I can expect in the next 2 years based on increased share price according to PER and EPS,DPS forcasts.  I aim for at least 10%pa potential return.

5) I then discount that total return back to NPV to see if the current share price is above/below the NPV.

example:

Company XYZ

Current Share Price: $1.00
Forcast EPS in 2 yrs: 7.5 cps
Forcast Div in Yr 1: 3.0 cps
Forcast Div in Yr 2: 3.2 cps
'Fair' PER: 16.0
Long term 'Risk Free' Return: 5.5%

Therefore, potential price target = 0.075 x 16.0 = $1.20

Potential TOTAL 2 yr return = $1.20 + 0.03 + 0.032 = $1.262

Now I 'discount' this $1.262 total return back to NPV using a transposed compound interest formula:

NPV = TR/((1+I)^n)

Where

NPV = Net Present value of the $1.262 total return
TR = Total Return
I = Discount Rate
n = number of years
^ = to the power of

NPV = 1.262/((1+0.055)^2) = $1.13

Since the current share price at $1.00 is well below the $1.13 NPV of my total potential return then I would consider XYZ to be good value atm. But to pass my NPV test, the share price has to be more than 10% below the NPV.

So although all this above doesn't actually value the company, it does value my expected returns in terms of what those returns are worth today (NPV).

So after I have the results of the above 5 tests, the individually weighted test results need to add up to a score of 70%+ for the company to pass my fundamentals/valuation test overall. If the company passes then I look at the price chart to help time buying points.

As far as charting goes, I tend keep to the KISS principle and look for support/resistance breaks, stocks that are in or show a high probability of going into an uptrend.  I mainly look at volumes, MACD, MACD-H and the Stochastic indicators for confirmation of the price action.

Good luck and hope this helps 

bullmarket


----------



## carpets (6 February 2006)

Bullmarket, 
thanks for your ideas, they where really helpful. I tend to be a bit of both, that is, a trader and investor. I can see value in both but trading seems a bit volatile and has more risk attached to it IMO. 
does anyone else have varying methods of analysis, possibly for day trades? 

(moderator, if this type of thread has already been started elsewhere feel free to move this info, i couldnt find anything on the topic)


----------



## Milk Man (6 February 2006)

Quantatative analysis may be of some use to you in this regard. www.Mrmarketishuge.com uses this process. Just go to Mr Market's homepage. Its only US stock based but could possibly be adapted to the ASX.


----------



## Nick Radge (6 February 2006)

bullmarket,
That's a neat little calculation. Would I be correct in saying that ANZ, currently trading at around $25.00, has a NPV of $29.31 and would therefore fit your criteria?


----------



## Odysseus (6 February 2006)

Some general ideas on fundamental and technical factors - for investors rather than traders.

FUNDAMENTAL
1. Consider the general economic situation ("top down").
2. Is your company in a sector likely to benefit?
3. Is the company GOOD ENOUGH te benefit? How good is management? What is the earnings per share ratio? Has the company been earning profitably for some time? What is the PE, or - more importantly - the PEG? (For a PE by itself can mean little.)
4. If the company is in a winning position, sound, and not over-priced, buy. Pay a fair price for an excellent company rather than a "low" price for a mediocre one

TECHNICAL
1. If you have an inherently strong company volatility will bother you less.
2. Even so, don't think that a company may not turn weak, and act quickly on any substantially bad news. DO WATCH THE CHARTS, AND TRY TO INTERPRET CHANGES IN PRICE.
3. Sell at once if a (significant) profit downgrade occurs, or any other clearly bad news. As a general rule, if a company drops by more than 10% on COMPANY SPECIFIC news, get out. BE QUICK AND DECISIVE ABOUT CUTTIING LOSSES.
4. Do NOT sell if the downfall results from a general CORRECTION (which may bring the whole market down by say 10-15%).
5. Sell all clearly INFLATED stocks you have BEFORE a bear market occurs. The signs of a bear market are usually very clear. The key symptom is widespread, uncritical enthusiasm and optimism. But a fair people predict a huge and prolonged fall within a number of months, on the basis of demonstrable over-valuation of many major stocks. Volatility increases, in both directions. Sell at the least all those stocks which you know to be dear - not necessarily those you are happy to keep through thick and thin, like banks. TAKE A BEAR VERY SERIOIUSLY. IT CAN LOSE YOU A LOT OF MONEY, WHICH IS HARD TO RECOVER. DON'T LISTEN TOO MUCH TO THOSE WHO SAY "IT WILL ALL GO UP AGAIN".
6. Do NOT be afriad of letting your profits run. THE BEST RESULTS ARE ACHIEVED BY PEOPLE WHO KEEP SELLING DUD STOCKS EARLY, BUT HANG ON INDEFINITELY SO LONG AS A QUALITY STOCK CONTINUES TO PERFORM, AS A COMPANY ESPECIALLY (MARKET RESULTS WILL FOLLOW). THE RISES WILL EASILY OUTSTRIP THE LOSSES, IF THIS POLICY IS ADOPTED.


----------



## michael_selway (6 February 2006)

Nick Radge said:
			
		

> bullmarket,
> That's a neat little calculation. Would I be correct in saying that ANZ, currently trading at around $25.00, has a NPV of $29.31 and would therefore fit your criteria?




Hi Nick, how did u get NPV for ANZ of 29.31

Nick/Bullmarket, what would get for NPV of EXL and GTP?

1) EXL = $7.60

Earnings and Dividends Forecast (cents per share) 
2005 2006 2007 2008 
EPS 49.3 57.9 84.9 108.8 
DPS 24.0 30.0 43.2 58.0 

2) GTP = $3.69

Earnings and Dividends Forecast (cents per share) 
2005 2006 2007 2008 
EPS 41.7 45.6 57.5 62.7 
DPS 14.0 16.5 21.5 23.5 

Thx

MS


----------



## bullmarket (6 February 2006)

Hi Nick 



			
				Nick Radge said:
			
		

> bullmarket,
> That's a neat little calculation. Would I be correct in saying that ANZ, currently trading at around $25.00, has a NPV of $29.31 and would therefore fit your criteria?




I'll use data from Commsec to see what NPV I would get for ANZ.

Current Share Price = $25.10
Forcast 2006 Div    =  $ 1.19
Forcast 2007 Div    =  $ 1.30
Forcast 2007 EPS   =  $ 2.05
'Fair' PER for ANZ    =  15
Risk Free Discount Rate = 5.5

*Calculation:*

Potential Price target = 15 x 2.05 = $30.75

Potential TOTAL 2 yr Value of Investment (share price rise + divs) 

30.75 + 1.19 + 1.30 = $33.24

Now I discount that $33.24 back to todays NPV using the 5.5% discount rate.

NPV = TR/((1+I)^n)

Where

NPV = Net Present value of the $33.24 total return
TR = Total Return
I = Discount Rate
n = number of years
^ = to the power of

NPV = 33.24/((1+0.055)^2)

*My NPV for ANZ = $29.86* (so near enough to your $29.31 )

My personal criteria for this test to pass is that the current share price needs to be at least 10% below the NPV.  Therefore since the current share price at $25.10 is 15.9% below my $29.86 NPV, ANZ would pass my NPV test.

But please bear in mind, as I described in my original post, I do a series of 5 tests. My NPV has only a 10% weighting in the total score from the 5 tests and so I would not buy ANZ if it passed the NPV test but failed to get a sufficiently high enough score from the other tests to rate it as a buy overall on fundamentals.

Hope this helps..

bullmarket


----------



## bullmarket (6 February 2006)

Hi Michael



			
				michael_selway said:
			
		

> Hi Nick, how did u get NPV for ANZ of 29.31
> 
> Nick/Bullmarket, what would get for NPV of EXL and GTP?
> 
> ...




geeeeee.....looks like you've done 90% of the work already by getting most of the data together   

All you still need is what you think a 'fair' PER would be for those 2 companies (and that's always the tricky bit using this method  ) and you need to nominate your 'risk free' discount rate.

I use a risk free discount rate of 5.55% since the cash component of my portfolio is kept in one of those online only bank accounts (like ING Direct, Esanda Saver etc etc) which currently pays 5.55%pa.  

cheers

bullmarket


----------



## michael_selway (6 February 2006)

bullmarket said:
			
		

> Hi Michael
> 
> 
> 
> ...




Ok risk free rate 6%
Fair PE 12

Btw u know forecast EPS, why only 2 yrs as opposed to 3+yrs or 1yr etc?

thx

MS


----------



## bullmarket (6 February 2006)

michael

It's a personal preference.  I don't place too much weight on forcasts that are more than 2 years out because especially in today's global political and economic environments there are too many unknowns and variables which could influence forcasts in the short term, let alone forcasts for 2+ years out.

cheers

bullmarket

ps....now that you have all the data, maybe have a go at plugging them into the process I described earlier and see what NPV you come up with......shouldn't take you more than a few mins since you have all the input data now...


----------



## michael_selway (6 February 2006)

bullmarket said:
			
		

> michael
> 
> It's a personal preference.  I don't place too much weight on forcasts that are more than 2 years out because especially in today's global political and economic environments there are too many unknowns and variables which could influence forcasts in the short term, let alone forcasts for 2+ years out.
> 
> ...




Yeah ok lol

EXL

Current Share Price = $7.60
Forcast 2006 Div = $ 0.30
Forcast 2007 Div = $ 0.43
Forcast 2007 EPS = $ 0.85
'Fair' PER for EXL = 12 (this is quite conservative imo)
Risk Free Discount Rate = 6 (this is quite conservative imo)

*Calculation:*

Potential Price target = 12 x 0.85 = $10.20

Potential TOTAL 2 yr Value of Investment (share price rise + divs) 

10.20 + 0.30 + 0.43 = $10.93

Now I discount that $10.93 back to todays NPV using the 6% discount rate.

NPV = TR/((1+I)^n)

Where

NPV = Net Present value of the $10.93 total return
TR = Total Return
I = Discount Rate
n = number of years
^ = to the power of

NPV = 10.93/((1+0.06)^2)

My NPV for ANZ = $9.73 approx

1- 7.6/9.73 = 21.89% below NPV

Using Target conservative low PE 12 and high Risk Free Rate 6%

-------------------------

Also why 10% below NPV? is it better to just to make "Fair PE" lower instead?

thx

MS


----------



## Nick Radge (6 February 2006)

I used a PE of 14.7 and a price of $24.91, therefore the slight difference.


----------



## TheAnalyst (6 February 2006)

Hi Bull

Have you got a nice demonstration for mining stocks...bit harder as u need estimated cashflows...here is one of my little tricks because with out some guidance from the analyst reports in regards to cashflows and so many different assumptions  i just get their p/e and realise that a mining stock p/e is just a indirect result of the dcf calculations brang back to NPV so i just consider the per as the life of the mine in yrs or how long it will be before all there known productive resources will be consumed.


----------



## Double Six (6 February 2006)

the only 'fundamentals' which I suspect are of value is the Chairmans/Presidents statement.

you have to read between the lines sometimes, but he is not going to hang himself out to dry.


----------



## carpets (7 February 2006)

TheAnalyst said:
			
		

> Have you got a nice demonstration for mining stocks...bit harder as u need estimated cashflows...here is one of my little tricks because with out some guidance from the analyst reports in regards to cashflows and so many different assumptions  i just get their p/e and realise that a mining stock p/e is just a indirect result of the dcf calculations brang back to NPV so i just consider the per as the life of the mine in yrs or how long it will be before all there known productive resources will be consumed.




Analyst, are you saying that bullmarkets technique can only be used within some sectors? Would you use his method in dealing with, say HDR WPL OSH STX COE etc? how would you factor in those variables that you talked about such as estimated cash flow?


----------



## TheAnalyst (7 February 2006)

carpets said:
			
		

> Analyst, are you saying that bullmarkets technique can only be used within some sectors? Would you use his method in dealing with, say HDR WPL OSH STX COE etc? how would you factor in those variables that you talked about such as estimated cash flow?




Thats the big problem all you can do is go by analyst reports on the company web page....hdr is a problem as i said in the hdr thread...all you can really do is get an idea from the analyst reports as they have been given a bit more access to the company accounts and are aware of their costs. Most financial sections of the newspapers do not quote mining company P/E's as they are aware this is not the case but the herald sun.

You must find a rough area that would be a correct price and then as new discoveries and the length of time before it becomes full operational and looking at spot prices as well as taking note of the hedge arrangements that each company has arranged on its resources then adjust the price accordingly e.g. when oil jumps a lot in value what does that mean to the company earnings and you have to look at what the analysts have previously valued the share price at and then go from there.

See how difficult it is thats why you need estimates of each discovery and time estimation to actual production and everything else.


----------



## bullmarket (7 February 2006)

Hi michael



			
				michael_selway said:
			
		

> Also why 10% below NPV? is it better to just to make "Fair PE" lower instead?
> 
> thx
> 
> MS




The 10% below NPV is purely a personal preference in the context of it being seen as a 'risk premium'.

The reasoning/logic behind this is that if the NPV of my calculated potential 2 yr return turns out to be equal to the current share price then there would be no point in my buying the shares at the NPV price, and so carry the inherent risk of investing in shares, when I could get the same return in 2 yrs time invested in cash or whatever at my 'risk free' rate with virtually no risk of my investment losing value.  

Hence I have a personal limit that the share price must be at least 10% below my NPV to compensate for the inherent risk of holding shares.

Hope this helps.

bullmarket


----------



## Knobby22 (7 February 2006)

I like to look three years out precisely because many people stop at two for their analysis.

This works particuarly where you know that mitigating factors negatively effect one of he first two years or when you know that something is planned to happen in the third year e.g. oil well comes on stream.

There is also the fact that the estimate made is still a guess. I prefer to make my own estimate before checking analysts as they can often be too conservative.


----------



## bullmarket (7 February 2006)

Hi Analyst



			
				TheAnalyst said:
			
		

> Hi Bull
> 
> Have you got a nice demonstration for mining stocks...bit harder as u need estimated cashflows...here is one of my little tricks because with out some guidance from the analyst reports in regards to cashflows and so many different assumptions  i just get their p/e and realise that a mining stock p/e is just a indirect result of the dcf calculations brang back to NPV so i just consider the per as the life of the mine in yrs or how long it will be before all there known productive resources will be consumed.




Unfortunately I don't have a demo for mining stocks.

But to put things in perspective, the method I use to calculate my potential future total investment value

ie....potential future value = (forcast EPS x 'fair PER') + dividends

is highly dependent on having a good idea on what the market sees and/or will see as a fair PER for the stock and the quality of the EPS and DPS forcasts. (I tend to use Commsec's forcasts as they are generally an average of up to 7 brokers for some stocks).

For mining and speculative stocks, forcasting future PER, DPS, EPS can obviously be highly subjective and open to debate and so you could easily have a large range in the potential future value estimations.

I am basically a low risk investor, sticking to so called 'bluechips' and so their forcast EPS,DPS and PER are generally more easily predicted and less volatile everything else being equal. So the above method is a little more reliable for those type of stocks as opposed to speculative stocks.

cheers

bullmarket


----------



## TheAnalyst (7 February 2006)

I am glad to see that you are right on the ball bullmarket...for the average person out here that does not have direct access to a mining company accounts it is very difficult to place a value unless you get some official analyst documents like the one Shaws did for MGX and even then it can be very subjective. The most simple calcualation i can use is the cost to get the commodity for sale in the relavent unit of measure and then what is the profit above this cost and how the spot price influences the profit.

One of the best unhedged plays in the market at the moment i think would have to be anzon as they know exactly how many barrels they will achieve each week and they have control over their own infrastructure and they are unhedged.

I am also noticing the banks of late are getting away from their fundamental per.


----------



## michael_selway (7 February 2006)

bullmarket said:
			
		

> Hi michael
> 
> 
> 
> ...




Yep thats true

Ill probably adjust the "Fair PE" lower by 10% etc

thx

MS


----------



## bullmarket (7 February 2006)

no problem MS 

but please bear in mind, since the last few posts in this thread have been focussing on NPV, that as I mentioned in my earlier posts NPV is only 1 of 5 tests that I go through and whether a stock passes or fails the test has only a 10% weighting in the overall stock's score for those 5 tests.  NPV is not my main fundamental criteria.

I've given NPV only a 10% weighting since as I also mentioned earlier it is highly dependent on having a good idea of a stock's fair PER and having reliable EPS,DPS forcasts.

So it's quite possible a stock can fail my NPV test but gain high enough scores in the other 4 tests (see earlier post if interested) to pass my fundamentals/valuation tests overall.  

So please don't anyone think I use NPV solely or am suggesting it should be the only or main fundamental criteria to decide whether to buy or sell.  It's just one of many options.

cheers

bullmarket


----------



## BSD (18 March 2006)

You shouldnt use PE analysis for most miners due to finite mine lives. For instance, ZFX has a mine life for as low as 6 years - so using a PER means nothing. 

A proper NPV of future cashflow is my preferred way to value smaller 'single mine' companies. 

Work out the annual cashflows based on production less costs and discount back at a suitable discount rate. 

Take off the company's debt and you have the NPV of the operating company. Divide buy fully diluted number of shares (issude and options) and you have a share valuation. 

The art is in predicting commodity prices out for sometimes in excess of 10 years and choosing the right discount rate. 

The discount rate needs to be adjusted to reflect risk. An undeveloped project may have a high rate of 15% while steady producers can have a rate as low as 8%. 

The definitive fasibility studies will usually have the expected annual production and unit cost details. 

You will also note that major gold companies tend to be trade at massive premiums to NPV. I need to put $700USD gold for the long term into my LHG model to get the $2.70 valuations being talked up at the moment. 

Doing some homework like this allows you to be a lot more comfortable when your mining companies are swing around windly. 

Having a proper opinion about a price allows you to buy cheap stock when  the techos are selling because the graph looks bad. 

These opportunities often present themselves when a big player is selling out a large position in an illiquid stock and the techs get caught watching a chart instead of calling around to find out what is really happening.


----------



## bullmarket (18 March 2006)

Hi BSD

Yes I generally agree with you re the use of PER's.  In my fundamentals model I described earlier I give my PER and PEG tests only 10% weighting each in the final score for the stock.

I also use my model for industrials only (excluding banks and LPT's) due to the basis of the Altman Z-Factor my model uses as one of its tests.

cheers

bullmarket


----------



## michael_selway (18 March 2006)

BSD said:
			
		

> You shouldnt use PE analysis for most miners due to finite mine lives. For instance, ZFX has a mine life for as low as 6 years - so using a PER means nothing. QUOTE]
> 
> Hi for ZFX are u refering to the Century Mine having 6 yrs left? what about the other mines they own?
> 
> ...


----------



## BSD (19 March 2006)

ZFX have only two mines - Century and Rosebury. 

ZFX have proven reserves (from both mines) to around 2014. It all depends on production levels and drilling success. I understand capex has been brought forward to accelerate the expansion of production at Century

Mine life will more than likely extend beyond this date but like most 'modern miners' they refuse to 'risk' greenfield projects

I will get back to you with other Zinc plays and more info.


----------



## ducati916 (20 March 2006)

Underlying much of the discussion relating to fundamentals and technicals are the individuals requirements and aspirations with regard to the financial markets.

If you have decided to utilize the financial markets as a means to an end, human nature being what it is, you tend to pick the fastest route to your destination.

Technical analysis as a methodology is easy to understand, anyone can spot a pattern in a historical chart, thus they jump to the conclusion that they too can derive a profit from utilizing chart based and technically enhanced analysis techniques.

Fundamentals, derived from reading and analysis of financial statements looks suspiciously like work. The language of finance is jargon, and numbers, not an appealing combination to many. This methodology would require much work and preparation prior to any thoughts of jumping into the market.

Thus, technical analysis becomes almost by default the starting point of the majority of new retail traders, and the graveyard for many of them.
Technical analysis in of itself is practically worthless.
What makes you the money in a technically derived methodology are in equal measure; *robust money management (not just a stoploss) & appropriate psychological responses to generated money management rules* 

Any weakness in the two, will even in a bull market cause losses.
In any market other than a bull, they will probably see the loss of your trading capital, or worse if you have utilized leveraged instruments within your trading (CFD's & Futures) the loss of everything.

What may also becoming apparant is that Fundamental analysis has specific techniques for generating a valuation within different industries.
Mining industries have different dynamics than say the banking industry.
The valuation metrics are logically also different.
One size does not fit all..................more work.

Technicals again appeal, as hey, one size fits all.
Technicals carry due to their inherent flaws, much higher risk.(Why you need a stoploss & elaborate money management techniques in the first place) 
Technicals are an extremely lagging form of analysis. (Who do you think breaks or starts  a "trend"?)

Technicals are popular due to their ease of accessability, seemingly (in hindsight) ease of application, ease of profitability, and consistent lack of any cognitive application as to the inherent flaws.

jog on
d998


----------



## BSD (20 March 2006)

ducati916 said:
			
		

> Technical analysis as a methodology is easy to understand, anyone can spot a pattern in a historical chart, thus they jump to the conclusion that they too can derive a profit from utilizing chart based and technically enhanced analysis techniques.
> 
> Fundamentals, derived from reading and analysis of financial statements looks suspiciously like work.
> 
> ...




I struggle not to agree here. 

Apart from fundamental valuation, having your finger on the pulse and knowing 'why' stocks are behaving the way they are by knowing 'who' is buying/selling, 'who' owns the stock and when big sellers and buyers are finished is far more important than looking at a chart. 

No broker codes has made it harder - but you can still do it (with a lot of homework). 

I am new here, but have been amazed by the constant stream of excitement about dross shares that are forming all sorts of patterns. 

Dodgy stocks where insiders are pinning their ears back into an announcement are 'breaking out'. The techs pile in, the announcement comes and the stock tanks.

The language of 'money management' echos that of professional gamblers and poker players running their books. I follow the same discipline in running a sportsbook - but invest entirely differently. 

In illiquid stocks, you could make any formation or pattern you want with a little bit of money and some mates.

Many of these strategies are laughable when you try and swing a decent line. Try and get set for $200K in some of the stocks being 'traded' here and you would create your own 'break out'. 

*If you are making money - all power to you. * 

But the biggest money I have seen made on the market is from investors who can see the value of a project years into the future and hold stocks through all sorts of patterns while they go from idea to producer. 

FMG was once 10c
PDN was once 0.7c
EQN was 30c only twelve months ago

They all have had 'double tops', 'resistance failures' and all sorts of 'patterns'  but are making people serious money for being patient and understanding an idea.


----------



## TheAnalyst (20 March 2006)

Fundamentals are so important, just looking at a chart cannot tell you why a bank is priced and what the pricing models for banks are. a chart cannot tell you what corporate accounting and financial accounting does to cause a stock to priced the way it is or dictate what the per of a banking or financial stock is ment to be.

Once the fundamentals are established and what the current news or micro economic scope to the stock are then you can look on a chart and put a price range that a stock will trade in to the highest probability. This creates the chart trend and as profits increase/decrease or forecasts become positive/negative they will produce patterns from the volume of buyers and sellers.

Its fundamentals that have kept me in the GTP trade and they are confirmed when a guy i know who knows nothing about investments and a bluecollar worker tells me about this great investment he got into and you get the loan and the tax deduction from the same planner and same MIS...this is GTP. The chart does not tell you this it is this that holds the chart.

Years ago i knew absolutely nothing about the stockmarket...i only got to know it because one day i said to myself there must be an oppurtunity to make some wealth and its right in front of me and i happened to have the heraldsun in front of me and said ok it must be in here. But where and then it came to me which is the only part you dont read? the shares cos i dont know how the heck it works so i had a look.

I noticed the twelve month highs and the twelve month lows and thought sh*****t what have i just got money in the bank and at the same time there was the chemeq float and a story in the heraldsun and a broker number doing the float so i rang but the IPO had been fully taken up at 15 cents a share...so i went away and thought about it and got the yellow pages and closed my eyes on the stockbroker page and let my finger land without looking and it landed on a Shaws stockbroker and i went from there. The broker gave me a senetas recommendation and put $7000 in and i got the shock of my life when it jumped and my dough went right up after that i was buying and sellin at a 2% commission on every trade until it was time to go to a discount broker.

After the tech boom and all the tech analysis books i read the market just never responded to the chart patterns like a high speed I.T. sector did and i could never make those fast gains again. I remeber sitting at the ASX with a chart book opened and the chart up on the screen trying to find and catch a buy or a sell pattern. It was never the same so i decided to try the futures market and trade the spi.

I set up a market cast live areal data at home that gave live prices and charts right up to the very second and had the phone by my side as there was no internet trades at the time and a bucket because i didnt have time to go to the toilet from the lounge room at home. i bought and sold on every mv crossover and sold on every down mv crossover and then the day when the market shot up i wasnt home i had to duck out so missed the big one it had something to do with interest rate, back then i had not done the macro and micro economic subjects that i have done now so it ment sh**t to me and i quit the futures trading with a $700 loss which i found out wasnt to bad back then for someone like me.

I wondered and wondered how does the market price shares so i decided to go back to school and learn and it is the fundamentals and always will be the fundamentals a chart can just help visualise with patterns that the fundamentals are intact and confirm or not confirm.

This is just a summary as i could write all day so sorry if i have missed anything out.


----------



## tech/a (20 March 2006)

Opportunity isnt exclusively available to Fundies.

Techies find it perhaps even easier and with less effort.
Posted over 12 mths ago on Reefcap


----------



## TheAnalyst (20 March 2006)

Fundamental analysis but only warming up now...


ANZIMP	17/03/06 15:56	318607	Buy	2400	3.69	8,875.80	Fi
ANZIMP	20/03/06 10:21	318720	Sell	2400	3.77	9,055.70

ANZIMP	16/03/06 10:05	318053	Sell	5000	3.99     19,920.30 
ANZIMP	15/03/06 15:42	317943	Buy	5000	3.76	18,829.70		
ANZIMP	15/03/06 10:45	317737	Buy	2600	3.83	9,977.80
ANZIMP	15/03/06 12:34	317821	Sell	2600	3.89	10,084.30

BHPIZE	10/03/06 10:08	316717	Buy	2400	2.72	6,547.80
BHPIZE	13/03/06 11:07	317116	Sell	2400	2.91	6,964.20

RIOIZL	09/03/06 11:00	316435	Buy	400	14.92	5,987.80
RIOIZL	09/03/06 13:45	316558	Sell	400	15.18	6,052.20

WBCIM5	08/03/06 15:41	316266	Sell	3400	3.03	10,272.30
WBCIM5	08/03/06 15:12	316251	Buy	1400	3.02	4,247.80
WBCIM5	08/03/06 12:57	316198	Buy	2000	2.94	5,899.80

ANZIMP	08/03/06 12:18	316171	Sell	2800	3.77	10,526.30
ANZIMP	06/03/06 10:08	315354	Buy	2800	3.56	9,987.80

ANZIMP	01/03/06 15:59	314648	Buy	1500	3.51	5,284.80
ANZIMP	02/03/06 13:08	314883	Sell	1500	3.62	5,410.20

ANZIMP	28/02/06 15:57	314329	Sell	1980	3.83	7,563.60
ANZIMP	28/02/06 10:46	314162	Buy	1300	3.69	4,816.80
ANZIMP	27/02/06 13:40	313926	Buy	680	3.66	2,508.60

HDRIZK	21/02/06 15:40	312465	Sell	2400	0.44	1,036.20
HDRIZK	07/02/06 15:58	308947	Buy	2400	0.41	1,003.80

ANZIMP	10/02/06 15:36	309912	Buy	1600	3.08	4,947.80
NZIMP	17/02/06 10:21	311422	Sell	1600	3.18	5,068.20

FEA 	10/02/06 10:49	309758	Buy	6000	0.57	3,439.80
FEA 	28/02/06 16:01	314336	Sell	6000	0.62	3,700.20


----------



## BSD (20 March 2006)

tech/a said:
			
		

> Opportunity isnt exclusively available to Fundies.
> 
> Techies find it perhaps even easier and with less effort.
> Posted over 12 mths ago on Reefcap




That is excellent. 

I would be confident the same guy buying would have dusted-out his PDN for a 10% gain or similar. 

Anyone who bought based on a line going up one day would have found a billion reasons to sell since. 

In fact, the same bunch of techs who bought at 60c on the 'break' would have sold a $4.00 stock at $0.70 because it hit their targetted gains. 

The fall in price would have sparked more transfer of wealth from the impatient to the patient.


----------



## BSD (20 March 2006)

By the way - I haven't studied PDN so have no idea whether it is worth $4.00 or $0.007


----------



## It's Snake Pliskin (20 March 2006)

Here are some very good ......... that seem to work in bear and bull markets for fundamentalists.

1. In a bear market put your money into a high interest bearing account.

2. In a bull market take it out and invest with cool and the gang, and make money like everybody else.

Point 1 allows prophecy to be accurate.

Point 2 could exceed or not reach one`s expectations.



> Fundamentals are so important, just looking at a chart cannot tell you why a bank is priced and what the pricing models for banks are. a chart cannot tell you what corporate accounting and financial accounting does to cause a stock to priced the way it is or dictate what the per of a banking or financial stock is ment to be.




No, but it will tell you what people are thinking; those who hold, buy, or sell. 

Revelation: the market decides the stocks price. :bekloppt:


----------



## tech/a (21 March 2006)

*BSD*



> In fact, the same bunch of techs who bought at 60c on the 'break' would have sold a $4.00 stock at $0.70 because it hit their targetted gains.
> 
> The fall in price would have sparked more transfer of wealth from the impatient to the patient




In general terms I agree,There is a discussion on Discretionary V Mechanical trading on a sister thread.

However Techies can also "take the ride" if warrented below is the current holdings of a Method I trade live on "Reefcap" and have done so since 2002.

Note the age of some of the holdings.The average length of holding winning trades with this method is around a year.


----------



## nizar (21 March 2006)

tech/a said:
			
		

> In general terms I agree,There is a discussion on Discretionary V Mechanical trading on a sister thread.
> 
> However Techies can also "take the ride" if warrented below is the current holdings of a Method I trade live on "Reefcap" and have done so since 2002.
> 
> Note the age of some of the holdings.The average length of holding winning trades with this method is around a year.




wow, u seemed to have picked some winners there. Nice one. 
Are these all the stocks u bought in that time, or have u chopped the ones that werent performing ?


----------



## bullmarket (21 March 2006)

hi nizar



			
				nizar said:
			
		

> wow, u seemed to have picked some winners there. Nice one.
> Are these all the stocks u bought in that time, or have u chopped the ones that werent performing ?




I like your style  - I don't just blindly believe everything I see in chat forums either   and the more aggresive people are to those that don't blindly believe them the more confident I am there is a hidden agenda driving their original claims 

cheers

bullmarket


----------



## michael_selway (21 March 2006)

tech/a said:
			
		

> *BSD*
> 
> 
> 
> ...




Hi not bad dude! i have WOR and ZFX around your prices and time as well! (i started buying shares late last year)

https://www.aussiestockforums.com/forums/attachment.php?attachmentid=2843&stc=1

Btw have u got a file without using "Average Price"? Like if u topped up, make a seperate line item, so we know if the "top up" was any good or not

thanks

MS


----------



## tech/a (21 March 2006)

nizar said:
			
		

> wow, u seemed to have picked some winners there. Nice one.
> Are these all the stocks u bought in that time, or have u chopped the ones that werent performing ?





*Nizar.*
Its a Mechanical trading method. Its been running now for nearly 4 yrs.
There have been trades both exited by stop loss and exited by exit criteria.
The results log is updated each week and has been since inception.
Initially we decided to run it as if it was traded on Margin as many were interested then on using some leverage (At the time CFD's werent around).
So we used $30K starting capital and $70K from the lender.
As you can see results are around $300K less the $70K = $230,000 from our original $30k in 3.5 yrs. No smoke no mirrors actual verifyable results.

When Reefcap altered format last year only the results from page 14 were kept.Discussion prior to that is also missing.
I however took copies of the discussions on Reefcap for the first 2.5 yrs and am happy to post a disk to anyone who wants it---free . Just private mail me with a postal address and Ill send a copy off. (Its far to big to email)


There is a full rundown on the method here 
http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=forum;f=74

There are 100s of pages on the Method from developement to various testing and hybrids discussed and tested on other bourses.

The method Techtrader or T/T for short has been traded within its criteria through out that time.

*Bulldust*

What would the alteria motive be.Youd think that in the years Id been posting that any motive would have been posted before now.
Let me know when you find it.

*None are so blind as those who cannot see.*

Perhaps you should investigate before opening mouth.

*Michael*
Average price is just the heading Daryl (no not Guppy) has used as a heading
There is only one trade I remember that we bought 2 parcels and I'll have to look back to see which it is and wether its still open.All other trades were parcels of $10,000 then once 150K positive Nett $15,000.

Darryl has a full auditable record of all trades since inception if anyones interested. Private mail me and Ill email that.


----------



## bullmarket (21 March 2006)

no problem tech/a   

I see that you still resort to childish and immature name calling when someone posts something you don't like - but no matter, as I said the more aggresive someone is towards those that don't blindly believe them the more confident I am there is a hidden agenda behind their posts 

You also seem to be under some delusion that I (or anyone else for that matter) am under some sort of obligation to blindly believe anything you post. *The simple undeniable fact is that I am not. * and so I will continue to exercise my 100% right to not believe any unsubstantiated claims especially in chat rooms - and I don't see why you take my choosing to not believe everything I see personally.  It's a well established fact over at Commsec and elsewhere that I don't blindly believe unsubstantiated claims in chat rooms.  

*You might claim you have substantiated claims but not to me you haven't because I have no way of knowing who is actually sitting at the tech/a keyboard at any given time just as you have no way of knowing who is sitting at the bullmarket keyboard at any time...it's as simple as that  * 

So I will just continue to post what I like when I like and if you don't like it then why not put me on on your ignore list as I suggested recently......it's a simple solution for you 

Have a relaxing evening and I'll see you in the soup.

cheers

bullmarket


----------



## tech/a (21 March 2006)

No problems Bulldust.
Its really Alan Greenspan---damn the cats out!
And the Deli Lama


----------



## tech/a (21 March 2006)

> You might claim you have substantiated claims but not to me you haven't because I have no way of knowing who is actually sitting at the tech/a keyboard at any given time just as you have no way of knowing who is sitting at the bullmarket keyboard at any time...it's as simple as that




Actually I'm interested in this statement.

How does it have any bearing on substantiating records available from Reefcap? Everything is from their site not something I have typed up myself.
Its a download of archives.

I believe you invest in companies?
I suppose you do a background check on the accountant/s.

Hmm interesting thinking I fail to see relevance.
Other than attempting (enthusiastically) to discredit the credible.


----------



## nizar (21 March 2006)

bullmarket said:
			
		

> You also seem to be under some delusion that I (or anyone else for that matter) am under some sort of obligation to blindly believe anything you post.




Sorry to butt in, but tech/a doesnt seem to be under some delusion to me.

Who said u must believe everything you read?

His record is enviable, but achievable with experience im sure. If he wouldve told me he just picked 20 stocks and they all did well then i wouldve doubted him but he used stop losses and he has made losses along the way, as every trader would have.

Look at his number of posts and his reputation on this forum. They speak for themselves.

Notice that when he posted that record, u were the only one to reply negatively. Were u the only one to think he might have made it up? No, several people may have thought this. But they kept their thoughts to themselves. Maybe u should consider that. If you dont have anything good to say, good meaning inquisitive, constructive, etc, then maybe best to keep 2 yourself.

Have a lovely evening and best of luck in your endeavours, Bullmarket.


----------



## It's Snake Pliskin (21 March 2006)

nizar said:
			
		

> Sorry to butt in, but tech/a doesnt seem to be under some delusion to me.
> 
> Who said u must believe everything you read?
> 
> ...




Yes and he seems to go beyond generalising and sprouting on about "Trading with a plan" by kendall....blah, blah..


----------



## TheRage (18 October 2006)

Sorry to dig up an old thread. I am obviously new here and have a question regarding the NPV technique described at the beggining of this thread. I was just wondering how a 1 for 3 share offer or a company buyback would affect the NPV model. More specifically does this dilute the models effectiveness. While I undertand the model is looking at my required rate of return what I am really looking for is a method for determining the fair value of a stock. I appreciate that a stocks value is a multifacited entity but does anyone have any other mathmatical ways of determining the value of stocks from a fundamental perspective. I am a value investor if this is pertainent.
Cheers
Ryan


----------



## Realist (28 February 2007)

TheRage said:
			
		

> Sorry to dig up an old thread. I am obviously new here and have a question regarding the NPV technique described at the beggining of this thread. I was just wondering how a 1 for 3 share offer or a company buyback would affect the NPV model. More specifically does this dilute the models effectiveness. While I undertand the model is looking at my required rate of return what I am really looking for is a method for determining the fair value of a stock. I appreciate that a stocks value is a multifacited entity but does anyone have any other mathmatical ways of determining the value of stocks from a fundamental perspective. I am a value investor if this is pertainent.
> Cheers
> Ryan





Well if a company has a 1 for 3 share offer it should in theory not change the value of the company.

A buyback should not change the value of a company either - because they are paying for shares with their money.

Both however should change the value of the shares though.

If you get my drift.  10 shares of $1 are worth the same as 2 shares of $5.




> but does anyone have any other mathmatical ways of determining the value of stocks from a fundamental perspective




In purely financial terms for large multinationals that make consistent profits...

Add up the last 5 years Net Profit after tax times that by 4 (maybe adjust a little to (add in assets minus liabilities)).  That should give you a very approximate Market Cap - which you then divide by the number of shares outstanding to get the share price.

This will work for a bank or large company for instance, but a Uranium explorer - no hope, a whole different ball game. Don't even start on that.


----------



## brendan87 (28 February 2007)

Hi everyone. I dabble in a bit of fundamental analysis and it seems just as daunting as tech. when starting out. I've picked a solid portfolio of growth companies that has done really well (I'm positioned for 3+ year 'buy and hold' strategy) and here are the broad criteria I use to pick stocks:

- EPS growth > 20% (and expected to remain >20%)
- EBIT margins that are increasing (good indication that management is strong)
- High EBIT margins (depends on what sectors you like, but 30%+ is good, because it means the company can easily turn sales/revenue into profits). In the company reports - I like to see NPAT and EBIT increasing faster than revenues, that way if revenues drop due to exogenous factors, your earnings can still increase.
- They have to have a growth strategy: I like growth by acquisition. But I'm also in to growth via overseas expansion (anything with the word China works) as well. Growth by product innovation/invention is good (if backed by cash flows frome xisting products). Growth by LBO ?? lol
- I like to see high gearing ratios (what ever you feel comfortable with, as if it were your own business, which really it is when you buy shares because you take ownership) - it means the company knows how to use its capital, has a growth plan and remember the risk / reward potential of gearing! It's also a good idea to research where the funds are being employed (a major acquisition or expansion ?) and also the interest cover (so you can assess whether you think the company is overstretched)

- This point is more a reflection of my personal strategy, but maybe other can relate to it. I look for higher than average PE ratios and lower div. yields when finding growth stocks. A GOOD stock with a high PE (look historial as well) you will notice has probably always traded above the market and still produced stellar returns. Some high PE stocks are priced that way because they have a history of delivering (and exceeding expectations). I remember reading some surprising statistics in a book I had about how statistically, high PE stocks perform better over the long-term and an anaylsis was done that excluded stocks with PEs over 40 (in the US) and the hypothetical portfolio severely underperformed. It's also a sign investors have confidence in the board to deliver....may be unfounded...and it may bite you later if they don't deliver....but I don't touch low PE stocks because they say don't give off confidence and the prospect of growth. But that's just my opinion. Onto div. yeilds...another one of my beliefs is that high yeild stocks say to investors "we can give you a better return by sending you a cheque than reinvesting in our business" - another negative signal in my opinion. Low div. yeild means the plough-back from earnings is high and is likely to generate future growth that will exceed the value to shareholder of a dividend today. By declaring lower dividends and increasing plough-back the board is showing confidence that even given the time value of money and investors required returns - they think you are still going to be better off by improving and growing the business internally than simply throwing money at shareholders. This is a positive signal. 

This philisophy is great for l-t holds on growth companies. It's not to say I don't buy companies for short-term trades that don't meet those criteria, I've made plenty of money on stocks with high-yields/low PEs etc that were favourable placed in the market at a given time - but I wouldn't consider making a long-term committment of my hard-earned in these companies. 

But fundamental analysis is a valuable tool and like others in the topic - shouldnt be used in isolation either. Market dynamics and tech. analsysis can be complimentary to fund. analsysis. Just like tech. it comes down to what you know and remember the best trading/investing systems are not always the most complex. But understanding the world of fund. analysis has inspired me to undertake a Bachelor of Commerce in Accounting so I'm hoping my depth of knowledge will grow and I can make much more informed investment decisions that the few indicators I use at the moment. But I think the important thing is to make sure you really understand the fund. indicators (what drives them, compare them between firms and sectors, look at averages, what they're commonly used for, and what they can tell you about the business.... and the 'positive' and 'negative' "signals" that I like to refer to   before you start making decisions based on them.


----------



## hongwong (7 May 2007)

I use Fundamental Analysis to stock pick.

If the books told the whole story about the books, I believe accountants would be the richest people in the world.

I like to go one step more and do investigation into the stock 
I am in. Really look into the business. 

I would even do this if I was a "chartist", which I am trying to learn.


----------

