# Value & Growth Investing Criteria



## skip9

Hey guys,

Been in the market a little while, had some good gains and some loses as well. I'm at the point now where i've been researching and realised i should put together some sound criteria and strategies. At the moment I have decided upon 3 separate portfolios, all holding a set % of my investing funds - Value, Growth and Speccies (Everybody needs some play time right). I am only 21 and have a decent amount in investing but am ultimately investing for future property investments.

What I am looking for is what people generally look at when search for Value and Growth Stocks, things such as ratios - what ones are important and what their targets are for each - ROE, P/E (High P/E for Growth, Low P/E for Value) and so on? It is a pretty broad subject but i figured if everybody expressed what they find important and what their criteria is it will help us all out!


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## Macros

Skip 9,

If you need three different investment portfolios, it means you have no clear strategy for investing and don't know what you are doing. This means that you are prone to make unclear decisions in the future as you have no absolute strategy.

However, you could for example invest on a value basis and use technical components for entry and exit.

In my opinion, you can't have different metrics for each portfolio. It is like splitting part of your brain into different sections and hoping that everything works out well. I guess this is fine for socio-paths but for the rest of us it doesn't work out well.

Value and growth strategies are not mutually exclusive. Speculative investments are mostly like gambling and unless you have a significant knowledge of the business process, you might as well throw you money away.


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## skip9

Marcos - Thanks for your input, I see where your coming from and it has made me re-asses my thoughts, but would it not be possible to do so and view portfolio's as separate identities?

I suppose i decided to travel along the 3 portfolio paths is in sense that it does give me a bit of safety as typically the Value will be of the larger ASX100 dividend paying stocks where as the Growth (the majority of the overall % of my portfolio) will be focused on the Mid-Cap space that may hopefully move into the ASX100 and again aiming to select a few Small Caps that may be able to establish them self's into the Mid-Caps space and so forth. 

As I'm young i figured that I should take some risk but only at the expense of all the fundamentals passing a selected criteria and thoroughly researching companies and not limit myself to one style, yet view each portfolio on a weekly review apart from the other as if i am that type of investor. I have about 15 books i want to read before i start with a proper investment stratergy, ranging from topics of Company Valuation and Financial Statements to overall Personal Finance and Asset Allocation/Diversification. After i feel sound with my Portfolio, i will start to research into Options and futures, I don't understand them at the moment, hence why i don't touch them but hopefully through researching about them I will start to understand.

I do have a bit of a draft for selection criteria that i will upload, though it is on another computer and is not completed as yet.


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## Macros

Skip 9,

The only benefit that you would have with three different portfolios would be to find out what type of investment strategy feels the best for you. You can't necessarily judge it by performance only in the short-term as it could be based on market timing and/or bad implementation.

ASX100 does not mean value or lower risk in my opinion. Same thing applies for smaller companies. It depends on the metrics of each company. Investing in smaller companies provides greater scope for growth as the larger companies in Australia are often restricted due to our smaller market size.

You can actually invest in smaller companies which are growing strongly, have relatively low risk and are undervalued. The same way you could invest in an ASX100 company with relatively high risk and is overvalued.

In my opinion, the only suitable times to invest in inferior businesses with lower quality is in times of a economic turn-around as they will benefit relatively more than a quality business based on the percentage change in earnings etc. 

At most times it is best to invest in undervalued companies which are growing and have lower risk (e.g. competitive advantage, strong market fundamentals and low debt).

To generalise, I think it is best either to be a value investor or a technical trader. There is no grow versus value in reality. If you want growth, you can invest in either over or under-valued companies and I prefer to pay less than the company is worth to give me a greater margin of safety.

Hope this helps.


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## skip9

Surely Does.

I suppose what you mentioned at the end about being value investor or technical trader is really the end point, growth investing is practically value investing as undervalued companies in some way or another should technically have growth in them.

I guess in a sense i would prefer to invest in the mid-cap space as it _generally[/B\i]__ allows greater returns (with the added risk of course) over large cap. 

In terms of metrics Macros, what do you look for, through research i have found that while ROE, Debt-Equity Ratio, EPS Growth etc are all fundamentals of valuing and establishing growth patterns but say in terms of P/E Ratio, It seems that most undervalued companies are below sector P/E while companies that are growing due to market demand have higher P/E's?

Also determining intrinsic value is obviously a key factor, how do you go about this?

As I said i am still in the mist of putting together a sound plan so your input is helping a lot!_


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## Tysonboss1

skip9 said:


> Value, Growth and Speccies




Whats your definition of value and growth.

I don't really understand how you can say you are going to have to separate funds for value and growth.


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## skip9

Value - Stocks that are undervalued to their intrinsic value. 

Growth - Stocks that are forecasting a high rate of return and are exposed to sectors that are high in demand. They may be or above their intrinsic value but have strong forecasts and metrics for excessive growth.

I understand now from Macros it is a bit of much is much and pretty hard to separate..


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## danbradster

You say your value shares will be ASX100, that's drastically different to my perception.

To me smaller companies seem far more undervalued than ASX100 companies.  Like RFG I consider undervalued with a 6% full franked dividend yield, with only 55% of profits returned to shareholders (45% retained for growth).

Would I be able to find a situation like that in the ASX100?  I doubt it...


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## skip9

danbradster said:


> You say your value shares will be ASX100, that's drastically different to my perception.
> 
> To me smaller companies seem far more undervalued than ASX100 companies.  Like RFG I consider undervalued with a 6% full franked dividend yield, with only 55% of profits returned to shareholders (45% retained for growth).
> 
> Would I be able to find a situation like that in the ASX100?  I doubt it...




Yeah I see what your getting at, I think I may need to re-asses! But this is why i posted to see other opinions! Do you mainly look for Dividend yielding stocks or is that just a bonus? In my _*original*_ plan i was going to target dividend stocks where as growth didn't matter.


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## danbradster

Most of my shares don't pay dividends, since I look for very undervalued companies.  Like companies that have problems, but they are fixing them.  The SP can be really low even though the problems will be fixed in 6 months.

Or I buy mining companies that are starting up and are trading far below their NPV.

Generally companies that I expect to have a strong future but are trading for a measly PE of 2-6.

The RFG example is not hugely undervalued at PE 10, but considering it is stable and dividend paying and trading at a 20% discount to its usual price all because of minor news, it is a BUY for me.

Another I am watching (and holding) is PBP.  It has been in a crazy downtrend even though the company reports are fine.  When they release some positive news I'll be back in.  It is sitting on a PE of 2-3.  When companies become this undervalued it doesn't take much to push them up 100%, just a couple of positive reports.  When I see a positive report I'll be doubling up.


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## danbradster

danbradster said:


> To me smaller companies seem far more undervalued than ASX100 companies.  Like RFG I consider undervalued with a 6% full franked dividend yield, with only 55% of profits returned to shareholders (45% retained for growth).




Actually, CBA almost matches that description, but I still believe that a smaller company can grow faster than an ASX100 company.


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## skip9

Definitely smaller companies can grow faster than ASX100. CBA in my original plan would be a candidate for Value if its price was lower than intrinsic value as it is low risk, dividend etc where as as you say PBP and RFG would be prime examples for Growth. Growth to me is the stage before the become well known market stocks where as value is often well known stocks trading below their value and on monthly/yearly lows etc. for some reason e.g. JB HiFi (just an example - haven't done any valuing on them)


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## Julia

skip9 said:


> CBA in my original plan would be a candidate for Value if its price was lower than intrinsic value as it is low risk, dividend etc where as as you say PBP and RFG would be prime examples for Growth. Growth to me is the stage before the become well known market stocks where as value is often well known stocks trading below their value and on monthly/yearly lows etc. for some reason



You don't mind ignoring the risk factor?

Out of curiosity I've just had a look at the above two companies.
PBP has been in a steady down trend for *two years!*.  How can you classify that as a 'growth stock'??

Following is Morningstar's comment:



> Morningstar's Recommendation: Probiotec Limited
> 
> Recommendation: Ceased coverage
> Event
> 03-Dec-2010
> 
> We have decided to cease coverage given the unreliable, disappointing performance over the last two years.
> 
> Business Impact: There is the potential for earnings to re-accelerate, but our confidence in management is not high.
> 
> The business remains inherently risky due to a reliance on weight loss meal replacement products for over half of group profit.




Certainly they're paying a high dividend, but what's the point of that if your capital investment is diminishing every day?


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## danbradster

Julia said:


> Certainly they're paying a high dividend, but what's the point of that if your capital investment is diminishing every day?




They have frozen dividends, I agree that it's not a growth share, but when it's trading at such a low PE, all it needs is a bit of good news to turn sharply upwards.  For me it's a high-risk potentially high-value share, that's why I'm waiting for positive news to make a move, to decrease the risk.


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## Macros

My forward price target of PBP is $0.57, giving it a 35% margin of safety.

However, it is declining in value which is matched by the fall in share price. Earnings are falling and return on equity over the next couple of years is around 6% (consensus forecast).

It has a large amount of debt for such a small company and cash flow isn't looking good. It seems they did a capital raising last year to top up their cash.

Unless this company has some major plans or project that can be realised within the next year or so, I think this company will remain in the doldrums and at worst go broke if their cash flow isn't improving.


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## skip9

Julia said:


> You don't mind ignoring the risk factor?
> 
> Out of curiosity I've just had a look at the above two companies.
> PBP has been in a steady down trend for *two years!*.  How can you classify that as a 'growth stock'??
> 
> Following is Morningstar's comment:
> 
> 
> 
> Certainly they're paying a high dividend, but what's the point of that if your capital investment is diminishing every day?




Sorry Julia, i hadnt actually looked at the two companies, just using them as a basis off what danbradster said.

I would be looking at companies such as AGO, MSB for growth and companies such as BTU, SPL etc for Spec. growth.


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## VSntchr

danbradster said:


> Most of my shares don't pay dividends, since I look for very undervalued companies.  Like companies that have problems, but they are fixing them.  The SP can be really low even though the problems will be fixed in 6 months.
> 
> Or I buy mining companies that are starting up and are trading far below their NPV.
> 
> Generally companies that I expect to have a strong future but are trading for a measly PE of 2-6.
> 
> The RFG example is not hugely undervalued at PE 10, but considering it is stable and dividend paying and trading at a 20% discount to its usual price all because of minor news, it is a BUY for me.
> 
> Another I am watching (and holding) is PBP.  It has been in a crazy downtrend even though the company reports are fine.  When they release some positive news I'll be back in.  It is sitting on a PE of 2-3.  When companies become this undervalued it doesn't take much to push them up 100%, just a couple of positive reports.  When I see a positive report I'll be doubling up.




Its in a crazy downtrend for a reason. NPAT guidance for half of what the earned last year...


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## danbradster

VSntchr said:


> Its in a crazy downtrend for a reason. NPAT guidance for half of what the earned last year...





Ireland manufacturing facility fully commissioned and beginning to deliver savings
First quarter weak due to soft trading conditions
Second quarter stronger due to improving trading conditions and business improvement initiatives
Q1 Revenue: 15.7m, Profit -$1.3m
Q2 Revenue: 20.4m, Profit $2.3m
Quarter on Quarter improvement of $3.6m to profit.
Revenue momentum from 2nd quarter forecast to continue in 2HY11
Contract manufacture soft but strong order book for 2HY11 (several major customers reduced inventory levels on cautious outlook, now reversing)
Export revenue gained momentum in Q2, which will continue in 2H11
FY2011 Guidance is restated at NPAT $5.2m after the first half of $1m, so guidance of $4.2m for the second half.

2HY11 Guidance of $4.2m, extrapolated to a year is $8.4m.  Market cap is $22m.  PE of 2.62 if management are to be trusted and I am correct to extrapolate on those projections.

AMA for example was another company trading around a PE of <2 after falling hard.  Now it has recovered to a PE of 4 all because of management meeting their guidance.  When/if PBP meets their guidance for another half year it will rise to at least a PE of 4.  It's my expectation at least.

I have a few if these crazy companies sitting in my portfolio, mainly sitting on 100-200% profit and waiting for the ex-CGT date.


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## Unintelinvestor

Hey I've got this checklist thing that you might find helpful


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## skip9

Thanks!

That is what i was along the lines off, getting ideas what others look for at at what %'s.

Do you score or rank companies in regards to this checklist?


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## skip9

Ok so I have a few things down that what seem to be the most common when valuing stocks. They are as follows;

The Companies Operations?
Location of Operations?
Is its location High or Low Risk?
Who are the Directors - Do they have a shareholding %?
Who are its main competitors - Does it have an advantage over them?

P/E Ratio?
EPS Growth %?
PEG?
P/B Ratio?
EBIT?
ROE
OpFCF?
Is it in Debt? - Debt-To Equity Ratio?

Now all i have to figure out it set values on each criteria. Anything i am missing or recommendations? Also going to purchase Roger Montgomerys book to help with this and intrinsic valuing.


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## kermit345

I can tell you in basic terms what my process is.

I run a scan/filter on the ASX for stocks with greater than 15% ROE and less than 30% D/E with a market cap greater than $100,000,000.

Of these companies I then do a calculation to list the companies from greatest ROE/lowest D/E combination down to the lowest ROE and highest D/E combination.

Once I have that list which is usually around 80 companies i work through them doing valuations and looking at their business prospects. Once I find the ones that looks the most promising i'll do some further research and then buy if it looks like i should.


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## Tysonboss1

skip9 said:


> Value - Stocks that are undervalued to their intrinsic value.
> 
> Growth - Stocks that are forecasting a high rate of return and are exposed to sectors that are high in demand. They may be or above their intrinsic value but have strong forecasts and metrics for excessive growth.
> 
> I understand now from Macros it is a bit of much is much and pretty hard to separate..




The "Intrinsic Value" already values the likly growth of a company by factoring in the retained earnings and adding a multiplier based on the return on equity the company is likly to achieve on those retained earnings.

So "growth" companies can be valued and included in a value portfolio.

When you say "Growth - Stocks that are forecasting a high rate of return and are exposed to sectors that are high in demand. They may be or above their intrinsic value but have strong forecasts and metrics for excessive growth". You sound like you are describing stocks that should be in you speccy list.

After all that Growth has to be coming from some where, If it is from retained earnings into a systematic expansion of existing businesses it can be measured and valued.

If the forecast growth in earnings is from things that can't be measured eg. products under development, future increases in prices etc.etc. then your calculations are based on speculation and caution shouldbe taken when deciding how many of todays $$$ should be outlayed for future earings $$$.


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## Noddy

kermit345 said:


> I can tell you in basic terms what my process is.
> 
> I run a scan/filter on the ASX for stocks with greater than 15% ROE and less than 30% D/E with a market cap greater than $100,000,000.
> 
> Of these companies I then do a calculation to list the companies from greatest ROE/lowest D/E combination down to the lowest ROE and highest D/E combination.
> 
> Once I have that list which is usually around 80 companies i work through them doing valuations and looking at their business prospects. Once I find the ones that looks the most promising i'll do some further research and then buy if it looks like i should.




Hello Kermit

Interested in what method you use for company valuations.
Could you please post some info on that ?


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## kermit345

In valuing companies I use an adapted version of the Gordon model, which actually ends up not really looking much like the Gordon model itself anyway.

The equation takes into account DPS and retained EPS, applying a required rate of return to each. However I discount the DPS segment of the equation by 30% as I deem retained earnings more important then dividends paid, as retained earnings can be re-invested to earn the greater ROE already offered as I only value companies with ROE above 15%. Hence companies that are on solid growth paths that pay minimal dividends such as FGE and MML generally are trading at discounts to my IV's, depending on my required rate of return of course.

Also once I have the initial intrinsic valuation I apply a premium or discount to this valuation based on three metrics:

Management (my subjective view)
Return on Equity (automatically calculated)
Debt to Equity (automatically calculated)

These generally only work out to be small 1-2% premiums or discounts but just further help to identify the standout companies trading with a reasonable MOS to those who are mediocre or overvalued.


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## Noddy

kermit345 said:


> In valuing companies I use an adapted version of the Gordon model, which actually ends up not really looking much like the Gordon model itself anyway.
> 
> The equation takes into account DPS and retained EPS, applying a required rate of return to each. However I discount the DPS segment of the equation by 30% as I deem retained earnings more important then dividends paid, as retained earnings can be re-invested to earn the greater ROE already offered as I only value companies with ROE above 15%. Hence companies that are on solid growth paths that pay minimal dividends such as FGE and MML generally are trading at discounts to my IV's, depending on my required rate of return of course.
> 
> Kermit,
> 
> I'm currently using a DCF valuation method.
> Here are four valuations that I've come up with on companies that I would assume fit your scan criteria  (All above 15% ROE, and little or no debt)
> TGA   $2.50
> DWS  $1.44
> MOC  $1.64
> HSN   $0.95
> 
> How do they compare to yours ?


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## kermit345

Hi Noddy:

TGA - $2.55
DWS - $2.00 (Note I don't have IV increasing over next 2 years though)
MOC - $2.03 (Note I don't have IV increasing over next 2 years again)
HSN - $1.03 (Steadily increasing IV)


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## Knobby22

Noddy

Why do you discount dividends especially to retained earnings?

Dividends are real in the hand while retained earnings can be misused.

Like to hear your thoughts.

Also, MOC IV is increasing and has in the past - the good thing about MOC is that the downturn in property prices should have no real effect as they are not taking any risk, just clipping the ticket. And I love getting those huge dividend checks.


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## kermit345

Knobby22,

Yes retained earnings *may* be misused, but a company with a track record of above average return on equity means that the retained earnings are more than likely going to be deployed to earn a greater capital return then the dividend.

Also i'm glad your happy with your MOC dividend, I was simply stating that *I* don't have their IV increasing, or if so, not by much. If your model shows MOC's IV is increasing then that is great for you, was simply stating that is isn't for me as Noddy asked for MY IV's.

Noddy:

Of the four companies you listed your IV's for, HSN looked like the pick to me. On my chart the trend in share price has been a steady increase and so to has my valuation both over the last 3-4 years and on a forecast basis for the next 2 years. I can paste my chart here if you have any further interest.

Cheers


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## Noddy

kermit345 said:


> Knobby22,
> 
> 
> 
> Noddy:
> 
> Of the four companies you listed your IV's for, HSN looked like the pick to me. On my chart the trend in share price has been a steady increase and so to has my valuation both over the last 3-4 years and on a forecast basis for the next 2 years. I can paste my chart here if you have any further interest.
> 
> Cheers




Thanks Kermit,
Yes I am interested. Holding a few HSN and may buy some more.
Would appreciate a look at your chart.

Your system appears to be throwing up values a bit higher than a DCF calculation.
Will look into the method you are using, not aware of it at this stage.


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## Noddy

kermit345 said:


> Hi Noddy:
> 
> TGA - $2.55
> DWS - $2.00 (Note I don't have IV increasing over next 2 years though)
> MOC - $2.03 (Note I don't have IV increasing over next 2 years again)
> HSN - $1.03 (Steadily increasing IV)




Agree with you on DWS and MOC.
Can't see their I/V increasing much at this stage.
Have DWS at 3% inc, and MOC at zero in my calculations, but see them both as solid investments paying very good dividends.
Think your valuations may be a bit high though.


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## kermit345

Take a look:


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## Noddy

That's brilliant Kermit.
How many shares have you set up like that ?


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## kermit345

Any share I want to be, I plug in an ASX code, my management premium/discount and the required rate of return and it all automatically updates.


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## danbradster

kermit345 said:


> Any share I want to be, I plug in an ASX code, my management premium/discount and the required rate of return and it all automatically updates.




Did you pay for that or develop it yourself?  What technology is it using?


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## kermit345

developed it myself with the help of another person from this forum, uses a program some of you may have heard of called Excel :


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## skip9

Impressive Kermit!

Looks simple and effective!

Do you keep updating all the stocks you have on watch quarterly, half yearly or annually?

And with your MOS chart, Im guessing 25% is your target rate of return but how does your previous and forecasted MOS work? if your Forecasted MOS is higher than your target what is your action?


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## danbradster

kermit345 said:


> developed it myself with the help of another person from this forum, uses a program some of you may have heard of called Excel :




How are you pulling data like the price chart into excel?  What is the data feed?


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## kermit345

Price data is from yahoo historical prices, if you hunt around enough on google and/or yahoo there are ways to get the data into excel with more ease than copy/paste.

I've only developed this new spreadsheet recently, but previously when I was entering data mannually i'd only review the stocks if there were a reasonably significant change in earnings guidance etc, or an important announcement.

I'd update my filter weekly to see if any 'new' companies had flowed through my filter and were worth investigating further, however those i'd already covered were just monitored maybe one a month or so.

In terms of the MOS chart, you can follow that it mimicks the share price vs valuation chart. Rate of Return and MOS are two slightly different things. Required rate of return is essentially what you require the stock to return to make it worth risking your funds. i.e. companies that you identify have higher risk, should require a higher return, companies with lower risk require lower return.

Valuation of companies is not an exact science and it is highly unlikely there are any two random people using the same valuation model. For that reason, not all valuations are correct so if you apply a 25% MOS, its basically allowing your valuation to be out a little but still means you can make profits if it moves towards your valuation. So for instance you only look at buying value investments that have the 25% MOS on the current share prices. Forecasts can change and so too can the MOS/valuation, so if you buy a stock evenly valued now on the premis it has a MOS of 25% in the future, that could quite easily change and your stuck with a low growth or declining stock.

Hope that helps.


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## skc

kermit345 said:


> Take a look:




Very neat kermit. Looks like the market might be using a higher discount rate on HSN then you this morning.


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## kermit345

Possibly skc, although Rome wasn't built in a day 

Today's HSN announcement looks like earnings growth continues to occur and very likely that EPS will be around the 8cps mark as indicated in my EPS chart above. As we move into the new Financial Year and reporting season, that forecast may become reality with a new current IV of around $1.16 meaning my 25% MOS is there based on current share price. Anyway, probably shouldn't hijack the thread about HSN, but happy to discuss further in PM or on stock chat forum.


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## Noddy

kermit345 said:


> Possibly skc, although Rome wasn't built in a day
> 
> Today's HSN announcement looks like earnings growth continues to occur and very likely that EPS will be around the 8cps mark as indicated in my EPS chart above. As we move into the new Financial Year and reporting season, that forecast may become reality with a new current IV of around $1.16 meaning my 25% MOS is there based on current share price. Anyway, probably shouldn't hijack the thread about HSN, but happy to discuss further in PM or on stock chat forum.




After today's announcement have re-valued HSN to $1.13 using 9c EPS for 2010/11, and a growth rate of 8% going forward. On that basis (using DCF) have bought some more around 90c.
Probably also hijacking the thread to HSN, but we are discussing methods of valuation using HSN as a comparitive example


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## notabclearning

Kermit please release your excellent program to the public. It would help everybody tremendously!!!


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## kermit345

I dont mind helping people out with excel equations, graphing, valuation questions, my approach or anything like that, but don't plan on handing out the spreadsheet i've put together which contains all my personal equations and hard work inside it.

Investing isn't easy and I think you'll find if you put in the effort to create your own spreadsheet or program that it is both rewarding and gives you greater insight into how YOU would like to value companies.


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## Noddy

kermit345 said:


> I dont mind helping people out with excel equations, graphing, valuation questions, my approach or anything like that, but don't plan on handing out the spreadsheet i've put together which contains all my personal equations and hard work inside it.
> 
> Investing isn't easy and I think you'll find if you put in the effort to create your own spreadsheet or program that it is both rewarding and gives you greater insight into how YOU would like to value companies.




Kermit,
Agree with you 100%. We all need to do our own work and develop our own methods of investing. Nice to share ideas with others from time to time, but ultimately we all need to learn and develop our own trading plan.


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## kermit345

Well investing is like shoes, theres not one size that fits everyone. If you start trading someone elses plan or using their spreadsheet/strategy what happens if something goes wrong and you've played no part in developing it yourself.

Investing the time to learn and progress your own methods will have great rewards both in terms of your eventual returns but also your knowledge. Forums are a great starting place but sooner or later steps have to be taken alone.

Noddy, interesting your valuation on HSN comes to $1.13 now with estimated 9cps earnings. My valuation comes to $1.16 with estimated 8cps earnings. I think your equation is slightly more conservative or mine is slightly more optomistic, depending on which way you look at it. Although we seem to both be in the same ballpark which suggests were on the same line of thought.


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## Noddy

Agree.

DCF valuation places the main emphasis on forward earnings.

So downrates valuations on stocks such as DWS or MOC that are showing little or no growth, but gives higher valuations on stocks such as TGA or HSN that are continually growing.

But growth stocks are the best to be in. If only interested in high dividends, best to leave your money in TLS etc. or on fixed deposit at the CBA maybe, and just collect the interest.

Problem with DCF calculations, however, is the difficulty in estimating forward earnings. Many things can go wrong as you know.

So I tend to use the current years increase( TGA 13% for example) and extrapolate that percentage or usually a percentage shaved down a bit lower to allow a margin. Can always upgrade if they do better.

Then look for a margin of safety, usually min. of 15% - 20%, but higher if possible.
Very difficult to find now with the XAO around 4800 or so.

Really impressed with your system though, but wouldn't have the computer skills (or the patience either) to develop something as good as that.

Good luck with your trading in the future.


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## Macros

For what its worth, my (forward) target price for HSN is $0.91.

Therefore I don't view this as an undervalued company. In fact, over time the market seems fairly consistent at pricing HSN to perfection. Given the historical swings in price, it would indicate that there have been some great buying opportunities when it has taken a swing.

Whilst the company doesn't not present great value currently, it has proven to be able to consistently grow its value over time and should it continue to do so in to the future, it should prove to be a solid company.


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## Macros

I've had a look recently and have found some value in the market but one has to be selective. This is probably a good sign that we aren't in an extreme environment (global monetary/fiscal issues aside).

Many companies that I've looked at over the past couple of weeks are, on average, roughly where I think they should be.

My view is that we could continue be in a relatively flat market, with some swings, for quite some time. The thing that will change this outcome is a matter of inflation and interest rates. I think timing is important and unfortunately it means that if you are investing industrial stocks, it is probably worthwhile managing capital on an ongoing basis with additions in the dips and by taking some off the table with the up swings - it helps to know when to do this when having a solid understanding of value and does not require technical analysis (although I've learned that it can help time buys and sells once value has been identified).

For example, in March I sold FGE due to it being reasonably close to my target price, I had better value opportunities for my capital and I'm concerned that it could be impacted by margin compression and increased competition over the next couple of years.

I also sold down some of my MCE in March (still hold some but a smaller part of my portfolio) also due to concern with regards to margins and exchange rates and also again finding better elsewhere. I still see value in MCE.

Whilst I've found some discounts (e.g. you mentioned TGA and I have a forward MOS of around 39%) I can't look past the precious metals or the oil and gas space as there are some companies that scream value to me. They also fit in with my view of what is happening from a macro point of view with regards to a sustained period of easy money globally and sovereign debt crises.


----------



## Noddy

Macros said:


> For what its worth, my (forward) target price for HSN is $0.91.
> 
> Therefore I don't view this as an undervalued company. In fact, over time the market seems fairly consistent at pricing HSN to perfection. Given the historical swings in price, it would indicate that there have been some great buying opportunities when it has taken a swing.
> 
> Interesting post Macros.
> 
> On the basis that anything is only worth what someone is prepared to pay for it, and someone else is prepared to sell it for, all stock prices are exactly priced to perfection at any one moment.
> 
> Interested in what method you are using to value companies, in particular HSN which is being used in this thread as an example of stock valuation.


----------



## Macros

Noddy,

I go with the method supported by Roger Montgomery and with my own personal touches.


----------



## Noddy

Macros said:


> Noddy,
> 
> I go with the method supported by Roger Montgomery and with my own personal touches.




Macros,

I have RM's book and have read it a couple of times and regularly read his blog.
Makes a lot of sense, but think the valuation method he uses based on ROE produces very conservative results, often well below what stocks are selling for eg, COH,WPL etc.


----------



## Macros

Noddy,

I find that in the end, it depends on the use of the model and expectations of future earnings. I don't believe that the most important factor is current value, I believe that the most important factor is future EPS and future value.

I have personally not come across a single stock that I have not been able to apply the model and my preference is to invest in precious metals, oil and gas.

I think the model works very well for WPL. The price for WPL is significantly over the IV consistently over recent years and therefore leads me to believe that the market has not priced in sufficient risk. WPL is a relatively risky business. My target price for WPL is $33 compared to current price of $47. Also, although it is in a good sector, if it cannot be exceptionally profitable now or in the next couple of years, I'm not sure when it will be. I think the market has been pricing in a risk rate of around 10%. If you think WPL is a lower risk business then the current price makes sense. I certainly don't see value in the current price, but then again I also don't think its a terrible business for the coming decade. I just choose to allocate my money to other companies in the same area but with substantial value to be realised.

Also, my modelling shows that 2004 would have been a good time to invest in WPL but there has not been any other good time. If you invested in 2005/06 at $30-40 then there has been no value gained and this is also predicted by the model.

With regards to COH, the market seems to be pricing in a risk rate of around 8%, which is exceptionally low, but is has proven to be a fantastic business. Given the significant increase in value that COH has generated, it would be easy to justify an investment without a margin of safety. It has increased its value every single year. The current target price based on the market's perception of risk is around $71 which is not far off the current price. However, this would also mean that you aren't protected if there were any black swan events that impact on the business.

In the end, price will move towards IV. This model works well. However the successful use of the model depends on the user's expectations of future growth and earnings. These issues require a lot more than just plugging in a number.


----------



## Ves

I am too trying to develop an intrinsic valuation method close to what Roger Montgomery endorses (ROE method).

As I am a beginner at this kind of thing I was wondering if I could get people's thoughts on the criteria that they use to decide what Internal Rate of Return to use for valuing companies?

I am thinking that companies with less risk would be 10%, and this would increase with any perceived risk. I wouldn't want to invest a company that I would apply an IRR of higher than maybe 16%.

Am I correct in saying that the higher the IRR used, the higher the Intrinsic Value will be, therefore making it less likely to be trading under IV on the market as there is more risk factored into the equation?

Do people also increase the IRR used in harsher economic conditions?

Am I on the right track?


----------



## skip9

Slowly developing my own view and criteria in what to assess companies on and compare to each other. I have a few ratio's and statistics that i think are the more important and are listed below;

Total Debt:
Debt-To-Equity (%):
Operating Cash Flow ($M):
Discount Cash Flow ($M):
EBIT ($M):
EBIT Margin (%):
Gross Margin (%):
Earnings Growth (%):
EPS Growth (%):
Return on Equity (%):
Liquidity:
Current Assets ($m):
Current Liabilities ($m):
Dividend Yield (%):

Whats the thoughts on this analysis criteria? and out of those what are the more important. I will be looking at these figures and comparing them between companies along with the Macro view of economics and intrinsic value measures.

Any feedback is appreciated.


----------



## Julia

Skip9, that's a long list.  It's notable for its total omission of what the share price is doing.


----------



## InvisbleInvestor

Julia said:


> Skip9, that's a long list.  It's notable for its total omission of what the share price is doing.




Well, that's what value investing is all about. Turning the stock market off, valuing the business and then seeing if it trading at, or at a discount to its 'intrinsic' value. You can't have the share price as an input to find the 'value' of a business, as it is extremely volatile and (often does) move without any change in the fundamentals of the business itself.

The share price is only 'important' after a valuation has been made, and if it is a reasonable discount to the valuation. Have you read Roger Montgomery's book out of curiosity?


----------



## Julia

InvisbleInvestor said:


> . Have you read Roger Montgomery's book out of curiosity?



 No.  I'm not a fundamental investor.


----------



## Frankie

I always check that the company I am about to do fundamental research on has low debt before proceeding. This is of high importance to me.

If a company has high debt I will probably avoid putting it through my fundamental analysis filters.


----------



## skip9

Julia said:


> Skip9, that's a long list.  It's notable for its total omission of what the share price is doing.




Julia, As InvisibleInvestor said, Share Price to me is irreverent until i find a company that i feel confident in investing in - then i'll look at the price to see if its at a price where i would be happy to be investing into the business. These are metrics of analysing businesses rather than share prices.

Frankie - Thanks, that is also key importance to me - low or no debt, a debt-to-equity ratio of below .75 is a maximum figure, but is also good at comparing these figures between two companies.


----------



## Tysonboss1

Frankie said:


> I always check that the company I am about to do fundamental research on has low debt before proceeding. This is of high importance to me.
> 
> If a company has high debt I will probably avoid putting it through my fundamental analysis filters.




High debt is not always a thing to avoid without further investigation. Even Benjamin graham points out in his book the intelligent Investor there are certain types of companies that operate at high levels of debt to equity that will still be sound investments and often provide the most stable income streams.


----------



## kermit345

The following is a list of roughly how I rank metrics when i'm looking at a company:

1) Return on Equity
2) Debt to Equity
3) Margin of Safety (Current)
4) Annual IV Growth
5) Earnings Growth
6) Liquidity
7) Margin of Safety (Forecast)

Thats the basic list of what I look at in a company and its financials to see if it looks like a good business to be entering into. Obviously the Margin of Safety isn't exactly a busines related metric, however i rate it highly in my decision making process, as a business trading well above its valuation typically isn't worth investigating much further anyway, unless your inputs are incorrect.

I believe its also important not to complicate the process by having too many ratios and equations which your trying to investigate all at the one time to make a decision. Chances are not all of the ratios will make the company look like a superstar, and if it does, i'd be surprised if its not trading above its valuation. Another component that I haven't listed as it isn't finance based, is placing a premium or discount based on management. Great management will often lead to a growing business, poor management may detract from a good underling business, so management are an important part of the overall picture.

Hope that helps.


----------



## InvisbleInvestor

Julia said:


> No.  I'm not a fundamental investor.




That shouldn't stop you from considering other methods of choosing a business to invest in. Unless your fundamental approach has helped you beat the market consistently over a long period of time, if so, then carry on.

Everyone else seems to be rolling in similar criteria to myself and really, as value investors, I find that quite ordinary. Several metrics may change but the fundamentals (not to be confused with the prior paragraph which was in a prior context) don't change radically.

In actual fact however, one of the first things I do when hearing about a 'cheap' stock recommended by others is compare the share price to a rough measure of intrinsic value and if it seems worth to pursue, will peruse further.


----------



## Julia

> Quote Originally Posted by Julia View Post
> No. I'm not a fundamental investor.






InvisbleInvestor said:


> That shouldn't stop you from considering other methods of choosing a business to invest in. Unless your fundamental approach has helped you beat the market consistently over a long period of time, if so, then carry on.



Well, my goodness.  Thank you so much for your sage advice!   I'll attribute the somewhat extraordinary tone of your comment to naivete.
You don't even appear to appreciate how contradictory are your remarks.

I have clearly stated that I am not a fundamental investor.  Then you say "unless your fundamental approach has helped you beat the market......." etc.
When I don't take a fundamental approach, no such approach has allowed me to consistently beat the market.

You don't even seem to be aware that an alternative to fundamental investing is trend following/simple technical approach.

Further you kindly suggest that if my approach (which you clearly have no idea about) has helped me consistently beat the market, then I should "carry on".
Thank you so much.   I will do exactly that.


----------



## InvisbleInvestor

Julia said:


> Well, my goodness.  Thank you so much for your sage advice!   I'll attribute the somewhat extraordinary tone of your comment to naivete.
> You don't even appear to appreciate how contradictory are your remarks.
> 
> I have clearly stated that I am not a fundamental investor.  Then you say "unless your fundamental approach has helped you beat the market......." etc.
> When I don't take a fundamental approach, no such approach has allowed me to consistently beat the market.
> 
> You don't even seem to be aware that an alternative to fundamental investing is trend following/simple technical approach.
> 
> Further you kindly suggest that if my approach (which you clearly have no idea about) has helped me consistently beat the market, then I should "carry on".
> Thank you so much.   I will do exactly that.




Erm, beg your pardon, I obviously misread your post. Apologies.


----------



## Julia

InvisbleInvestor said:


> Erm, beg your pardon, I obviously misread your post. Apologies.



 OK, no worries.


----------



## Intrinsic Value

Julia said:


> OK, no worries.




What do you see the benefits of technical investing are over value investing?

And isn't technical investing riskier than value investing? Technical investing also sounds like a lot more work than value investing?


----------



## robusta

Intrinsic Value said:


> What do you see the benefits of technical investing are over value investing?
> 
> And isn't technical investing riskier than value investing? Technical investing also sounds like a lot more work than value investing?




Trend following is a fairly easy concept to grasp and execute. You should make your own judgement as to the risk of each approach. As for me i am most comfortable with value investing with no stop losses.


----------



## Julia

Intrinsic Value said:


> What do you see the benefits of technical investing are over value investing?



If you do a search for "Technical vs Fundamental Analysis" on this forum you will find several threads, most of which are many pages long and cover a variety of approaches.
Here is just one:
https://www.aussiestockforums.com/f...3548&highlight=technical+fundamental+analysis



> And isn't technical investing riskier than value investing? Technical investing also sounds like a lot more work than value investing?



Depends on your personal preference.  I don't think a simple trend following approach is as risky as holding some 'undervalued' share as its SP drops, or buying such a company when it's in a clear downtrend.  Yet this is what many fundamental investors do.  
For an easy to understand read on a technical approach, maybe spend about $30 through the ASF bookshop, and buy Stan Weinstein's "Secrets for Profiting in Bull and Bear Markets".  This has stood the test of time.  When I first read it, it was like a light bulb being switched on.





robusta said:


> Trend following is a fairly easy concept to grasp and execute.



Indeed it is.  No need to make it complicated.  Essentially buy into an uptrend and sell in a downtrend.  Protect your capital.


----------



## Boggo

Julia said:


> Depends on your personal preference.  I don't think a simple trend following approach is as risky as holding some 'undervalued' share as its SP drops, or buying such a company when it's in a clear downtrend.  Yet this is what many fundamental investors do.
> 
> Indeed it is.  No need to make it complicated.  Essentially buy into an uptrend and sell in a downtrend.  Protect your capital.




Exactly Julia. There is a discussion elsewhere on this site about Michael Covel's book.
For anyone who wants to be in the market to make money I would suggest that you get that book and if nothing else just read chapter 1.
If you want to talk over dinner about how you are a Telstra or Qantas etc investor then disregard the rest of my post.

Most of the new "investors" on here tend to gravitate towards the mum and dad type stocks, the TLS, QAN, LEI, WOW, WBC, WES, CBA etc etc stocks.
These are the ones they see on the CH9 market report or some such nonsense where they seem to think that there are less than a dozen stocks in existence in Australia.

What seems to happen is that they read the weekend broker recommendations, dive in and then realise that the stock is going down. They then start doing a bit of research, stumble on to sites like this one, think that everybody else is in the same boat and start telling anyone who is interested why they have "bought another small parcel" as it is great value at this price because I read it in a report on Yahoo and expect that to turn it around.

Up to a point this process is understandable, you are in the 90% group though and that is the losing group. The trick now is how fast you can recognise this and work out how to get yourself into the 10% winning group.
You won't do it by adding to a losing position, listening to/reading broker etc recommendations or trying to justify your situation to people who have been where you are now.
Where have I recently heard "It doesn't matter that you're wrong, only how long you stay wrong" ?

An exercise... (I could supply dozens of similiar examples)
Without looking it up, how many people reading this can tell me if they have heard of *SUL*, what is company's name, what do they do and when was the last time you heard/saw it being referred to in the media ( I bet it was very recently).
Clue - you see their ads every time you turn on the tv.

Why the heck would you want to get involved with and then hold on to stocks such as the group I mentioned earlier. If you say it is for the dividend then you are not taking the stock price into account.

Below is SUL vs TLS over the same period, which one would you want to be holding ? (and SUL pays a dividend too !).

(click to expand)


----------



## skip9

I think to get the most out of investing its wise to use a combination of both Fundamental and Technical Analysis. Each has their positives, each has their negatives but used in combination then there are particular tools that become valuable to the investor. If you can find a fundamentally sound stock and use technical analysis to find entry and exit points, rise and falls then isn't that the best way to look at it... My thoughts anyway..


----------



## skip9

Boggo - Most value investors would realise TLS is a junk stock.


----------



## Boggo

skip9 said:


> I think to get the most out of investing its wise to use a combination of both Fundamental and Technical Analysis. Each has their positives, each has their negatives but used in combination then there are particular tools that become valuable to the investor. If you can find a fundamentally sound stock and use technical analysis to find entry and exit points, rise and falls then isn't that the best way to look at it... My thoughts anyway..




That's exactly what I did prior to the GFC etc, a combination of using StockDoctor for creating a value list and then technical analysis for entry and locking in profits in parallel with Elliott Wave to provide the big picture.
StockDoctor highlighted stocks such as JBH, and MND etc in their early stages and then it was just a case of knowing when to lock in profits and knowing when to re-enter the next run.
(My SMSF currently has had the SD subscription on hold for a few years now until the dust settles)




skip9 said:


> Boggo - Most *value* investors would realise TLS is a junk stock.




*Value* being the operative word there skip.


----------



## Julia

Boggo, great explanation.

Intrinsic Value:  I always remember a post by Bunyip some years ago which made so much sense.  Have just searched it out and quote it below.  Read it, think about it, and I suspect you'll start to get what a simple trend following approach can achieve.



> It doesn't have to be either/or......there's no reason that both types of analysis can't be combined.
> However, what most fundamentalists can't seem to comprehend is that technical analysis is actually a form of fundamental analysis.
> 
> Technical analysts believe 'THE TREND IS YOUR FRIEND'. Accordingly, they begin their analysis by identifying the trend of the stock or financial instrument in question.
> 
> Look at charts of big uptrenders of the past, e.g. GUD, BHP, WPL.
> You could have comprehensively researched these companies to find out that their fundamentals were positive.
> Alternatively you could have applied the most basic concept in technical analysis - TREND IDENTIFICATION - by simply looking at their charts and recognising that they'd recently begun a powerful new uptrend. And having recognised this powerful new uptrend, you could have put two and two together and realised that new uptrends are caused by the collective positive views of thousands of traders and investors, most of whom will have based their opinions on fundamental research.
> A stock powering upward on the chart is a visual representation of investors and traders scrambling over each other to get a piece of the action, even if it means paying increasingly higher prices.
> They do this because they believe the fundamentals to be positive.
> 
> Conversely, if a chart shows that a stock is sinking like the Titanic, it's a visual representation of investors and traders dumping the stock because they know something negative about the fundamentals.
> Pull up charts of companies that went broke....PAS, HIH, SGW, ION. Their charts were heading south with a vengeance long before they went out of business.
> Did you really need to fundamentally research those companies to find out they were in trouble?
> Or could you have got that information simply by looking at their charts for five seconds? I'm sure you know the answer.
> 
> Regarding your comment about the risks of investing in a company that's on the brink of insolvency, consider this.....
> If a company is in dire straits and is close to insolvency, do you think that maybe, just maybe, the research analysts might be well aware of this?
> And that this information just might be known to the investment community?
> And that investors, knowing this information, might be dumping the stock en masse, causing its price chart to be strongly downtrending?
> No technical analyst worth his salt is going to buy a stock whose chart is strongly downtrending.
> Technical analysts believe 'the trend is your friend'. Accordingly, they trade with the trend, not against it.
> 
> Finally, let me give you a couple of quotes.
> The first comes from John Murphy, author of 'The Visual Investor', resident technical analyst on stockcharts.com, and considered one of the worlds foremost technical analysts................
> 
> "Chartists are cheaters. Why? Because charting is a shortcut form of fundamental analysis. It enables a chartist to analyse a stock or industry without doing all the work of the fundamental analyst. How does it do that? Simply by telling the analyst whether a stocks fundamentals are bullish or bearish by the direction its price is moving.
> If the market perceives the fundamentals are bullish, the stock will be rewaded with higher prices."
> 
> The second quote is from Marty Schwartz, a man who made squillions on Wall Street and is featured in the book 'Pit Bull'..........................
> 
> "I always laugh at people who say they've never met a rich technician.
> I love that! It's such an arrogant, nonsensical approach. I used fundamentals for nine years but got rich as a technical analyst".
> 
> I guess Marty Schwartz would have got a good laugh at the expense of Renee Rivkin, who was fond of saying "I've never met a rich chartist".
> Rivkin, an avowed fundamentalist, was recommending PAS as a buy while one of my mates who owned PAS was dumping the stock as soon as it began downtrending.
> Rivkin continued recommending PAS as a buy while it plunged towards oblivion.
> 
> 
> Bunyip


----------



## robusta

skip9 said:


> I think to get the most out of investing its wise to use a combination of both Fundamental and Technical Analysis. Each has their positives, each has their negatives but used in combination then there are particular tools that become valuable to the investor. If you can find a fundamentally sound stock and use technical analysis to find entry and exit points, rise and falls then isn't that the best way to look at it... My thoughts anyway..




Different strokes for different folks! 

For me I would be horrified if capital gains were incured during every correction because a chart said to sell (or stop losses kicked in)

I have a view that the companies in my portfolio will be worth materially more in 5-10 years time. Why would I sell when the price falls? (due to macro factors) I prefer to buy more in these times.



Julia said:


> I suspect you'll start to get what a simple trend following approach can achieve.




I am glad you have done well with a trend approach Julia but I know it does not suit my personality. I would have trouble with the discipline of when to get enter and exit without a understanding of the intrinsic value of the security.


----------



## Boggo

robusta said:


> I would have trouble with the discipline of when to get enter and exit without a understanding of the intrinsic value of the security.




Let the market tell you robusta.
The difficult bit is narrowing the field from over 1900 stocks to a couple of hundred with upside potential.
Using the ASX 300 or similiar is ok to a point, the real meat was when they were on way to there, ideally you are looking for the new ASX 300 entrants.
(I have to give fundamental credit where it is due and say that this is where I have found that StockDoctor did really excel)

This extract from Bunyip's post that Julia has quoted sums it up, its no more complicated than this...

*The first comes from John Murphy, author of 'The Visual Investor', resident technical analyst on stockcharts.com, and considered one of the worlds foremost technical analysts................

"Chartists are cheaters. Why? Because charting is a shortcut form of fundamental analysis. It enables a chartist to analyse a stock or industry without doing all the work of the fundamental analyst. How does it do that? Simply by telling the analyst whether a stocks fundamentals are bullish or bearish by the direction its price is moving.
If the market perceives the fundamentals are bullish, the stock will be rewarded with higher prices."*


----------



## Ves

Thank you for the technical perspective Boggo & Julia. I will read both of the books that you have mentioned. Whilst as a beginner I have been influenced by fundamental analysis firstly, I think having knowledge of trends (ie trend trading) will add balance and better entry points to my stock selections.

The comment about "technical analysis being a short cut to fundamental analysis" is a good one. You cannot expect to know any more than the market as a small time investor. It is often not what you know, but what you do not know.


----------



## Julia

robusta said:


> Different strokes for different folks!
> 
> For me I would be horrified if capital gains were incured during every correction because a chart said to sell (or stop losses kicked in)



That's a reasonable point.  The idea, however, is to always have protecting your profits and capital as a first priority.  The tax should not unduly influence you in this main priority.  Imo, of course.



> I have a view that the companies in my portfolio will be worth materially more in 5-10 years time. Why would I sell when the price falls? (due to macro factors) I prefer to buy more in these times.



This has been well and truly covered elsewhere.  Whilst I understand what you're saying, you're still putting your capital at risk by holding through a clear downtrend.
No one is suggesting you sell everytime there's a minor dip, but rather to have a simple understanding of how to recognise trends so that you don't get trapped into losing not only your profits but some of your capital.



> I am glad you have done well with a trend approach Julia but I know it does not suit my personality. I would have trouble with the discipline of when to get enter and exit without a understanding of the intrinsic value of the security.



Perhaps consider that, despite your most painstaking fundamental analysis, if market sentiment is against that stock you so like, that's all that matters.  



Ves said:


> Thank you for the technical perspective Boggo & Julia. I will read both of the books that you have mentioned. Whilst as a beginner I have been influenced by fundamental analysis firstly, I think having knowledge of trends (ie trend trading) will add balance and better entry points to my stock selections.
> 
> The comment about "technical analysis being a short cut to fundamental analysis" is a good one. You cannot expect to know any more than the market as a small time investor. It is often not what you know, but what you do not know.



Ves, I may be wrong but I have the impression most people approach the market from a fundamental point of view.  I know I did.   But I've mentioned earlier the 'light bulb moment' when I read Weinstein's book.  My whole approach changed and my profitability increased exponentially.

However, I'm not at all trying to persuade anyone from an approach with which they feel comfortable and which is working for them.  I've just noticed recently that some new members of ASF seem to focus on FA as essentially the only approach which may not be entirely in their best interests.

Ves, get back to us when you've read Stan Weinstein's book.  Best of luck.


----------



## Wysiwyg

Julia said:


> but rather to have a simple understanding of how to *recognise trends* so that you don't get trapped into losing not only your profits but some of your capital.



Being an investment orientated thread that would mean a secular upward trend being a capital growth criteria. I think robusta does experience or assumes fundamentally  sound companies will maintain a secular upward trend with bearish market conditions providing an opportunity to buy for less. Mind you some charting knowledge could enhance these discount buying opportunities.


----------



## robusta

Boggo said:


> Let the market tell you robusta.
> The difficult bit is narrowing the field from over 1900 stocks to a couple of hundred with upside potential.




This is the easy bit for me, out of those 1900 plus stocks, I have identified about 60 I am happy investing in, the only trick is waiting for the right price. 

The right price normally comes along during crashes and corrections.




Boggo said:


> Using the ASX 300 or similiar is ok to a point, the real meat was when they were on way to there, ideally you are looking for the new ASX 300 entrants.
> (I have to give fundamental credit where it is due and say that this is where I have found that StockDoctor did really excel)




Have to agree with you there my two largest holdings are MCE and FGE, held for over a year and been in the ASX300 for a couple of months.




Boggo said:


> This extract from Bunyip's post that Julia has quoted sums it up, its no more complicated than this...
> 
> *The first comes from John Murphy, author of 'The Visual Investor', resident technical analyst on stockcharts.com, and considered one of the worlds foremost technical analysts................
> 
> "Chartists are cheaters. Why? Because charting is a shortcut form of fundamental analysis. It enables a chartist to analyse a stock or industry without doing all the work of the fundamental analyst. How does it do that? Simply by telling the analyst whether a stocks fundamentals are bullish or bearish by the direction its price is moving.
> If the market perceives the fundamentals are bullish, the stock will be rewarded with higher prices."*




Sorry but I dont get this, it may work the majority of the time but how many times have we seen things like dotcom bubble, ABC learning, GFC...., and many more cases of over exuberance followed by depression.


----------



## Wysiwyg

skip9 said:


> What I am looking for is what people generally look at when search for Value and Growth Stocks, things such as ratios - what ones are important and what their targets are for each - ROE, P/E (High P/E for Growth, Low P/E for Value) and so on? It is a pretty broad subject but i figured if everybody expressed what they find important and what their criteria is it will help us all out!



 I don't know if any companies could maintain a long term uptrend if they were not fundamentally sound. Identifying these companies that have withstood the test of time is easy with charts. However, identifying emerging companies that will withstand the test of time would be a great skill to have. Good luck with that side of the game. 

Anyway, these stocks have maintained a secular uptrend for the last five years. They may or may not meet fundamental requirements.

AND
ANG
ARP
BHP
BKL
BRM
CBA
CCL
CEY
CNA
COH
CPB
CSL
CUS
DMP
DTL
EQN
EXT
FLT
FLX
FMG
FWD
GIR
JBH
KAR
KCN
MAQ
MCC
MML
MMS
MND
MSB
NHC
NVT
ORG
ORL
OSH
PWK
REA
RHC
RIV
SOL
SRX
SST
STO
SUL
TRS
VTA
WOW


----------



## McLovin

Julia said:


> Ves, I may be wrong but I have the impression most people approach the market from a fundamental point of view.  I know I did.   But I've mentioned earlier the 'light bulb moment' when I read Weinstein's book.  My whole approach changed and my profitability increased exponentially.




I think most people who have no strategy tend to say they use "fundamental analysis". In reality their analysis is usually along the lines of "everyone needs groceries, and Woolworths has a good prospects in groceries, therefore WOW is a good buy". Often fundamental analysis is the educated way of saying you have no strategy.


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## tech/a

McLovin said:


> I think most people who have no strategy tend to say they use "fundamental analysis". In reality their analysis is usually along the lines of "everyone needs groceries, and Woolworths has a good prospects in groceries, therefore WOW is a good buy". Often fundamental analysis is the educated way of saying you have no strategy.




I think true in a very high number of cases


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## robusta

McLovin said:


> I think most people who have no strategy tend to say they use "fundamental analysis". In reality their analysis is usually along the lines of "everyone needs groceries, and Woolworths has a good prospects in groceries, .




You have hit on the first step I use to filtre stocks - look at the business and work out how they make money. The aim is to find businesses that have a competitive advantage or "moat" that will enable them to grow profits over a long period of time.



McLovin said:


> therefore WOW is a good buy"..




Before I get to this step I need to prove that the business is cheap, not many that pass the first step pass the second as everyone wants a piece of these extraordinary businesses.

To work out the Intrinsic value I look at; ROE, debt/equity, book value, payout ratio and cash flow.



McLovin said:


> Often fundamental analysis is the educated way of saying you have no strategy.




?? Often people follow "hot tips" like lemmings, often people drink their own bathwater, often trading is a zero sum game.


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## McLovin

robusta said:


> You have hit on the first step I use to filtre stocks - look at the business and work out how they make money. The aim is to find businesses that have a competitive advantage or "moat" that will enable them to grow profits over a long period of time.
> 
> 
> 
> Before I get to this step I need to prove that the business is cheap, not many that pass the first step pass the second as everyone wants a piece of these extraordinary businesses.
> 
> To work out the Intrinsic value I look at; ROE, debt/equity, book value, payout ratio and cash flow.
> 
> 
> 
> ?? Often people follow "hot tips" like lemmings, often people drink their own bathwater, often trading is a zero sum game.




Easy tiger, I'm not criticising funamental investing, it's what I do too. Unfortunately a large (majority?) portion of people who describe their strategy as "fundamental investing" are not really doing that at all. 

I have a friend who would describe himself as someone who "looks at the fundamentals". He bough Qantas because a) It's a world class carrier (whatever that means) b) it's on a low P/E c) it has a great brand (a well loved brand <> being able to charge a premium). Actually looking at the fundamentals would tell you Qantas (the business) is a dog and has been for 10 or so years. That was the point I was trying to make.


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## Ves

Boggo said:


> Exactly Julia. There is a discussion elsewhere on this site about Michael Covel's book.



 Thanks for the recommendation. I've devoutly spent the last week reading it from cover to cover.

Obviously there is no actual "technical analysis training" in it like most dime-a-dozen books, but philosophically speaking it covers so much ground compared to most investment books. 

It has prompted me to read some further books on trend trading (such as Stan's book that Julia suggested), but I am glad that I choose this one first. I have always believed that to understand something you must first understand the philosophical standpoint that is at its core. 

Looking forward to finding some more good books; at the very least they will interest me because I'm fond of statistical analsys and basically anything numbers based. I am also interested in risk management and money management (having "paper traded" my own systems for 'sports betting' before; which is not too disimilar). Perhaps this 'trend following' is a great match for my personality. Only time will tell. 

Still all over the place trying to find my approach to the share market, but I haven't taken much action (buying or selling) yet and there is plenty of time to learn and test all options.


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