Fundamental Analysis Techniques

[TheAnalyst]

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]

Hi michael



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

Yep thats true

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

thx

MS

 

[bullmarket]

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]

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]

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]

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?

What other big Zinc mines do u know and their mine lives and company

thx

MS

 

[BSD]

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]

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]

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.

This methodology would require much work and preparation prior to any thoughts of jumping into the market.

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.

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]

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]

Opportunity isnt exclusively available to Fundies.

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

 

[TheAnalyst]

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]

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]

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]

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]

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]

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]

hi nizar

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]

BSD



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.

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]

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.