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How to perform Beneish M Model

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I give up, continue your "religious" vandalism at will!
 
I am not interested in technical analysis so far it seems you are referring to that?
 
RandomInvestor said:
I am not interested in technical analysis so far it seems you are referring to that?
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I was referring to it as another and perhaps a simpler option if you were intending to profit from A2M.

Disregard any reference then of course if it just a numbers study exercise.

Let us know though how 'the model' works out and if it indicates that they are 'manipulating' the figures
 
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So explain to the duck

You calculate 8 ratios from the financial statement supplied by the company
You then combine the 8 ratios to get a score which if less that -2.2 suggests figures are not manipulated.

Two things
If you can't trust the figures how can you trust them in theses calculations

If the score is above -2.2 do you leave this alone period!
 

Beneish and Altzman scores does seem to measure what they say it would, but only for industrial companies. Or business similar in nature. So finance, insurance, banks or even a good [or bad] retailer might not be flagged by these.

So for ABC Learning...



Lower pane show probability of manipulation at 21%. You'd want that to be at the near zeros. [btw, I came up with that measure, so it's trademarked by yours truly ]

But the final M score is just an overview, investors ought to look further into the factors that made up that final score.

Beneish himself broke the various underlying factors into two groups,

1. Distortions that can result from earnings manipulation: DSR, AQI, DEPI and TATA (Accruals);

2. Predisposition to engage in earnings manipulation: GMI, SGI, SGAI, LEVI.

As shown in the lower pane, Sales Growth Index [red line] jumps in 2004 to 2005, but.. .sales increases but margin decline.
Margin is shown by the Gross Margin Index [blue line]. It's rising but based on Beneish definition, a rising BMI mean declining profit margin from previous year [and is where Beneish's ratio doesn't make graphical/chart sense... anyway]




So it does give indication of a company's "predisposition" to manipulate earning. But there are a whole bunch of other factors to look into, apply it to the business in question to get a proper interpretation.

Like Altzman's Z score on financial distress...



All these measures doesn't mean the share price won't go up and keep going up. It doesn't mean the company's own fortune ahead won't change for the better.

And judging by the behaviours of the fundies, the pros, the value and the smart money guys... they'd probably make more money doing TA and ride the wave. That's what most of them did anyway, just a whole lot dumber.
 
luutzu said:
....

And judging by the behaviours of the fundies, the pros, the value and the smart money guys... they'd probably make more money doing TA and ride the wave. That's what most of them did anyway, just a whole lot dumber.
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That bit reminds me of a tongue in cheek comment in an article that I read (and can't find now) where they asked the question of how do you recognise a fundy surfer.
He is the one who jumps on his board after the wave has passed
 
Boggo said:
That bit reminds me of a tongue in cheek comment in an article that I read (and can't find now) where they asked the question of how do you recognise a fundy surfer.
He is the one who jumps on his board after the wave has passed
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And I was one of the idiots who jumped on right after the fundies did on that one

Ah man, worked so hard to almost doubled my puny capital the previous two years. Needed to get out to get a real job so thought to park it somewhere safe. What's safer than a childcare business highly recommended by the smart monies. Little did I know that they too don't know.
 
Ah ok.
 
Duck you have a good point. I don't know what to say anymore lol.
 
RandomInvestor said:
Duck you have a good point. I don't know what to say anymore lol.
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RandomInvestor, I think the duck will agree that you don't have to say anything, you've got it.

While some see it as us having a go, really we are just highlighting a significant potential flaw which you now see.

Cheers
 
With out being a smart arse
Just pop over to Charts of interest and have a look at WTC
 
Boggo said:
RandomInvestor, I think the duck will agree that you don't have to say anything, you've got it.

While some see it as us having a go, really we are just highlighting a significant potential flaw which you now see.

Cheers
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Feels like you guys are trying to suck me into the art of technical analysis haha. But I am still confused what ur on about. This part here confuses me "we are just highlighting a significant potential flaw which you now see." I'll look back to what you previously wrote.
 
I looked at those 2 links and I don't know what I am looking at. But I read again what you said on the first page, about profiting from A2Milk I think you are thinking shorting it?
 

The flaw I refer to is what tech/a highlighted in post #24, ie, in your original post you are attempting to find data to input in the formulae "to check if the company is manipulating their earnings".
If they are manipulating their earnings wouldn't that also imply that all of the data items you are attempting to input would likely be manipulated too ?

How do you know what are accurate or what is also "manipulated".
 
Ah yeah! Thats what I was thinking about when duck wrote that, but didnt write it because something didn't make sense. But yeah you're right lol. But with what you just said I am trying to say something but don't know to say it like I think its this, that you get those numbers at face value and through the the beneish model see if there is manipulation. But this is same as what I said before.

I don't know what is accurate or what is manipulated that's what I am trying to find out and having no luck. My learning of value investing seems at its end lol.
 
RandomInvestor said:
I don't know what is accurate or what is manipulated that's what I am trying to find out and having no luck.
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This is what I find hard about trying to analyse reports.
I started out using FA for many years but in my situation I found it takes too much time and so took the plunge into learning about T/A. I do not use indicators mainly EW, Cycles and Fibonacci levels.


I now find it so much easier to make decisions based on what I am seeing on a chart.

I still use FA but I use a paid service for this now "Lincoln Stock doctor" then use the charts to see if what they are saying and what is showing on the chart are agreeing.

The thing with TA for me now is even if I never use FA or read another report I would still be able to make money just from looking at Monthly and weekly charts and making decisions with what I am seeing on a chart.

Below is an extract from Market Wizards:



Happy Investing and Trading...
 
RandomInvestor said:
...

I don't know what is accurate or what is manipulated that's what I am trying to find out and having no luck. My learning of value investing seems at its end lol.
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I wouldn't give up on it, just don't adopt a religious attitude towards it or assume it is totally reliable.
There are numerous threads on here where it was obvious to blind freddy that something was amiss but yet some were ignoring reality.

I could probably put together a list where you could look at the ASX news, the post from individuals on here and on other sites and then look at what is actually happening with stock $$ wise.

One recent example was VOC, go back to about Sept last year in the posts and read on from there while glancing at the weekly chart positions as you go and you will see the obvious (to some).

I really do believe that FA and TA work well together as Triathlete describes but the chart is definitely the BS detector.

This is post #143 from there (didn't realise I had a list of failed stocks ) and the most accurate post on there is #144.

Just my again, Cheers

Post #143 from page 8 of the VOC thread in Oct '16.
 

You do realise you've quoted the person who very likely has the best record on this forum (there may be a few I'm not aware of that have better performance in terms of CAGR). People would bend over backward to replicate his success and his methods, and you've cherry-picked one post to suit your views.

Please tell me, what is the performance of your portfolio like? (CAGR since inception will do)


As an aside - I have to say I got this wrong (VOC). I did factor in some risk with the acquisition, but I didn't think it would be to this scale. That said, historically I've been right approximately 70% of the time (from memory - I did a review of this not long ago) and it gives some fairly good returns (20%+ per annum). I have to take the wrong with the right, because that's what this particular framework demands. If I choose at a later point to try my hand at technical analysis, then I'll make my decisions purely on this.
 
naughty boggo. Can't call the lord's name in vain like that.
 
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