Present Value of Future Cash Flows

[RandR]

Thanks Andrew, what I'm actually asking is how can you perform step 3 of your analysis retrospectively and without bias?

+1.

Wording like "suppose we used" and ... "I have assumed" ...

For a professional to use ambiguous wording in relation to what has been aadmitted by him are some hypothetical returns doesnt inspire a lot of confidence in the actual product he's selling. I wonder why it doesnt state clearly on his webpage clearly the returns shown are hypothetical in nature.

I wonder what sort of fee is charged for performing this 'market scan' and stock selection and what sort of professional qualifications andrew has to select individual stocks based upon 'detailed analysis'. I wonder if his insurance covers his clients for any losses in response to his individual stock selection. I also wonder if the returns posted on his website take into consideration any fees or costs involved with the investment he's offering. It doesnt state clearly as to wether they are 'results net of fees' or 'gross returns'.

 

[Ves]

This thread has been enlightening. I had some knowledge about unit trusts but had never really thought about the long run tax consequences of super funds; the DTL been cleared at 60. Ves, out of curiosity, and I'm pretty at sea on all things that aren't SMSF super, but what's the running costs of a wrap account? When they were first introduced, iirc, they were primarily the domain of the HNW investors. But they seem to be for all and sundry now. I guess that's a as more and more HNW's have moved their money in to SMSF those wrap products needed to find new customers.

The only thing that worries me about super is that the government might change the tax treatment before I get to 60.

I often see a lot of our clients who have financial advisers with these Wrap accounts in their SMSFs too. When you include the adviser fees they usually have fees that range between 1-2% of the funds under management.

I believe that most of the Wrap accounts need an adviser - someone off the street just cannot access them. So you are effectively paying two lots of commission.

 

[McLovin]

I often see a lot of our clients who have financial advisers with these Wrap accounts in their SMSFs too. When you include the adviser fees they usually have fees that range between 1-2% of the funds under management.

I believe that most of the Wrap accounts need an adviser - someone off the street just cannot access them. So you are effectively paying two lots of commission.

Wow. So if you invest in a fund through a wrap account linked to your SMSF, you could be paying 4-5% in fees all up.

 

[Ves]

Interesting, and I didn't consciously realise this until I was reading a James Montier book, that I usually look for reasons why I wouldn't buy shares in a company, rather than for reasons why I would. Rather than looking at this negatively, it is in a sense a built in risk management mechanism. If a company can pass most of the outright negative elements that stop purchase - then it must be pretty solid.

Anyone else look at things in this way? I know most people are the complete opposite.

 

[McLovin]

Anyone else look at things in this way? I know most people are the complete opposite.

Ha! All the time. Just look at my posts in the stock threads on here, I'm usually negative. Sometimes, I feel like maybe I shouldn't say anything because I just tend to be Mr Negativity.

 

[craft]

Interesting, and I didn't consciously realise this until I was reading a James Montier book, that I usually look for reasons why I wouldn't buy shares in a company, rather than for reasons why I would. Rather than looking at this negatively, it is in a sense a built in risk management mechanism. If a company can pass most of the outright negative elements that stop purchase - then it must be pretty solid.

Anyone else look at things in this way? I know most people are the complete opposite.

Negative / Positive – you need both to arrive at balance.

On balance, considered against market price uncovers the potential opportunities.

 

[Ves]

Negative / Positive – you need both to arrive at balance.

On balance, considered against market price uncovers the potential opportunities.

Yes - knowing when to strike is also important! But only after it passes rigorous standards. I think that is what I am trying to say.

 

[skc]

Interesting, and I didn't consciously realise this until I was reading a James Montier book, that I usually look for reasons why I wouldn't buy shares in a company, rather than for reasons why I would. Rather than looking at this negatively, it is in a sense a built in risk management mechanism. If a company can pass most of the outright negative elements that stop purchase - then it must be pretty solid.

Anyone else look at things in this way? I know most people are the complete opposite.

It's always risk/reward. You can only determine appropriate position size by looking at downside scenario.

If you only looking at upside then every trade would be all-in!

Negative / Positive – you need both to arrive at balance.

On balance, considered against market price uncovers the potential opportunities.

Good to have you back, craft.

 

[McLovin]

It's always risk/reward. You can only determine appropriate position size by looking at downside scenario.

If you only looking at upside then every trade would be all-in!

I think part of it stems from the fact that the overwhelming majority of businesses don't actually represent good investments. So naturally, you'll be saying no a lot more than you say yes.

I do often wonder if I'm being overly picky about some things. I guess doing it by yourself, sometimes you can magnify what's not important and miss the big picture.

Sometimes a long cycle out to La Perouse clears the head.

Good to have you back, craft.

Hear, hear.

 

[Ves]

It's always risk/reward. You can only determine appropriate position size by looking at downside scenario.

If you only looking at upside then every trade would be all-in!

Perhaps skepticism is a better description of what I mean that negativity? Healthy skepticism!

 

[skc]

Sometimes a long cycle out to La Perouse clears the head.

From your spare Mc-mansion at Vaucluse?

I learned diving there at Bare Island. Great spot.

 

[McLovin]

From your spare Mc-mansion at Vaucluse?

I learned diving there at Bare Island. Great spot.

Yeah...It looks expensive, but I just got a good deal from AV Jennings. The way the market is at the moment I was able to drive a hard bargain (and park it in my 1000 car driveway.



I never knew that island was called Bare. Fact of the day!

 

[odds-on]

Interesting, and I didn't consciously realise this until I was reading a James Montier book, that I usually look for reasons why I wouldn't buy shares in a company, rather than for reasons why I would. Rather than looking at this negatively, it is in a sense a built in risk management mechanism. If a company can pass most of the outright negative elements that stop purchase - then it must be pretty solid.

Anyone else look at things in this way? I know most people are the complete opposite.

Ves,

I assess a business using the Altman Z Score over a period of 5 years - I think this makes me Mr Negative! I found an interesting article on the Z score and how effective it is. The article is heavy reading for my simple mind but I got the key point - watch the trend of the Altman Z score over a period of a few years. I find this is useful when assessing an ordinary business which has a business model and balance sheet which means it is always in the "grey area". A large difference in price to value (book/tangible/NCAV) has a nice risk/reward.

Cheers

odds-on

 

[Ves]

Ves,

I assess a business using the Altman Z Score over a period of 5 years - I think this makes me Mr Negative! I found an interesting article on the Z score and how effective it is. The article is heavy reading for my simple mind but I got the key point - watch the trend of the Altman Z score over a period of a few years. I find this is useful when assessing an ordinary business which has a business model and balance sheet which means it is always in the "grey area". A large difference in price to value (book/tangible/NCAV) has a nice risk/reward.

Cheers

odds-on

Am I correct in saying that an Altman Z Score is probably more useful in evaluating things such as Graham Net/nets? I haven't actually made much use of it in my search for quality companies - but I would be happy to incorporate it if I could understand it's utility for assessing such companies.

 

[odds-on]

Am I correct in saying that an Altman Z Score is probably more useful in evaluating things such as Graham Net/nets? I haven't actually made much use of it in my search for quality companies - but I would be happy to incorporate it if I could understand it's utility for assessing such companies.

You are correct. I find it a useful tool for Graham Net/nets and Graham Enterprising Investor type stocks. As for your search for quality companies, the article discusses the new ZETA bankruptcy model, the studies show the importance of cumulative profitability (measured by Retained Earnings/Total Assets) and Stability of Earnings (five to ten year trend of Return on Assets - EBIT/Total Assets), it would be interesting to do a data mining exercise of all companies listed on the ASX, i reckon a if a company scores well on those two tests alone it is probably a quality company without even evaluating the business model.

Cheers

Oddson

 

[Ves]

Just finished reading:

http://www.amazon.com/The-Little-Bo...&keywords=little+book+of+behavioral+investing

James Montier - The Little Book of Behavioral Investing: How not to be your own worst enemy

I found it a very insightful introduction to the behavioural pyschology side of investing. There are some good examples and question based learning to help explain the various biases and mental challenges that everyone has to face in investing (and all activities of life).

It would appear that all of the great investors seem to have processes in place to protect them from themselves!

 

[craft]

Just finished reading:

http://www.amazon.com/The-Little-Bo...&keywords=little+book+of+behavioral+investing

James Montier - The Little Book of Behavioral Investing: How not to be your own worst enemy

I found it a very insightful introduction to the behavioural pyschology side of investing. There are some good examples and question based learning to help explain the various biases and mental challenges that everyone has to face in investing (and all activities of life).

It would appear that all of the great investors seem to have processes in place to protect them from themselves!

Thanks for the review - the 'little book series' seems to have quite a few good reads in their line up.

It would appear that all of the great investors seem to have processes in place to protect them from themselves!

Thats gold.

 

[odds-on]

This might be of interest...

http://www.gurufocus.com/news/201254/what-is-the-best-way-to-learn-accounting

 

[humblelearner]

Hi Oddson/all,

Sorry if this has been asked someone else before but would you mind pointing me to the article/study you referred to regarding the Z-score?

Is there a good financial data mining package that someone could recommend where you could test your own ratios/analytical strategies? (I'm curious as to what James Montier's team uses in his books for their analysis)

Thanks very much!

Cheers
humblelearner

 

[Ves]

Hi Oddson/all,

Sorry if this has been asked someone else before but would you mind pointing me to the article/study you referred to regarding the Z-score?

I can't help you with the second part of your post - but here is an article regarding the Altman Z-score:

http://www.gurufocus.com/news/97312...ns-podcast-13-how-do-you-find-a-stocks-zscore