Interesting question.
I guess I think along similar lines if I were to use the words long term survival and short term success, however I think the way in which I think about those concepts are different. I'd also point out that my views and investment philosophy have been growing and are in a state of flux - I have not yet reached a point where I can encapsulate all things that I need to consider before making a decision to maximise potential while minimising risks (I always seek to do things better).
Components:
- Long term value trend against current apparent value
- Short term potential impacts or drivers of value change
- Qualitative factors which may impact value over 1-2 years (e.g. cash flow, debt, sustainability and other issues)
- The macro factors driving the company - e.g. market trends, global factors, things which could throw value around like a leaf on a river
- *New: macro economic indicator to inform me quantitatively of likely market trend direction and strength. I've had some exceptionally out-sized gains eroded by getting the trend wrong. Invest in companies that fit in with the market trend and point in the cycle.
Views and investment philosophy change over time. Personally I started off reading the usual value investing books, then dabbled in some trading and technical analysis books, went back to value investing books. I then did a lot of reading on the internet. Started searching for books written by people who have outperformed the market for a significant period of time – I doff my cap to Mohnish Pabrai and Joel Greenblatt (You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits is still the best book on investing IMO).Reread some value books, even bought a book by Monty. I want to start adding some market valuations techniques to my selection criteria – there is good article by Bassanese in this month’s issue of AFR smart investor, he reckons the market is undervalued by a number of tests. I will do some more online research about indicators such as the buffett ratio etc.
My research to date suggests two possible investment strategies suitable for
me:-
1. Applying a “stingy investor” method. Refer
http://www.ndir.com/SI/articles/0111.shtml. I think his screening criteria is an excellent starting point. Price to sales less than 1 to check the stock his cheap, then some balance sheet checks and cash flow checks to confirm the stock is safe. Cheap and safe, a great place to start for me. Do some research then buy a handful, and hold for a year or so then sell and select a new handful. Repeat until retirement.
2. Pick my own stocks. Usually search using one of the low price to sales, high div yield plus low P/E, forum tips, magazine tips and so on. I then spent time trying to figure out the expected value of the investments - I discard 19 out of 20 of my ideas, most sink like a lead balloon after 15 minutes of serious research.
I suspect that 1. will give the best returns for the amount of work involved. I am confident that I could get 15% CAGR over the long term for less than 40 hours a year work as long as I switch the market off in my head for the year. All I need to do is pick a date each year, run a screen to get it down to a dozen or so, spend 3 hours on each checking the “safe” aspect of the stock, select the best 10, buy and hold for a period suitable for tax purposes then sell. Unsurprisingly I think I am smart enough to pick my own, therefore I have been applying 2. for the last 18 months. I have made profit but it is not long enough a time period to see if I have good stock picking ability.
As for GCS, I will wait for management guidance about large contract wins, as I need some confirmation that FY13 will be rosy before I step in.
Robusta, sorry for clogging the thread up.