Robusta fundamental, leveraged investments

[robusta]

And the key point here is not don't listen to the market...the point is COMPLETELY IGNORE IT.

The market is a million Muppet's behaving like a million Muppet's....fact is there are no genuine believers selling FGE at under $5

Good point. Not sure if I can ever completely ignore the market but the ability to take advantage of it when securities are undervalued would be nice.

This brings us nicely to MCE, at about the same time I was arrogant enough to believe the market was wrong as I averaged down into this stock.

Think I may need to find some balance there.

Maybe just maybe my wife is not the only one in our house who experiences emotion.

 

[robusta]

Emotion is the right word. You bang on about how great a company X is from a fundamental point of view, then a week or so later it's all changed and you sell it.

I could be mistaken but there is a chance I may have made some errors is stock selection, entry and exit points.

The main errors IMO have either been by not executing my strategy properly or from deviating from my strategy but I digress... the question was about emotion.

I think you can argue that being impatient and impetuous are strongly related to emotions. You can learn to recognize and control your emotions.

Well you have given me pause for thought. Often I hear the main emotions that drive participants in the market are fear and greed.

Will have to put my hand up for greed, I waited a long time for the LOC to be activated and threw money into a falling market not wanting to miss out on the great prices on offer.

Also arrogance would have to be on the list as it has taken me a long time to admit mistakes.

Fear?? not so much, even when I sold FGE I was not afraid of holding a loosing position but looking to crystalize a loss and pick up more at a cheaper price

You posted this back in September and as dark and dire as things seemed I was not hurt'n or depressed but rather confident that lessons would be learnt and positive returns will come - this has not changed.

You must be hurt'n buddy. Are you sure about this margin loan thingo you are rabbiting on about? I know you also have MCE. It's like some stockbroker in China read this post and said to himself "I'm going to stick the boot into Robusta."

FGE today is selling for $4.780 I'm sure it's undervalued, but atm that's all anyone is willing to pay for it. What a difference a couple of months make?

Do you use stops at all Robusta?

So after that revelation the best way forward would be to work with my overconfidence and greed and resolve to seek higher quality businesses at a larger margin of safety.

I can only gather from your reply that if the decisions you are making are not emotional - you must be......

Greedy, overconfident, impatient, arrogant, Mum will be so proud.
Think I might spent the afternoon on the couch - watching F1

Well - you said it.

Yes I did, note how i have tried to throw some non-stupid sounding words in this post, maybe we should add insecure?

 

[Intrinsic Value]

I could be mistaken but there is a chance I may have made some errors is stock selection, entry and exit points.

The main errors IMO have either been by not executing my strategy properly or from deviating from my strategy but I digress... the question was about emotion.



Well you have given me pause for thought. Often I hear the main emotions that drive participants in the market are fear and greed.

Will have to put my hand up for greed, I waited a long time for the LOC to be activated and threw money into a falling market not wanting to miss out on the great prices on offer.

Also arrogance would have to be on the list as it has taken me a long time to admit mistakes.

Fear?? not so much, even when I sold FGE I was not afraid of holding a loosing position but looking to crystalize a loss and pick up more at a cheaper price

You posted this back in September and as dark and dire as things seemed I was not hurt'n or depressed but rather confident that lessons would be learnt and positive returns will come - this has not changed.



So after that revelation the best way forward would be to work with my overconfidence and greed and resolve to seek higher quality businesses at a larger margin of safety.



Greedy, overconfident, impatient, arrogant, Mum will be so proud.
Think I might spent the afternoon on the couch - watching F1



Yes I did, note how i have tried to throw some non-stupid sounding words in this post, maybe we should add insecure?

Yes selling out FGE was a big mistake. I think you need to be a little more patient. Nothing fundamentally changed with FGE when it sunk down to around 4 dollars so it was still a good buy at that level.

On the other hand MCE did change with cash flow problems and now not making a profit at all. MCE is still a bit of a risky stock but if you believe all the bad news is out of the way then it could rise quite nicely again.

BTW I hold both stocks. I am a little behind on MCE but way ahead on Fge.

 

[kermit345]

I hold both as well. Am behind on MCE but infront on FGE. I'll probably look to exit MCE sooner rather than later, but I see FGE as having more long-term potential depending on china cooling off and if new mines / expansions are eased off and by how much.

Not sure if you've looked at this one much but MML seems like a good fit for a fundamentals portfolio. Issues being that weather has hampered their production a bit recently as well as expansion and some distant earthquake tremors. Also single asset risk and political risk cannot be ignored.

Those are mainly the risks, but upside equates to a growth plan expanding production 4 fold, very low cost producer, zero debt and high returns (besides this financial year). They've had a price shock recently due to another reduction in production estimate for this financial year but if you can ignore some of that noise there is huge potential for significant re-rating in 12-18 months time. Thought i'd just spike your interest if anything else as MML under $5 gets into the value territory for sure.

 

[robusta]

Thank-you for that Kermit. MML does seem to have a lot of upside but I have trouble coming up with a fair value for this type of company. The price of gold has appreciated very quickly in recent times and I am not sure on how to evaluate the company specific risks.

For me one for the watch list until I can learn more.

 

[kermit345]

MML is quite easy to value IF and its a big IF the gold price was stable. Obviously this is not the case and that means their sales have the possibility to vary widely. As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation. I posted some share price estimates based on the gold price and what Price/Cashflow ratio the company trades on in the MML thread if your interested.

Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.

Anyway just an idea I'm refining my approach a little at the moment and will probably start a thread similar to this robusta so stay tuned

 

[robusta]

MML is quite easy to value IF and its a big IF the gold price was stable. Obviously this is not the case and that means their sales have the possibility to vary widely. As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation. I posted some share price estimates based on the gold price and what Price/Cashflow ratio the company trades on in the MML thread if your interested.

Thank you, I can see your point now, MML does deserve a closer look.

Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.

Anyway just an idea I'm refining my approach a little at the moment and will probably start a thread similar to this robusta so stay tuned

I would highly recommend this, a thread like this will help you in your investment journey IMO, good luck.

 

[Ves]

As its a single mine operating so one stream of cash flows that should make it fairly easy to come to some sort of valuation.

What about mine life and diminishing returns on the existing mine? The need to fund a new mine further down the track? I stay away from these companies for this reason; they're so hard to put a reasonable value on, and that is before you factor in freak events like weather, mine strikes, political risk, economic and commodity cycles etc etc and of course the underlying commodity price fluctuations.

I guess this is where the whole 'circle of competence' idea comes in; you really have to become in expert in the industry to put a good valuation on anything.

 

[So_Cynical]

Due to their margins even if the gold price drops to say $1,300 /oz there is no reason MML still can push through the $10 mark in 2 years time pending their expansion plans.

If POG fell back to 1300 rapidly i can assure you that the SP of all gold producers would fall substantially more in percentage terms than the POG...a fast fall to 1300 would signal to many the end of the decade long gold bull resulting the the SP of all gold producers getting smashed.

 

[kermit345]

Agree that their price would drop dramatically in the panic of the gold price drop, but MML's margin's are so great that some value would need to be recognised at some stage.

Ves, I totally agree with you on all fronts which is why i'd only look at investing in MML on a 2-3 year basis and review constantly along the way. Follow them through their expansion and once they are producing 2-400k p.a. start looking for an exit unless mine life or further opportunities can be provided.

Agreed their are risks, but in general with risk comes the potential for greater reward. I'm personally comfortable with investing in MML due to its high growth potential in the near term, others may not be and thats fine, totally up to the discretion of all individuals and on the whole i agree with a lot of the points made in previous two posts .

 

[tinhat]

It would be nice if we discussed MML in the MML thread. Regarding risk, position size accordingly. I own four times more CBA than MML and twice as much BHP than MML and I consider myself to be very long in MML.

 

[robusta]

PORTFOLIO UPDATE[/B]

Thought I might try a bit more of a report style;

Sold MCE last month for $485.45 more than I paid, so this brings my capital losses down to $3955.43, paid $144.68 to the bank in interest to bring this total to $1866.25 plus another $19.95 to the broker for a grand sum of $538.30

On the positive side $124.25 in dividends bought the income up to $673.57

So that is a loss of $5686.41

On the bright side the open positions are looking a little better

Open Positions
Bought:
853 x CCP @ $4.48 = $3821.44 26/07/11
1115 x MTU @ $2.62 = $2921.30 08/08/11
65 x COH @ $45.85 = $2980.25 30/09/11
1373 xOKN @ $1.455 = $1997.72 23/11/11
185 x QBE @ $10.81 = $1999.85 13/01/12
916 x PRV @ $0.655 = $599.98 25/01/12
1023 x NVT @ $2.93 = $2997.39 02/02/12
2976 x MEF @ $0.63 = $1874.88 27/02/12
Subtotal $ 19,192.81

Current Portfolio Position

853 x CCP @ $5.85 = $4990.05
65 x COH @$60.90 =$4023.50
2976 x MEF @ $0.63 = $1874.88
1115 x MTU @ $3.63 = $4036.30
1023 x NVT @ $3.55 = $3631.65
1373 x OKN @$1.255 = $1723.12
916 x PRV @$0.625 = $572.50
185 x QBE @$14.17 = $2621.45


Subtotal = $23,473.45

Cash contributed $1450.00 ($50/week) from 26/01

This brings the total loss considering the open positions to $1405.77

 

[robusta]

Have been busy with other stuff lately, too tired to update percentage returns in the last post but just realized some time last week the portfolio had some positive equity.:bier:

Will not get too carried away however as I had to put in $1450 of my own money to get to this position.

Looking forward to April will be selling QBE if prices are anywhere neat current levels after my minuscule allocation in the SPP.

COH has been a minor source of irritation as the price has fluctuated between $62 and $56, this should be a long term hold for me but I would consider buying more around $55. Hope the short sellers get the upper hand soon and I can add some more to this portfolio.

 

[Ves]

Looking forward to April will be selling QBE if prices are anywhere neat current levels after my minuscule allocation in the SPP.

Not fussed with it's long term prospects, I take it?

edit: also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise. Go back to their listing and allocate capital equally each year at their peak price. Then do the same with their low price. See how much it varies over 10 or 20 years. You will be surprised.

 

[robusta]

Not fussed with it's long term prospects, I take it?

edit: also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise. Go back to their listing and allocate capital equally each year at their peak price. Then do the same with their low price. See how much it varies over 10 or 20 years. You will be surprised.

I like the prospects of the insurance side of QBE but have a negative view of returns generated by the float invested in bonds.

The trouble with any business including a quality one like COH is to work out a fair price you are prepared to pay, and be patient for your opportunity to come. A lesson that has cost me some money to learn.

 

[craft]

also, if COH is a core position, does paying 5-10% more per share matter too much over the long-term? If you think they can repeat their past performance to some degree you should try this exercise. Go back to their listing and allocate capital equally each year at their peak price. Then do the same with their low price. See how much it varies over 10 or 20 years. You will be surprised.

Seriously insightful observation.

Its a bit late at night to be doing pivot tables - but I make it:

Luckiest person in the world who got the best close price every year for a 10K injection into COH would now have 1.05 Million in stock.

Unluckiest person who picked the worst close price every year would now have 745K in stock.

Person who never pulled the trigger still has their 180K.

Dividends and Interest excluded.

 

[odds-on]

Seriously insightful observation.

Its a bit late at night to be doing pivot tables - but I make it:

Luckiest person in the world who got the best close price every year for a 10K injection into COH would now have 1.05 Million in stock.

Unluckiest person who picked the worst close price every year would now have 745K in stock.

Person who never pulled the trigger still has their 180K.

Dividends and Interest excluded.

I have an observation regarding COH. The EPS (TTM) is 1.27 AUD according to ft.com. If one knows the future earnings with certainty then a DCF is the correct way to value the business. I will therefore perform a reverse 2 stage DCF on the current share price. (Assumptions EPS = FCF per share, Stage 2 annual growth rate = 3% and discount rate = 12.4%)

If Stage 1= 10 years then the current share price of $60.74 implies an earnings growth rate of approx 24% for the next 10 years. Or if Stage 1 = 20 years then the current share price of $60.74 implies an earnings growth rate of 15.7%

Priced for absolute perfection. Are there thousands of investors who are able to read annual reports, do internet research, read magazines, industry analysis and business analysis so that they have that much confidence in the future earnings of COH? Me thinks not. If I was to buy at that price I would need to have spent minimum twenty years working at the company/industry and a have controlling influence to even get close to feeling comfortable that I am ‘investing’ rather than ‘speculating’. At some point COH will fail, who knows when but it will fail.

Cheers

Oddson

 

[skc]

At some point COH will fail, who knows when but it will fail.

It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.

IMHO that is happening now, even though there's still a lot of past aura associated with the stock.

 

[odds-on]

It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.

IMHO that is happening now, even though there's still a lot of past aura associated with the stock.

Agree. Risk is permanent loss of capital.

My mind has been working overtime about 'market darlings'. I keep asking myself is it easier to calculate the likelihood of a market darling failing/PE rerate than it is to calculate the likelihood of a 'market darling' performing to perfection for the next 20 years?

Cheers

Oddson

 

[craft]

I have an observation regarding COH. The EPS (TTM) is 1.27 AUD according to ft.com. If one knows the future earnings with certainty then a DCF is the correct way to value the business. I will therefore perform a reverse 2 stage DCF on the current share price. (Assumptions EPS = FCF per share, Stage 2 annual growth rate = 3% and discount rate = 12.4%)

If Stage 1= 10 years then the current share price of $60.74 implies an earnings growth rate of approx 24% for the next 10 years. Or if Stage 1 = 20 years then the current share price of $60.74 implies an earnings growth rate of 15.7%

Priced for absolute perfection. Are there thousands of investors who are able to read annual reports, do internet research, read magazines, industry analysis and business analysis so that they have that much confidence in the future earnings of COH? Me thinks not. If I was to buy at that price I would need to have spent minimum twenty years working at the company/industry and a have controlling influence to even get close to feeling comfortable that I am ‘investing’ rather than ‘speculating’. At some point COH will fail, who knows when but it will fail.

Cheers

Oddson

It doesn't have to fail. It only needs the market stop pricing it for perfection and holders are in for a big reduction in their capital.

IMHO that is happening now, even though there's still a lot of past aura associated with the stock.

I agree totally with this. COH is a good company but far too rich for my blood looking forward.

V's exercise was interesting. But the assumption was that you saw the value back in the early days. The exercise was about how much you finesse the entry at the risk of blowing the opportunity.

The opportunity for COH in the next 18 years is not the same as the last 18 years. But the lesson is applicable as we consider current opportunities.