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KJ
16-06-2005, 01:29 PM
Halebop-from the RBD thread I was impressed with your returns over the last 2 yrs-I thought that I had done well but nothing like your success-137% and 96%.

Like most I am keen to do better and will try to learn from you.My primary focus is on FA but have added some TA basics over the last yr.(thanks to Phaedrus and others)

I note that your portfolio normally only consists of only 1-3 coys and you currently have none.I agree with you on the fact that money is made when you buy and that this area is crucial.

With this in mind I am interested that you have not bought into any coys during thr recent downturn.What would your thoughts have been on say FBU at $6.00 or NPX at $3.30-$3.40 recently as these would seem to be sound undervalued coys at these levels.

Given your success I am interested in your thoughts.

Halebop
16-06-2005, 03:04 PM
Hi KJ,

Various companies do look good and in fact they (NPX, FBU) are two in particular I have looked closely at. Personally I prefer Australian companies for liquidity although this normally isn't an issue with your two suggestions. On a subjective level I'm nervous about property and construction markets which precludes both those companies. This isn't to say they will be bad investments (I think FBU in particular could be very good) but I'm unsure how to value them versus the structural risks they face. Uncertainty is not something I will invest in although I'm willing to trade it at times.

My "investment" portfolio normally only consists of 0 to 3 companies. Often my trading portfolio contains anything from 0 to 10 shares as well. These "trading" shares are companies with less certain fundamentals but strong technicals and the intention is to buy and sell on technicals - normally but not always over a shorter time frame.

The investment side of the porfolio is small in number because its hard to satisfy all the tenets, valuation criteria and trending data. However, despite Snoopy's doomsaying, they always pop up a few times a year. It just requires patience and the balls to act (the tide always turns at the lowest ebb). When they present themselves I buy strongly and they normally end up representing 80 to 100% of my net financial asset worth in just a few shares.

Colorado Group (ASX: CDO) has just popped onto the radar but I'm nervous about the Rivken connection alluded by SEC on the CDO thread and that the current quarter may be weak and present a better buying opportunity next quarter (I was hoping they would fall to $4 and rise from there, maybe allowing me to buy at $4.20 or so but this is perhaps now unlikely). I've bought a small parcel today despite a gut instinct to wait and will continue to slowly buy. CDO is one I feel I can back the truck up to. I have a NPV value of $14.30 based on 10% growth for 10 years with a 5% termination growth rate at a 10% discount rate. They also score highly on the Tenets. For me this puts them at a buy up to $7.15 which should allow a defensive investor to safely and slowly accumulate without being bitten to badly by a backlash to the "Rivken rush", albeit a little frustrating compared to jumping in at $4.60 or $4.80.

Once they are bought I will follow longer term trendlines that Phaedrus is so clear and concise in demonstrating. I used to just sell when they reached my perception of fair value. However, good companies so often get "overpriced" that I got frustrated leaving so much on the table. Technicals rarely get me top dollar but they normally allow me to get more bang for the buck

My favourite share is still MHI but they might take a while to satisfy my desire to buy at half their value or less. I'm resigned to the fact their growth rate may taper in 5 or 10 or 20 years before I ever get to buy them! Having said that, I have their NPV around $11 which is still reasonable value.

SEC
16-06-2005, 07:32 PM
Halebop, did you leverage to get those returns?

SEC

Halebop
16-06-2005, 07:45 PM
Hi SEC,

I haven't borrowed/owed any money for any investment since some time in 1999 (thanks Dad!) and I don't borrow to invest in listed shares. Just don't have the smarts or the balls.

Would consider borrowing for Real Estate investments but haven't felt so inclined up to now.

KJ
16-06-2005, 09:26 PM
Halebop-thanks for your response and explanations.I tend to hold about 10 coys in my LT portfolio so am interested that you go with 1 to 3 only.I think that you do a lot more homework in this area than I do.

Do you do well from trading?-I seem to be similar using TA although I only trade coys that I hold in my LT portfolio on the basis that I know them well.I agree that FBU has been a good coy to trade and have done so several times this yr.

Halebop
17-06-2005, 09:40 AM
I do OK from trading but for all the activity it generates the returns often aren't worth the effort versus a simple investment. Its still a worthwhile fallback in absense of any investment alternatives. I earned around a gross 35% or so last year from trading. Numerous buy/sells and various losses included. It was perhaps 90% of my effort for 25% of the net return but was still worthwhile because it beats 4.5% on call.

Lizard
18-06-2005, 11:21 AM
Halebop, greatly appreciate your generosity in sharing this stuff. I have a few more questions if you are willing:

a) How do you find "Buffett-style" stocks in NZ? I've found it impossible over the past 5 years, as anything that starts to develop the necessary performance history tends to either get taken over or moved off-shore. On the odd occasion a stock looks close, they either turn out to be a cyclical or are already well over-valued. Other than those already mentioned, are there other NZ stocks which would meet your criteria if they could be bought at the right price?

b) My problem with using NPV analysis has been getting in too early and out too early. As a result, my investments normally do nothing (or go backwards) for the first year, go up by 50-100% in the next two years and then I end up selling out and missing the next 100%. Sounds like you found something similar. But so far my attempts at TA have just made things worse.... When I buy on the uptrend, I just find I bought at the top of a small hump and when I sell the down-trend, it turns out to be a small and temporary dip.... where to start?

c) I'm assuming your results are before tax and include dividends. Do you include any cash set aside for share investing?

Cheers, Liz

Halebop
19-06-2005, 02:31 PM
quote:Originally posted by Lizard

Halebop, greatly appreciate your generosity in sharing this stuff. I have a few more questions if you are willing:

Bah, they're just words Lizard. I don't do anything that the reading of a couple of books couldn't emulate. Very few of my ideas are my ideas.


quote:Originally posted by Lizard

a) How do you find "Buffett-style" stocks in NZ? I've found it impossible over the past 5 years, as anything that starts to develop the necessary performance history tends to either get taken over or moved off-shore. On the odd occasion a stock looks close, they either turn out to be a cyclical or are already well over-valued. Other than those already mentioned, are there other NZ stocks which would meet your criteria if they could be bought at the right price?

The answer is "very rarely". But this is the answer in any market. I laugh when I see some fund manager set up and say they will use a "Buffett Style" methodology and you see they own 20 different public companies. It’s an oxymoron. In Buffett terminology you might say the biggest skill is knowing when to be slothful or refusing to "swing at the ball".

The most obvious Buffett deal I've seen in NZ was MHI a couple of years ago. I was still formulating my TA plan back then and refused to buy even though TA screamed DO IT NOW! I seem to recall Phaedrus quite rightly told me off for not buying. Ce la vie. I also thought Pumpkin Patch fitted the mould but without a public company track record I gave them a miss. Same for Freightways although I felt more comfortable with them and actually subscribed during the float. [Disc: Hold none of these companies]

I find Australia just offers more variety and better liquidity to NZ but is still close enough to home to be familiar with legal system, culture, language etc. I occasionally invest in UK and USA but I can palpably sense a lack of understanding nuance on my part.


quote:Originally posted by Lizard

b) My problem with using NPV analysis has been getting in too early and out too early. As a result, my investments normally do nothing (or go backwards) for the first year, go up by 50-100% in the next two years and then I end up selling out and missing the next 100%. Sounds like you found something similar. But so far my attempts at TA have just made things worse.... When I buy on the uptrend, I just find I bought at the top of a small hump and when I sell the down-trend, it turns out to be a small and temporary dip.... where to start?

I am slowly building and maintaining a database of NZ and Australian companies I wouldn't mind owning. This is irrespective of current performance or share market pricing (there may be a single year hiccup that hinder performance but aids valuation, like ALL). I then keep a watch on them to ensure they keep performing operationally and wait until the share price is both cheap enough and trending in the right direction. NPV alone is not enough. All this background activity might still result in not a single buy but I can normally count on 1 or 2 a year. Little investors have one huge advantage over Buffett in that we don't have to move billions to make a measurable impact.

TA needs to follow the longer term trend lines rather than the short term peaks and troughs. Phaedrus I've found is excellent at unemotively displaying these. I find this part the hardest because when I'm actively trading other companies as well I'

Westie
19-06-2005, 02:56 PM
quote:I am slowly building and maintaining a database of NZ and Australian companies I wouldn't mind owning. This is irrespective of current performance or share market pricing (there may be a single year hiccup that hinder performance but aids valuation, like ALL)

I like this idea, i've been doing the same. I've found from observation (& some buying) that companies that have good names, brands you are familiar with & seem to be everywhere, tend to bounce back very nicely after going through rough patches. All business go through bad times & have hiccups, but the good names tend to be more resiliant & turn around faster (at least the market pushes their prices up faster). MXG, JHX, FLT, AVJ, BCA. Of course we have been in a very good market lately so i'm not sure if the market will be so forgiving when times aren't so heady. But my reading of some good contrarian books e.g. david dreman: contrarian investing strategies the next generation, suggests that when buying these types of situations you are playing the psychology of the market & the odds always favours the beaten down stocks. Apparently the research shows even bad news can push up the price of out of favour stocks. I guess the key thing here is patience to wait for the hiccup.

One other thought though is that not all recover e.g. HWE & ION. These did have good bounces, but ultimately failed. So while the strategy works, perhaps some diversification or maybe a tight stop loss or tight criteria for selling would be advisable. Better yet would be to work out the common elements in the failures & avoid similar situations. I expect high levels of debt would have been a key factor (stating the obvious perhaps), & perhaps the nature of the businesses, i didn't follow ION but I think HWE's business had lumpy cashflows which made the debt burden hard to bear.

A further thought, anyone know of or use some good stock screeners for the asx & nzx?

stephen
19-06-2005, 03:37 PM
I dump out data from IRG's site into a spreadsheet for NZX stocks.

For ASX I go here http://www.ascii-data.com/ and download the CSV they kindly make available.

If you learn how to drive your spreadsheet program well enough that you can set up "filters" on columns, you're home and hosed.

But every now and then, when I'm bored, I go to ASB Securities' site (they have Aspect Huntly data for subscribers) and say to myself "I'm starting with Ts (or As or Ws) today" and just work my way through a bunch of companies. It's interesting to do a compare and contrast exercise, and occasionally you turn up something really worthwhile.

My watchlist on ASB's site is turning into something like Halebop's database of interesting companies. And yeah, it has MHI on it :-)

Dazza
19-06-2005, 03:43 PM
halebop a few questions:

how do u value the companies?

you seem to be like buffet, only going for companies with a good reputation etc ie 'brand'

CDO is a good brand, aswell as PPM and MHI here in nzl...

ive been burnt buy FTX/PBG/WHS, all of which are retail like stocks.... ive lost interest in retail these days, and prefer the resource stocks... or utilities..

now those are strictly NO NO stocks in buffet's worlds..

when i first read about his ideas.. i found how small oz and nzl are...

we do not have a company where the consumer = the world population... *eg johnson and johnson, gillete, coke etc.


i like you, prefer oz and nzl cuase its closer to home, we hear the info easily... investing in us is hard IMO, as we dun live there so we dunno whats hot and whats not...

if you could disclose any more tips/ideas would be lovely thanks :D

*i take it ur current holdings are just MHI and CDO*?

Lizard
19-06-2005, 04:41 PM
Halebop,

That sounds great and I think the database is something I should try too. But there's a piece of the puzzle missing for me and without it, I couldn't achieve your success (should you care? [^]).

I've owned both MHI and CDO and never made anything like that kind of return. I owned MHI for 3 years from $5, more just over one year ago at $5.32 and sold recently at $8.10. Even that last year only gave around 40% return after tax. CDO - well so far I've owned them for one year and lost money. Maybe you got that from trading in and out, but that would be hard to do on a "long term" trendline without exiting at similar prices to what you later bought back in at. If not, sacrificing 39% of gains to CGT would seem likely to eat up the difference.

My best shares over the past 5 years have all been most un-Buffett like - RPL RNS TEN MET PVO MHI were the best NZ picks last year, but only one of those beat 96%...

So what am I missing?

Sorry if this reads like scepticism or criticism - it's not! I'd just love to be able to duplicate your results for myself! (Though I'd probably ruin it by blowing the proceeds instead of re-investing!)

Cheers, Liz

OldRider
19-06-2005, 05:40 PM
STEPHEN:ASB Secs some time ago had as an objective to allow searching of the Aspect data,I have heard no mention of this lately,and it hasn't happened.

If you try this link: http://investor.ninemsn.com.au/investor/resource/tools/shares/default.asp

then click on the heading "SHAREFINDER" you can do this. Have a look, it may save you some time finding companies to look at, there a number of searches to be made, including a customise your own if I recollect correctly.

For myself, the use of the CSV file from the ASXSCANNER site you mentioned above with various excel filters does all I require. I have found the data there as reliable as any.

I use about six or seven filters, I could list them if any were interested, and get round 30 or so companies to look at after a complete market search. After this I just watch & wait for the best buying opportunity for any one to occur using charts on incredible charts.

Companies this method selected over the last year or so included JBM AGL BHP CDO FWD RBS SFC so not a bad record.

Halebop
19-06-2005, 07:07 PM
quote:Originally posted by Dazza

halebop a few questions:

how do u value the companies?

you seem to be like buffet, only going for companies with a good reputation etc ie 'brand'

CDO is a good brand, as well as PPM and MHI here in nzl...

ive been burnt buy FTX/PBG/WHS, all of which are retail like stocks.... ive lost interest in retail these days, and prefer the resource stocks... or utilities..

I used to build complex models specific to certain "admired" companies but this is too much work and yields no appreciable advantage. Now I measure a company by Buffett's Tenets (buy a copy of Warren Buffett Way or read the opening post of the CDO thread for a quickie view). Very few companies pass the muster on even a casual sweep before you even look closely at financials. This saves time.

Next extrapolate a series of likely growth rates from historical performance (this is subjective - I normally apply 3 - low, medium, high growth - which varies according to historical data and my knowledge of the industry and its fundamentals). Conservatism is a preferable route with this one. Assuming 20% profit growth even with strong supporting historicals is likely to be suicide. Try to make sure you have at least 7 years of trending data as well. Unless the company is highly cyclical anyway you really only want a maximum of 1 break from the trend line in a 7 year series. This ensures the sample data is statistically significant (and generally renders floats a no go zone).

Once you have growth rates use a DCF calculator to determine how much the company is worth. Make sure the calculator allows you to set a "termination" growth rate - i.e. You assume 10% growth for x years but after x you assume a lower growth rate. Conservative analysts use a zero termination growth rate. I normally use 0 and 5% irrespective of my base growth rates. High valuations can easily be ascribed by setting the termination rate too high. This kills the effectiveness of DCF and also demonstrates why many “professional” analysts get things so wrong.

Set a conservative discount rate. Buffett uses the long term US treasury rate. This is too low for my liking and exposes me too harshly to the failings of my qualitative analysis (after all, how many companies are worth a risk free rate of return? I don't think I have the skills, experience or luck to make that call). My absolute floor is 10% for high quality companies and higher rates from there based on subjective analysis. Obviously the higher the discount rate you use the lower the value you will derive (and the more conservative your outcomes will be). Often a good place to start is the long term return on shares (around 12%). Unlike Buffett I do consider resource companies. However in most cases a "perpetual" model like this is inappropriate so this method is NOT GOOD for judging a Matilda Minerals or similar "finite" cash flow (I might consider valuing a BHP or RIO on this basis though).

Once I have a range of values I compare them to the current share price. I will definitely buy a company if the share price is half or less the lowest "realistic" value I derive AND its trending upwards. I will "probably" buy if the share price is less than half the "average" valuation. It all depends what alternatives they are competing against. I will generally not buy at above halfway. Historically I've been a "garbage man" investor - buying unloved companies at a low point and then holding until they recover. This strategy has worked but often I did not accurately pick a low point which caused some pain before profits eventually materialised. TA helps me sleep at night. The funny thing about it is that it doesn't even have to work or make any sense (FAs get so caught up with the "meaning" or fundamentals of TA). It’s a statistical failsafe. Statistics ne

Halebop
19-06-2005, 07:37 PM
quote:Originally posted by Lizard

Halebop,

That sounds great and I think the database is something I should try too. But there's a piece of the puzzle missing for me and without it, I couldn't achieve your success (should you care? [^]).

I've owned both MHI and CDO and never made anything like that kind of return. I owned MHI for 3 years from $5, more just over one year ago at $5.32 and sold recently at $8.10. Even that last year only gave around 40% return after tax. CDO - well so far I've owned them for one year and lost money. Maybe you got that from trading in and out, but that would be hard to do on a "long term" trendline without exiting at similar prices to what you later bought back in at. If not, sacrificing 39% of gains to CGT would seem likely to eat up the difference.

My best shares over the past 5 years have all been most un-Buffett like - RPL RNS TEN MET PVO MHI were the best NZ picks last year, but only one of those beat 96%...

So what am I missing?

Sorry if this reads like scepticism or criticism - it's not! I'd just love to be able to duplicate your results for myself! (Though I'd probably ruin it by blowing the proceeds instead of re-investing!)

Cheers, Liz


Lizard you aren't missing anything. See the previous post for my views on MHI. Nor did I own CDO until a few days ago. I had some big calls both from trading and investing and not much failed me over the last 2-3 years. Mostly were companies that don't get air time here perhaps due to their "boring" qualities - Aristocrat, Brambles, CSL etc. Even my specs like Amcom were chosen on the basis of a solid business plan, proven execution and improving cashflows.

ShareTraders seem to prefer talking about little biotechs, recovering duds, speccy mineral explorers etc or massive, unsustainable growth in bubbly markets. These are "fun" and I buy them too occassionally but they are rarely rewarding on a consistent basis.

Talk about a company like CDO and mention 10%+ annual growth, debt free, stable operations, long operating history and it illicits little in the way of interest. (To those with a contrarian streak: "Growth" companies like CDO have fallen out of favour with markets globally since the late 90s...)

stephen
19-06-2005, 08:19 PM
Oldrider, thank you! Bookmarked for definite future perusal.

stephen
19-06-2005, 08:21 PM
And Halebop, thanks for the insight into your approach - one I like the sound of very much.

Dazza
19-06-2005, 09:27 PM
thanks for clearing things up halebop
the main problem was in books the warren buffet way sounds awesome..
but to apply it to ours or oz markets.... well yeah...

ill no doubtly be backing asking some more stuff... when i get into developing something


the hardest part for me was, the management tenent i mean i dun know much about directors and as such..

and that calculation thingie with the calculator, took me ages to figure it out..

Halebop
19-06-2005, 09:53 PM
quote:Originally posted by Dazza

thanks for clearing things up halebop
the main problem was in books the warren buffet way sounds awesome..
but to apply it to ours or oz markets.... well yeah...

ill no doubtly be backing asking some more stuff... when i get into developing something


the hardest part for me was, the management tenent i mean i dun know much about directors and as such..

and that calculation thingie with the calculator, took me ages to figure it out..


Management Tenets are the hardest. How do you recognise candor? This is the greatest test of your personal judgement. Having an insurance background helps me here because the most subjective but none the less heavily enforced "criteria" for underwriting is moral risk. Basically insurers decide: Where there's smoke, there's fire. Conviction for fraud? Seeya. Bad driving history? Ditto. The data proves time and again character does not change.

At one time I was a point of call for questionable commercial underwriting risks that maybe passed everything except a moral risk. The amount of times I made a judgement call to "give the guy a break" and then paid for it as he played out the exact moral risk that was highlighted... Businessman with 2 previous fire claims, one declined but no prosecution for fraud / @rsen. Guess what sort of claim he had with us just months after I accepted the proposal? Businessman declined insurance previously for an "alleged" technical non diclosure - i.e. his claim was declined because he failed to disclose a material fact on his original proposal. Guess what? Claimed with us and a raft of non disclosures including fraud charges came to light. Sure we declined his claim again but spent several thousands via lawyers to do it.

A good recent example is Jodee Rich / OneTel. I didn't even bother looking at the company for a moment because I had a memory of a previous Rich public company disaster. History may not repeat but character flaws are inescapable.

Anyone can point to examples where someone with a poor record later pulled a rabbit out of the hat. That's fine but its irrelvent. Risk Management is about mitigating known exposures. On the same basis I don't care if I missed a chance to profit. I only care that the chances I take profit - and I'll do that by reducing risk (or getting lucky!).

For a "point and click" DCF calculator try: http://www.moneychimp.com/articles/valuation/dcf.htm

Halebop
19-06-2005, 09:56 PM
Oh and cheers for the feedback everyone! I've probably said enough now.

Westie
19-06-2005, 10:15 PM
Thank y'all who are posting on this thread, some very useful information that I will definately make use of. Until now I've been subscribing & using the stock screener provided by Securities Research Co which is nz$140 for a year. I should really be a bit more diligent & thorough & use excel for some screens. That's a lot of info in that csv file stephen, excellent! Use to use the excel functions for data analysis when I was at varsity but i'm a little rusty now.

Be interested in hearing what criteria you are using for your screen oldrider. Every little bit helps;)

Lizard
20-06-2005, 06:17 AM
Thanks Halebop,

OldRider
20-06-2005, 08:41 AM
Westie:

Dividend > 0
NTA > price/7
Debt < 40% assets
CGVI >25
C1 > 9.3 (First part of cgvi calc)
C2 > 7 (Second part of cgvi calc)
OBP > Share price (Optimum buying price)

Latest scan selections were MCR MAP GLI JBM BSL RHD DTL FCO.

THIS IS NOT A RECOMMENDATION TO BUY THESE SHARES - JUST SOME COMPANIES TO LOOK AT FOR COMPARISONS.

Halebop apparently has a calculator which gives a valuation for a share from future cash flows, there are several excel models available free of charge, which allow variable inputs. I use one of these to calculate my OBP.

Just a simple test, what NPV or OBP would you place on a share with

present share price $2.00
PE 10
eps 20cps
geps 10% (annual eps growth)
dividend payout 50%
expected sale in 10 years requiring
1: return of 10%
2: return of 13.5%
expecting all facts to remain the same for this time.

Dazza
20-06-2005, 09:40 AM
i agree with u westie, just scored and book marked some good sites!!

halebop u will neva say enough hahah :D
thanks for the dcv site, makes my life a lot easier now.

as for the management tenants, yeah sounds right with past fraud etc, but how do u know though?

i once tried, googling the CFO etc... but that doesnt work to well.. or do u have to add '+ fraud' to the search?

Halebop
20-06-2005, 11:18 AM
quote:Originally posted by Dazza

i agree with u westie, just scored and book marked some good sites!!

halebop u will neva say enough hahah :D
thanks for the dcv site, makes my life a lot easier now.

as for the management tenants, yeah sounds right with past fraud etc, but how do u know though?

i once tried, googling the CFO etc... but that doesnt work to well.. or do u have to add '+ fraud' to the search?


Strictly speaking I think fraud is both more obvious and less detectable. A known or convicted fraudster will have his/her history clearly spelled out by the media - such as Alan Hawkins. A practicing but undiscovered fraudster will remain so until revealed by internal controls or some external event like market collapse or ownership change.

Moral Risk includes more subtle factors than fraud. Is someone better at clipping the ticket than generating shareholder returns? Are related party transactions "de jour"? Does someone have a history of company collapses? Maybe they did nothing wrong per se but they might have a high tolerance for risk and debt - leading to a high instance of default / receivership (various "company promoters" and property related personalities tend to fit this definition). They might have a fantastic offer but I will eschew it for reasons of moral risk. Their character flaws (or just plain bad judgement) are likely to eventually cost me money despite the apparent attraction of the current offer. This is the crux of risk management - acting on what you know and statistical comparison with industry norms.

This is also why insurance companies decline claims and cancel policies out of hand when they discover non disclosures. It might make good TV on Fair Go but common sense says if you reach an agreement with someone pricing in certain risk factors but later find those assumptions were flawed because you were lied to (or lied to by omission) you quickly realise you either undercharged or overpaid.

This happens with investing too. I've been keeping a watch on US listed lender Doral Financial Corp - DRL. The legal vultures are now swooping because the company is having to restate the value of some of its securities, potentially slashing more than a quarter of its shareholders funds and reducing its historical earnings. Now either this was a miscalculation (the securities are highly sensitive to discount rate assumptions and allegedly were not traded in a market place so could not be compared to a "market price") or investors have fallen foul of moral risk - in order to keep growth rates high and balance sheet strong did management or the board authorise some sharp or "optimistic" valuation practices? Some investors obviously think the later and have marked down the price of the shares and commenced legal proceedings.

kittydashwood
20-06-2005, 01:43 PM
Well done on your investments.
One question.

On entry into a stock where would you run the stop loss?
Do you hold out no matter what on yr FA research or do you run a TA stop?
Our is the stop earnings based?
cheers in advance

Halebop
20-06-2005, 02:25 PM
I don't have a "mathematical" rule for stop loss. I look at the volatility of the share before I buy and subjectively reach a number I feel comfortable with. Typically somewhere between 10 and 15%. Unless its a share in a timezone where I'm likely to be alseep I don't automate the stop either. Very occassionally I ignore the stop when it should otherwise be triggered, allowing the loss to run. I've usually benefitted from letting my gut rule although once copped a hideous 50% loss before I finally pulled the plug on a trade. It was a substantial portion of my net worth back then too! These days with me relying on TA more its not something I often have to think about.

stephen
21-06-2005, 12:30 PM
Oldrider, Halebop: question about your NPV or DCF valuation approaches.

Am I right in thinking that when we line up our series of cashflows, we are not using EPS as a proxy for free cashflow? Halebop, I believe you make a practise of looking at owner earnings - would it make sense to use forecast owner earnings per share rather than EPS?

Halebop
21-06-2005, 02:08 PM
Stephen I keep I simple Excel spreadsheet that I punch P&L, cashflow and balance sheet variables into on a year by year basis for companies on my "Potential Good Quality" watchlist. Each financial year I punch another 30 or so variables into the sheet for each company. Although from a qualitative perspective I look at owner earnings as a better barometer of wealth/cash generation for DCF/NPV I use published EPS excluding goodwill amortisation for simplicity and more reliable trending analysis.

Owner earnings can be very choppy and don't portray trending data very well in a series. Additionally its often based on assumptions rather than fact because few companies show a split (or an accurate split) on capex between maintainence and greenfields. As this greatly impacts any "derived" valuation technique one wonders why there is no GAAP reporting standard to split the 2 out? Sometimes I even catch out companies through their disclosures muddying the waters between reported capex and accounting treatment of the same. As such my Owner Earnings are often an assumed number and even if accurate can still impact percentage growth assumptions and therefore the ultimate valuation range derived. For these reasons they are less useful as a valuation criteria.

In no way does this diminish the value of owner earnings though. I've noticed a correlation between share price appreciation and improved owner earnings (the market seems to like the concept that a company is awash with cash). The danger is the Telecom situation where rising owner earnings were achieved partly by underinvestment and stability risked partly by excessive dividends and capital distributions. This eventually lead to falling owner earnings (aided in part by their failure of the institutional imperative re AAPT) and share valuations.

Jay
21-06-2005, 08:45 PM
Good thread this one.

Thanks Halebop for sharing your thoughts/strategy.

Also thanks to Oldrider for the good links and filters.

Oldrider, do you know how often they (http://www.ascii-data.com/) update the csv file, the latest one is 27th May or am i looking in the wrong place. Looks as though it is approx. monthly?

OldRider
21-06-2005, 10:41 PM
Jay: So far as I know the site is operated by just one person, he posts on some forums as "Catfish" and is in Perth. I have had a few
Email contacts with him over time.

Earlier the site was updated weekly, but recently
seems to be monthly, you can get an idea of the dates from the archive files, seems to be round the last week in each month.

Since the data is company fundamentals, other than price, the other values only change one or twice a year, so really for me this is good enough.

Jay
23-06-2005, 07:13 PM
Thanks Oldrider.

Dazza
23-06-2005, 09:58 PM
halebop, do u mind sending me an example of ur excel spreadsheet?
been trying to do it ... even the warren thing , i tried to emulate it on excel but to no avail...

cheers :D

Halebop
23-06-2005, 10:02 PM
Sure Dazza. Its not very impressive but if you can use it feel free.

Doh! Just noticed you sent me an email. Sorry don't use the account very often. Will send through shortly.

Dazza
24-06-2005, 10:05 PM
halebop
have u considered waste management?

just looking at the surface, i tink its a good co.

it makes money from rubbish..
rubbish will always be here..
they have a monolopy
predictable..

easy done..

what do u tink? i havent been able to check out everything on it etc

Cooper
25-06-2005, 02:39 PM
Just want to add my thanks for your input Halebop, much appreciated. Breaking it down enables people like myself (only in the game for a few years) to see the whole approach, which is invaluable for the structure, the questions to ask and the "mindset".

onlinesid
27-06-2005, 12:48 PM
wow, I get a severe headache from reading this thread [:p] so much information, data overload hehe

I will have to re-read this post again later.

Halebop, how did you start? [:I]

Did you learn about all these analysis stuff first?

Sorry I'm just learning about all this stuff, and just trying to absorb as much as humanly possible.

Thanks for the vast array of info here.

Halebop
27-06-2005, 01:22 PM
Hi Onlinesid.

I've always had a geeky bent for modestly techy subjects. I was one of those kids that played Dungeons & Dragons in the library at lunchtime and owned a computer before people even knew they were geeky.

I don't know why but I became interested in the sharemarket at about 12 or 13. I can still remember opening the sharemarket page of the newspaper having never, ever thought about it before. I suddenly became intrigued by all these strange, abbreviated company names and what the hell "PE" and "DivYld" were?

I was lucky in that my step dad was an active share market investor (he was into TA and made graphs on paper!). He was initally amused by my sudden desire to takeover the world. My imagination was fired by the coterie of dodgy Kiwis just beginning to run rampant across the ASX, NZX and more exotic locales.

My step dad let me use his brokerage account first but as my luck and ignorant ballsiness compounded the broker let me set up my own account even though I was still well and truly a minor. I invested in heaps of dodgy offerings that were available (mostly ASX) in the 80s but it wasn't until the mid 80s at the instigation of my more cautious step father I began reading up on investing. By September 1987 I suddenly gained enough insight to be terrified by what I was doing. I finished liquidating my appalling portfolio just a day before "The" crash. It wasn't through skill though - just a recognition that I wanted to become disciplined and found it easier to start with a clean slate. Blind luck saved me a lot of ill gained money.

Otherwise, my education has mostly been self taught with the occassional outburst from my original broker to help pull my head in when I was being a real fool. He's retired now buts he's the only broker I really felt was looking after me rather than just his commissions. I since completed an accounting degree which does help me read financial statements but otherwise was a waste of time.

Keep in mind though my thoughts are just my thoughts. They are regularly wrong or change over time just like anyones. My investment methods have evolved from jumping on every sexy new speculative offer to becoming a bottom of the heap value investor, to investing in high quality companies at good value to integrating TA as well (and the occassional short term trade). Through luck or skill I've profited through each phase of "my" style. (I think the real secret is that sharemarkets tend to profitable over the long term and you have to do some pretty "special" things to lose money).

Lizard
27-06-2005, 04:05 PM
Halebop, that is such a cool good-luck story regarding the 1987 crash! Let me know next time you sell up all your shares.;)

Lizard
01-07-2005, 05:03 PM
Halebop, new question...

I seem to be stuck with having sold everything I had which has gone up and holding a portfolio which I am sure is going to go up (but which is going nowhere fast!)....

Ever had that feeling? And what do you do?

Cheers,

Halebop
01-07-2005, 05:44 PM
quote:Originally posted by Lizard

Halebop, new question...

I seem to be stuck with having sold everything I had which has gone up and holding a portfolio which I am sure is going to go up (but which is going nowhere fast!)....

Ever had that feeling? And what do you do?

Cheers,


Hey Lizard.

I feel more like an Agony Aunt!


quote:Desperate in Dunedin writes:



Dear Aunt Bop,

I bought WHS back in 2003 but they just won't get up! What should I do?

Yours truly,

Desperate in Dunedin



quote:Aunt Bop responds:

Dear Desperate,

Flaccid WHS are a common problem. Try taking some out for dinner and a good dance. Prepare the house before coming home with soft lighting and mood music. I hear there are even drugs for that sort of thing but would recommend you try Oysters or maybe a good cup of hot cocoa.

Bon appetite!

Aunt Bop

...but if you're really looking for an answer I'm not really certain... There can be a lot said for inactivity. ...or not. If you're happy with TA just check if they measure up? The graphs soon tell you which way they are heading and where the leading indicators are pointing. Are they trades or investments? What’s your time frame on them? If they're trades and they aren't measuring up then sell. 'Course its the same advice with investments too - just the technical tolerances may be wider (and hopefully the fundamental tolerances are narrower!).

Lizard
01-07-2005, 06:14 PM
Hey Auntie Bop ;). All your fault I'm stuck in this bout of soul-searching over my stock-picks...till you made my returns look like bank deposit rates, I was feeling quite cheerful :).

Na, seriously, got to keep improving, but still trying to see my way forward. Probably just too impatient. Technicals - yeah, generally okay, but the uptrends are a bit weak! Hold about 30 stocks all up, so probably making it hard for myself by trying to watch too many.

Don't suppose you want to run a fund and let me concentrate on violin practice?[:o)]

Halebop
01-07-2005, 06:47 PM
quote:Originally posted by Lizard

Hey Auntie Bop ;). All your fault I'm stuck in this bout of soul-searching over my stock-picks...till you made my returns look like bank deposit rates, I was feeling quite cheerful :).

Its my mission in life to irk. [}:)]



quote:Originally posted by Lizard

Na, seriously, got to keep improving, but still trying to see my way forward. Probably just too impatient. Technicals - yeah, generally okay, but the uptrends are a bit weak! Hold about 30 stocks all up, so probably making it hard for myself by trying to watch too many.

You hold 30 shares? I hold 3. You should achieve 10 times my returns!



quote:Originally posted by Lizard

Don't suppose you want to run a fund and let me concentrate on violin practice?[:o)]


Hmmm. The fees for my services will keep me in Fish Eggs, Bubbly and Phat Cigars for life! [8D]

Lizard
02-07-2005, 10:21 AM
HB, the reasons I hold so many stocks are:

1. Inexperience - The belief that my stock-picking incompetence represents a form of diversifiable risk
2. Education - that is, a mild attention deficit which prevents me taking an interest in any stock I don't actually have money in.
3. Cowardice - I can't face punting more than 3 months disposable income on one stock....

So, if you'd just let me know how many phat cigars, bottles of bubbly and fish eggs are required.....[8D]