Question about Fundamental Analysis

I have read through various articles and threads and have a quick of question re FA.( I realise there may be no definitive answer but am interested in peoples opinions)

If one was to base their FA on a certain number of criteria do you find some criteria hold more weight than others?

For the sake of an example lets say I am comparing 2 companies and basing my FA on 6 different criteria.

Company 1 shows better results in 3 categories and company 2 had better results in the other 3 categories. In a case like this what would people look to do in terms of being a deciding factor?


Sorry I know, a noob question and people are probably cringing as they read this, but I figure better to ask and look stupid than be stupid and just not know

Hi T2S, that is quite a broad question!

My FA is most strongly influenced by Robert Hagstrom's interpretation of Warren Buffett in the Warren Buffett Way. If you use a strict approach like "Buffett's tenets" (mostly qualitative rather than valuation rules) you tend to be left with a handful of investment options - overlay value and the list generally gets pretty small. Maybe the problem you highlight really only exists when you can afford just 1 or 2 investments? As you increase your savings I don't think you will need to consider this factor quite so much.

In the end though, no matter what approach you use, the model must attempt to value the investment or predict a return. It would be unlikely that you end up with a lot of equal options. Something would have to provide a better looking return?

Also, I've usually kept concentrated portfolios and never found it an impediment to only be looking for a handful of options. I think it makes the job easier and keeps me more focussed.

Investing is a bit like life, there is no perfect solution to each problem. For myself I think that EPS
on NTA gives a good guide, next look for a dividend, then look at the share price for value.

The payment of dividends seems to be gaining in importance recently in company selection, I have thought so for some time.
Our family trust rules require 90% of share assets to be in dividend paying companies, and usually reducing or selling a
company following dividend reduction.

You could google CGVI, I use this formula for an initial screen.

Being the share collector that I am, if I find two companies I like equally for different reasons, I'll probably end up buying both!

But, for me, if there is a critical factor that clinches it, it is to go back 3 years and skim read through the presentations and results in chronological order. I look for a clear strategy that I can understand and that is being implemented as stated.

FA often throws up "cheap" companies. They are nearly always cheap for a reason. So I look for what that reason might be and whether the company strategy could provide a reason to change that (e.g. is the company likely to start paying a dividend?). If the company has had recent problems or disappointments, I like to see those problems having been signalled well in advance of the report for that period, along with a clear plan to deal with the issues... then to see that the plan was implemented.

thanks all. Appreaciate the help.

Time to do some research and number crunching

Quote:

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Originally Posted by KW

Mine in order:
- low P/E (preferably less than 15, but there is some tolerance here depending on how fast the company is growing)
- paying a dividend (doesnt have to be huge, just having the discipline of returning cash to shareholders)
- high return on equity (10%+)
- high return on capital (10%+)
- 3 years of continuous growth in EPS and DPS and maintenance of ROE and ROC.
- no unexpected profit warnings (companies will always have a bad year, but you want this to be well flagged in advance, and prepared for)

These rules will get you into some great companies at good prices, but will also get you out of some companies well ahead of time (it was the declining ROE and ROC that got me out of ABC Learning well ahead of it going belly up).

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T2S

I hope you have written down the info from KW's post above, that is a very good place to start.

It's a very good question, but the answers you will get will likely be different from poster to poster.

What you need to think about, is finding your own style.

Personally i have picked up bits & pieces from other posters over the years, from books i've read & developed it into my own.

There are plenty of references to Warren Buffet on this site, ie "wanting to buy $1 worth of assets for 50c" & hey we would all be doing that if it were that easy!

If you wish to reread some threads with "basic" calc's have a look on the ASX threads for SRL, DGR, MLM & HRS, as well as the "LOW EV Resource stocks" threads.

For some time i updated them with simple calcs i did off spreadsheets, ie the Discount to NTA.

How do you find such stocks, well it's all down to 3 things, RESEARCH, RESEARCH & RESEARCH! ;)