Young fullah on board

[samdaman]

hadn't thought about it in the first listed respect and that makes a lot of sense. I checked out some spreadsheets born and I've gotta say I'm struggling to piece together all the terms and values. I'm currently signed up to ASB and I'm using the morning star research PDFs provided by them. Whether it's my spreadsheets being too complicated or that I'm too new to investing however it's looking pretty tough at the moment. Things like beta that aren't listed on the report I have no idea how to calculate or what to put. I understand more time looking at these things will make me more comfortable with them, but at the moment it looks very overwhelming.

[Schrodinger]

Another good book to read is "Bulls, Bears and a Croupier" which was mentioned to me by a user in the ASX forum.

Its a good read and suited to newer investors. Focused on the ASX but if you plan to invest seriously you will find yourself buying Aussie stocks at some stage.

[Schrodinger]

Good analysis Born. Would you say you value these differently from the bigger brokers in town?

If not is picking stock trends more useful than running valuation models? The reason why I ask is that the valuation models are very well known but the top brokers use company interviews and future trend analysis combined with valuation metrics.

There are some good videos on the ASX with interviews of the top fund managers and they talk about their valuations, worth a look: http://www.asx.com.au/education/inve...ideos-2014.htm

[born2invest]

hadn't thought about it in the first listed respect and that makes a lot of sense. I checked out some spreadsheets born and I've gotta say I'm struggling to piece together all the terms and values. I'm currently signed up to ASB and I'm using the morning star research PDFs provided by them. Whether it's my spreadsheets being too complicated or that I'm too new to investing however it's looking pretty tough at the moment. Things like beta that aren't listed on the report I have no idea how to calculate or what to put. I understand more time looking at these things will make me more comfortable with them, but at the moment it looks very overwhelming.

I should hope it's overwhelming! It's a completely new subject to you. I've been reading books on investment since I was 17 and I still learn new things all the time.

I use ASB also and the PDF's are a great resource, I use them for any new company that I'm looking at for a quick reference if the company is any good. I think these are a great way to start seeing the difference between good companies and average companies.

I'd say your spreadsheets are too complicated. Investing should be as simple as possible. I don't think you need to get into the nitty gritty of discounted cashflow/dividend models just yet. Just learn the absolute basics.

A great resource I use is a website Investopedia. It's like a dictionary for investing. They have these cool 1-2min movies which shows complicated financial terms and makes them very easy to understand. They have "how to" guides on there for all sorts of things, including trying to value investments. Another good reasource is a book "Warren Buffett and the Interpretation of Financial Statements" this is really handy.

Right now I'd say your best bet to learn more things is just devour every book you can find at Auckland Libraries. You can reserve books and get them sent to your local library from all over Auckland so there are literally thousands of books on investing. Type anything into the search engine such as "investing" "stock market" "dividends" "business valuation" "Warren Buffett" "Philip Fisher" "Benjamin Graham" "Peter Lynch" etc and read read read.

Give me a list of businesses that interest you and we can talk through the pros and cons of the companies if you like.

[born2invest]

Good analysis Born. Would you say you value these differently from the bigger brokers in town?

If not is picking stock trends more useful than running valuation models? The reason why I ask is that the valuation models are very well known but the top brokers use company interviews and future trend analysis combined with valuation metrics.

There are some good videos on the ASX with interviews of the top fund managers and they talk about their valuations, worth a look.

The only broker forecasts/valuations I see are Morningstar, only because they show them on the page when you type in the stock you are looking at. My valuations that I want to buy at are always much lower. Fund managers have to buy something where as I'm happy to sit on the sideline for years at a time until something decent comes up so it isn't exactly comparing apples to apples.

[samdaman]

I should hope it's overwhelming! It's a completely new subject to you. I've been reading books on investment since I was 17 and I still learn new things all the time.

I use ASB also and the PDF's are a great resource, I use them for any new company that I'm looking at for a quick reference if the company is any good. I think these are a great way to start seeing the difference between good companies and average companies.

I'd say your spreadsheets are too complicated. Investing should be as simple as possible. I don't think you need to get into the nitty gritty of discounted cashflow/dividend models just yet. Just learn the absolute basics.

A great resource I use is a website Investopedia. It's like a dictionary for investing. They have these cool 1-2min movies which shows complicated financial terms and makes them very easy to understand. They have "how to" guides on there for all sorts of things, including trying to value investments. Another good reasource is a book "Warren Buffett and the Interpretation of Financial Statements" this is really handy.

Right now I'd say your best bet to learn more things is just devour every book you can find at Auckland Libraries. You can reserve books and get them sent to your local library from all over Auckland so there are literally thousands of books on investing. Type anything into the search engine such as "investing" "stock market" "dividends" "business valuation" "Warren Buffett" "Philip Fisher" "Benjamin Graham" "Peter Lynch" etc and read read read.

Give me a list of businesses that interest you and we can talk through the pros and cons of the companies if you like.

Yea i've become quite familiar with investopedia over the last couple of months, really handy for explaining terms and such. Any simple spreadsheets you could recommend then? Looking at the ones I sifted through did look a little complicated as you've said.

The only companies I've become really interested in so far are DIL, SUM and PEB (might just be overly influenced by their activity here on ST) But from what I've been reading these three companies have a bright future ahead of them

[Harvey Specter]

The only companies I've become really interested in so far are DIL, SUM and PEB

YOu have picked three really hard shares to value.

DIL - high growth Tech company but at least it is profitable unlike XRO etc
SUM - retirement village. you need to understand how their operation licenses work, preoprty revaluations (effectively free financing), etc
PEB - a company with little to no revenue but huge potential. Plus a pipeline of product improvements which are still in development but if successful, will be easy to cross sell.

Traditional valuations are easist with the big, slow company's like TEL, FBU etc

[samdaman]

YOu have picked three really hard shares to value.

DIL - high growth Tech company but at least it is profitable unlike XRO etc
SUM - retirement village. you need to understand how their operation licenses work, preoprty revaluations (effectively free financing), etc
PEB - a company with little to no revenue but huge potential. Plus a pipeline of product improvements which are still in development but if successful, will be easy to cross sell.

Traditional valuations are easist with the big, slow company's like TEL, FBU etc

Makes sense. Starting out with a small amount of capital would I not be better looking to try research into one of these companies at a hope for a better return rather than a longer confident return? I feel as I'm still a student a lower risk yield on my investment isn't the right plan of action. I'm not working full time past mid February so I decided to look more towards companies which had a higher risk of return.

furthermore what would be my best plan of action towards feeling comfortable putting money into a company like the 3 listed above, I can understand it would be hard to value companies with strange cashflows and fundamentals.

let me know what you think as I am very keen to take all advice on board

[born2invest]

Makes sense. Starting out with a small amount of capital would I not be better looking to try research into one of these companies at a hope for a better return rather than a longer confident return? I feel as I'm still a student a lower risk yield on my investment isn't the right plan of action. I'm not working full time past mid February so I decided to look more towards companies which had a higher risk of return.

furthermore what would be my best plan of action towards feeling comfortable putting money into a company like the 3 listed above, I can understand it would be hard to value companies with strange cashflows and fundamentals.

let me know what you think as I am very keen to take all advice on board

DIL- Ok not an easy one to value at all. In order to be able to value something using traditional business valuation methods, we need to be able to estimate well what the growth in revenue, profits, dividends and free cashflow are over the next 5-10+ years. Even if we do come up with a figure using the last two years it has made profit and positive free cashflow, it won't be very accurate as it will be a wild guess.
SUM- Only two years financial statements to go off which makes putting a value on it quite difficult.
PEB- Doesn't make profit and is in a negative cashflow each year so if you used the discount cashflow or discount dividend model, the value of this company would be $0. If you used the liquiadation value it would be worth $11 million.

Let's try the easier of the 3 to value, Summerset Group. Also lets use the discount dividend model (because it is the one I use and I feel most comfortable with it).


Over the last two years, earnings were 2.39c in 2011 and 7.34c in 2012. This is a growth of 307%

- Let's say that over 7 years, SUM is likely to grow its EPS on average 12%
- In 7 years time a reasonable P/E for SUM to sell at is 19
- Lets assume SUM keeps its dividend payout ratio of 34%
- I want 15% p/a return after tax

As seen in the table below, I have run this through my basic excel spreadsheet. All I have to input is the current EPS, the growth of those EPS, the current dividend payout ratio, the sale P/E after 7 years time and the required 15% return. If I discount my 15% return back to todays price I need to buy SUM at or under $1.27. The current price of SUM is $3.61 so according to this spreadsheet the current price of SUM is overvalued.

						19
	1.15
	1.12
year	eps	div	price+div	price	sum div	compounding
0	7.34	2.50	141.96	139.46	2.50	127.00	1	17.30
1	8.22	2.80	161.49	156.20	5.29	146.05	1
2	9.21	3.13	183.36	174.94	8.42	167.96	1
3	10.31	3.51	207.86	195.93	11.93	193.15	1
4	11.55	3.93	235.30	219.44	15.85	222.12	1
5	12.94	4.40	266.03	245.78	20.25	255.44	1
6	14.49	4.93	300.45	275.27	25.18	293.76	1
7	16.23	5.52	339.00	308.30	30.70	337.82	1
8	18.17	6.18	382.17	345.30	36.87	388.50	FALSE
9	20.35	6.92	430.53	386.73	43.79	446.77	FALSE
10	22.80	7.75	484.69	433.14	51.55	513.79	FALSE
	Buy below
	$1.27
	17.30 PE

[born2invest]

Let's say I'm a bit more aggressive on my figures. After 7 years the P/E is 25 and the EPS grow at 15% I can then afford to spend $1.96 on the stock.

						25
	1.15
	1.15
year	eps	div	price+div	price	sum div	compounding
0	7.34	2.50	186.00	183.50	2.50	196.00	FALSE	26.70
1	8.44	2.87	216.39	211.03	5.37	225.40	FALSE
2	9.71	3.30	251.34	242.68	8.67	259.21	FALSE
3	11.16	3.80	291.54	279.08	12.46	298.09	FALSE
4	12.84	4.36	337.77	320.94	16.83	342.81	FALSE
5	14.76	5.02	390.93	369.08	21.85	394.23	FALSE
6	16.98	5.77	452.06	424.45	27.62	453.36	FALSE
7	19.52	6.64	522.37	488.11	34.26	521.36	1
8	22.45	7.63	603.22	561.33	41.89	599.57	1
9	25.82	8.78	696.20	645.53	50.67	689.50	1
10	29.69	10.10	803.13	742.36	60.77	792.93	1
	Buy below
	$1.96
	26.70 PE