Applied... Banks – Lehman Brothers 2.0 and Earnings Hocus Pocus. For me, one of the largest red flags in the market has been the continued poor health of financials.
The reason, of course, is that they are struggling to shrink their balance sheets, “extend and pretend” on their loan books, and earn their way out of impending Japanization. I’m not sure where I got this little piece of wisdom (and if you can prove it wrong please let me know): "There has never been a bull market in history that hasn’t been led by financial stocks. " A sobering thought. Banks are, despite all their crimes, still the veins and arteries that pump credit around the body of the economy which acts as a lifeblood to economic activity. Why a Basic Understanding of Balance Sheets Is Indispensible to Value Investors. Balance sheets are a crucial source of information for stock investors.
Balance sheets help in determining the financial health of a company and their analysis should be a large component of one’s stock screening and selection methodology, even for the novice investor.
Situational and SWOT Analysis for Value Investors. The goal of every value investor is to find undervalued, strong businesses that are likely to grow in value in the long run.
Warren Buffett and Charlie Munger’s four filters guide us to purchase “cheap stocks” of good companies that we understand, which have durable competitive advantages and solid managements. While strong analytical, mathematical and financial skills are crucial for investors to develop, critical thinking is just as important and is a skill best developed by studying the liberal arts. I’ll leave the topics of temperament and patience to another day.
The goal of this article is to offer a few tips on how to think critically about the strategic position of companies that you are looking to buy. In his book, "Common Stocks and Uncommon Profits," Philip Fisher highlights 15 questions that can assist us in critically analyzing companies' longer term prospects and provides us with a situational analysis of environment: 1. Should You Think About Stocks in Terms of Probabilities or Defenses? Someone who reads my blog sent me this email: Have you read "The Warren Buffett Portfolio" by Robert Hagstrom? If you have what are your thoughts on Chapter 6, The Mathematics of Investing? In this chapter the author describes using probability theory based on Fermat/Pascal system along with the Bayesian Approach to determine if an investment has odds in your favor. In a nutshell it uses decision trees to help with the analysis.
10 Essential Questions to Ask When Deciding What Multiple to Pay For a Stock. Buffett has correctly pointed out that the correct way to value a business is to calculate the discounted value of all its future cash flows.
The concept is simple. The application is not. For many businesses, it is difficult to calculate this with a level of precision that has much utility. Some businesses are sufficiently predictable that a careful business analyst can make a reasonable and useful calculation of its DCF, or what Buffett calls its intrinsic value. Also, sometimes in periods of extreme dislocation, a business will sell at such a depressed price that you can reasonably conclude that the market price is below intrinsic value, even if the range of possible DCFs is large. The multiple at which a stock trades is nothing more than a shorthand proxy for its DCF. A no-growth business also earning $1 million would be worth about 10 times earnings. Buffett-Munger Highlight Weekly Report – FactSet Research. FactSet Research Systems Inc.
(FactSet) (FDS) is a provider of global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide. FactSet supports the investment process from initial research to published results for buy and sell-side professionals. These professionals include portfolio managers, research and performance analysts, risk managers, marketing professionals, sell-side equity research professionals, investment bankers and fixed income professionals. The company’s applications provide users access to company analysis, multi-company comparisons, industry analysis, company screening, portfolio analysis, predictive risk measurements, alpha testing, portfolio optimization and simulation, real-time news and quotes and tools to value and analyze fixed income securities and portfolios.
Understandings Earnings Estimates. In the video above, Hewitt Packard’s CEO Leo Apotheker said the following: Carl: Before we let you go, Leo, I don’t know if there’s been a quarter since you joined where the company beat, if you will, I wonder you’ve got to be looking forward to that day.Leo Apotheker: We’ve beat this quarter.Carl: But with accompanied by guidance that was very disappointing.
Stock Picker's Delight - AlphaClone. If there is one overriding theme this year for investors, it is uncertainty.
Unsure about the staying power of the recovery in the US and debt woes both here and in Europe, investors have flocked to emerging markets and have been well rewarded. The iShares emerging markets index ETF is up 12% on the year, nearly double the return in the S&P500. For investors who took a more selective approach, the returns were even better. The iShares South Africa and Korea ETFs are up 25% and 15% respectively year-to-date. With an uneven recovery that has been neither global nor broad, 2010 has been a year where being selective and being right has really paid off – this market is a stock picker's delight. For those of you familiar with our international core investment approach, you know it invests quarterly in the ten ADR stocks that appear most often amongst the largest 20 holdings across our hedge fund universe. Analyzing Financial Statements.