Value Investing 101

Let them go by

noreply@blogger.com (Anonymous) — Sat, 19 Aug 2006 17:31:00 +0000

On the first of August I wrote about how it's important to not swing at every pitch. The pain really come's when you see that stock go by shoot up. I talked about General Motors(GM) and now I bring another example. Bebe Stores Inc (BEBE), it cought my attention when retail's were getting pounded because of high gas prices (less money for spending,etc) .I have seen plenty of young teenagers with BEBE in fron of their shirts but never really knew that BEBE was publicly traded. Took a quick look at the balance sheet.....very very strong. Current assets were more than all of it;s liability.It's revenues have been up since the company went public in 98'. It has $25 dollars in cash flow alone! and it;s founder is still runing the show.So I look at a list I keep about old notes and I see BEBE. I go to Yahoo Finance and my o my its up more than 20%. I didn't buy because I thought there were better positions out there, which by the way are doing fine. This is one examples of many . Not all stocks that I let go by go up, some have done horrible while others just throttle along. I am not killling myself deep inside because I know the market is not going to go anywhere and sooner or later I will find a winner.

Finding value

noreply@blogger.com (Anonymous) — Thu, 17 Aug 2006 23:23:00 +0000

Value Investing is no easy task. As a value investor, it takes great efficient analysis to determine whether a security is undervalued. So what makes value investing tough?
#1. There's 100's of thousands of stocks
#2. Your up against some tough competition's (MBA's who make a living looking for value)

of course there's other reasons like the Efficient Market Theory (all available information about a security is reflected in its price) but I find these 2 reasons to be the cause. So where do we look?

Without using a screener here's some great tools. A great # of value legends get interested in the stock only after its price has dropped so why no look in the bin? Looking in the 52 week low list is a great place to search. Here's a link that provides a list of companies http://www2.barchart.com/low?&what=all&force=low%2easp

A quick at the list ( try clicking full list) I see that the New York times (NYT) and Dominion Homes (DHOM) are hitting new lows. What you re looking for is a lead nothing else. You need to find out WHY the stock is hitting a new low. Last week I checked the list and United Parcel Service (UPS) was hitting new lows, I asked why? And UPS had announced that their 3rd quarter numbers will be lower due to less days in the quarter. A quick look at the rest of the 10-Q and numbers were up. What about UPS the stock? The week of earnings release it lost 15% creating a wonderful buy oppurturnity.

Another great place to find leads is http://www.magicformulainvesting.com/ each day this screen of "undervalued" stocks is updated. Registration is free and once registered you cans search according to market cap. The site is based of the book The Little Book That Beats The Market by Joel Greenblatt. It is a value oriented book that is geared so that even kids can understand it. Basic point of the book is using a earnings yield (opposite of p/e) or e/p and holding a stock for exactly 1 year one could outperform the market. There is more to the book like ROA ,etc. I personally found it a fun read but that's as far as I would go.

Finally, another great place is using "value searches". MSN Money has at least 5 of them. Try typing in "invest like warren buffett" or "invest like Benjamin graham" and a couple articles with pre-built search criteria will follow.

noreply@blogger.com (Anonymous) — Wed, 16 Aug 2006 13:28:00 +0000

Just in case you have not seen the Warren Buffett interview on PBS, it is now available on Google Video for free. http://video.google.com/videosearch?q=warren+buffett
About half the video is before he announced his plans to give his money to the desired foundations (mainly the Bill and Melinda Gates). The series is divided into 3 parts and about 55 minutes long. Buffett does talk about stocks and why he was sitting on 40 billion cash (at the time of the interview). Warren's interview with Charlies is unique because Warren is a real private guy. By that I mean, he has thousands of fans but rarely makes any public appearances. By far the most intriguing part of the interview is how much fun he has and how empty his daily schedule book is.

noreply@blogger.com (Anonymous) — Mon, 14 Aug 2006 01:39:00 +0000

Avoiding the noise of Wall Street is one of the hardest things to do...
Everytime you turn on the television there is a good chance a stock ticker will be shown. Especially when you go to Bloomberg and CNBC. Adding to the noise are radio shows, the internet, your broker calling you,etc.... All this noise makes you want to jump at every stock tip out there. I will be the first to admitt that being a value investor is well boring. It takes great discipline to not jump at every oppurturnity (or not swing at every pitch). So how can you avoid the "noise"

This is soemthing that has helped me in the past. I used to be "addicted" to the stock market. I had my eyes glued on it almost 24 hours/day. Unfortunately I would swing at every pitch and never really had a way of approach the market. Whatever "X" said on tv I would buy it. Then I read about Value Investing, etc. But the trader in me couldnt resist looking at my positions. So I discovered Investopedia.

Nowww what I do is create a "speculating portfolio". This is a very affective way to be in the noise and avoid all the noise. Let me explain... all you have to do is sign up at Investopedia. Join a competetion. Everytime you hear a stock tip or you feel like "day trading" add it to the "speculating portfolio" and play around with it. This allows you to be in the noise without being in the noise.

noreply@blogger.com (Anonymous) — Mon, 14 Aug 2006 01:08:00 +0000

Reading is essential to improving one's knowledge. With the internet we have unlimited access to information. I have made it a habit of reading as much as I can. I read the local newspaper everyday (not just the sports section) and a book, no matter how busy I am. A great place to read from the most popular value investor is by going to the Berkshire Hathaway website. Here you will be able to read about some guy by the name of Warren Buffet(sarcasm) and his thoughts.Tons of information is found on the annual letters. Not only do you read from the master's words himself but it's free!,all you need to have is Adobe software.

noreply@blogger.com (Anonymous) — Sat, 12 Aug 2006 16:50:00 +0000

By far my favorite website to research stocks is Morningstar.com. Morningstar has tons of information and most of it is free! But they have a few hidden gems that might not be in the front page but can be very useful to a value investor.

Hidden Gem #1- Index Returns
Using the index returns we can see which type of stocks are out of favor.
Small Caps =Morningstar Small Cap TR
Mid Caps =Morningstar Mid Cap TR
Large Caps = Morningstar Large Cap TR

Looking at 13 week performance (3-months), we see that small stocks (represented by Small Caps) are out of favor (lagging by -10.21).On a 3 year horizon we see that Large Caps (10.23)are behind both Small (16.40) and Mid Caps (16.96).

Hidden Gem #2- Market Valueation Graph

The Market Valuation Graph is a quick way to tell if the market is undervalued or not. It has short term and long term views. Best advice is to get in when it's green.

Bottom Line- take a look at these tools to narrow your search a bit and to see if maybe right now stocks are a bit undervalued or overvalued

noreply@blogger.com (Anonymous) — Fri, 11 Aug 2006 03:43:00 +0000

Yesterday British Authorities foiled a terrorist plot to blow up American planes. It was all over the news. so what does this have to do with value investing?

Simple. Looking back to 9/11 stocks that day the Dow dropped 2,000 points! before returning to pre 9-11 levels. Not so bargains became bargains in a blink of a eye.

so whats the point you say?

The point is that it is important to keep a nice cash reserve for special situations. Fortunately the Brits were able to prevent another terrorist attack.

Their is no exact % of how much cash is a good amount. 10-20% is a good rule of thumb but it is up to you. Investors and Value Managers always have a nice cash reserve. Warren Buffett was sitting with $40 billion cash (he has $150 million coming in each day into Berkshire Hathaway)

-Bottom Line - keep some cash for special situations

noreply@blogger.com (Anonymous) — Thu, 10 Aug 2006 14:30:00 +0000

Like a handyman, a value investor has his tools. As a value investor, luckily for us the tools were established over 50 years ago.
The first tool we have is Security Analysis by Benjamin Graham and David Dodd. This book was the first to establish a clear cut way on how to analyze and value a company. I must warn you that Benjamin Graham has a very academic style of writing so it is best advised to take his books slowly.
The second tool is also provided by Benjamin Graham. The Intelligent Investor was the first book that really set forth the attitude and mental framework that comes along as being a value investor. The latest edition contains commentary by Jason Zweig in which he helps clarify some of Graham's principles.
A modern book and not so well known value investing book is The Five Rules for Successful Stock Investing:Morningstar's Guide to Building Winning in the Market. This book is very easy to read and more up to date on today's companies and market conditions.

These 3 "tools" alone will help you be a better investor. Re-reading these books will help you stay focused on the principles of value investing.

Thanks to the Internet we also have tons of information that makes the process much easier. Sites like Morningstar provide 10 years of free data!

The other tools I can think of is office tools. A simple calculator which allows the use of exponents, paper and pen will do the trick

noreply@blogger.com (Anonymous) — Wed, 09 Aug 2006 14:17:00 +0000

Investopedia.com is a free stock market simulator that is a great way to meet other people also to keep track a watch list. You can think of it as "fantasy stock market". You are given $100,000 in fake money and from there you can do whatever you want (short & options included).

Say for example you think UPS is a great stock at current levels (mid 60's). But you just have this little feeling that its not a good buy or you want to wait to dropp below your margin of safety. One way to use Investopedia is to buy a peice of a share and watch it maybe once a week.

If you have a group of buddies and want to see how you guys fair up in different styles, Investopedia is a great place to flex your muscles by creating your own competetion with your own set of rules.

I have no affiliation with Investopedia. And I do own shares of UPS

noreply@blogger.com (Anonymous) — Tue, 08 Aug 2006 14:32:00 +0000

Today is Tuesday a.k.a "fed day"

The market reacts according to what Ben Bernake (sp?) will say. If he stops interest rates hikes stocks will be green across the board and vice versa. So is this good news or bad news?
If rates keeps goign up it does add more risk and one might have to adjust the discount rate accordingly. .25 rate hikes are nothing to worry about. It is when rate hikes have made moves of 2% or more (think back at the turn of the millenium when interest rates were at 1%). Other than that no need to worry about the economy as a whole. No need to worry about whether its January, February or even Monday. Quoting Mark Twain....

OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February.
- Pudd'nhead Wilson's Calendar

noreply@blogger.com (Anonymous) — Mon, 07 Aug 2006 23:59:00 +0000

A new book arrived in the mail over the weekend. Currently im in my summer break so I thougt I would pick up a book. The book that I bought is Value Investing:From Graham to Buffett and Beyond. Amazon has it listed at $12 and change but a used/new one from a different buyer can for $11. It currently has been rated 21 times with a avg. of 4stars out of 5. Looking at what others who have read the book is a good way of judging whether the book is any good.

Anyway, Bruce Greenwald is not just any Joe on Wall Street. He is currently in charge of the Value Investing Course at Columbia University, that itself is a reason to buy the book. Hopefully this will save me a couple grand and a tripp to New York. I do have plans to write a good book review on here but it will be some time. I read books atleast 5x before writing a review. My reading process is something like below1st read.....I Skim through the book2nd..... I fly through each chapter3rd.... read 1 chapter...next time I re-read ch.1 and 2, next readI re-read chapter 2 and read ch. 34th... I read each chapeter twice5th....same as abovethis is what works for me and it allows me to grasp the information and also catch little nuggetts of information I might have missed

noreply@blogger.com (Anonymous) — Sat, 05 Aug 2006 17:26:00 +0000

3 awesome sites

I currently have 3 site links on the right side of the blogg 2 of them are popular and 1 of them might be unfamiliar to most

1. "Motley Fool"- The fool website has been around since the 90's and has transformed themselves from a "growth" oriented website to a Value oriented website. They have expanded their services by offering a Value newsletter(Inside Value) and a Mutual Fund (Champion Funds) newsletter. Whether you join their newsletters is up to you but I like to look at the site for their headlines and take's they have on certain stocks. The stocks they recommend are leads and should not be taken as your final buy decision. I did try their free 30-day subscription to the Inside Value newsletter ( you do have to provide credit card info. and must cancel before 30 days)
I was expecting more than a forum. I had trouble finding the basics of how to get started as a value investor. When I asked they simply pointed me to a list of forum links, clearly not organized. I was expecting a neatly organized PDF file. I messaged the moderator to cancel my subscription after 5 days or so and my trial was canceled within 30 minutes which was great. Overall Thumbs down on the paid newsletter. Thumbs up on the "today's headlines"

2. Morningstar
Morningstar started as a mutual fund database. The story goes , the found of M* called up the big mutual funds for their stocks. Once M* had the stocks they were able to figure out the philosophy behind the fund manager by categorizing the stocks into style (Large-value, small value, etc..) Morningstar has then moved into stocks with great success. They rate stocks using a 5 star point system. 5 stars being equal to a great company (with a moat) and a great price. They do offer a pay service that gives you access to analyst reports and the Intrinsic Value of the business. They also publish year books on mutual funds and stocks.
Morningstar is by far my favorite place to analyze a company they provide 10 years of data! For free (only downside they don't give free cash flow for the financial sector) overall thumbs up!

3. Falkin Investing Org.

I came across FIO through the Investopedia forums. At first I must admit I was a bit skeptical about spending any time on their forum but I have since met some great people. The folks at FIO come from all around the world. Everyone has a different style. Some focus on options others on Moving-Averages ,etc. They hold free competitions and offer free Amazon gift certificates. Everything is free there and its sole purpose is to help everyone become a better investor. All you need to do is ask a question and you can bet the farm they are going to find a answer. I check the forums at least once a day and find interesting topics all the time. Possible bullish picks, Cuba, Mad Money. Overall great group of people who have devoted a lot of time helping others. My hats off to them.

noreply@blogger.com (Anonymous) — Thu, 03 Aug 2006 23:44:00 +0000

Margin of safety are 3 words that one will here when relating it to value investing but what exactly is it?

The concept is simple once you understand, then again there are millions of people who dont understand value investing.

The margin of safety is the difference between price and intrinsic value. Intrinsic Value is how much the business is worth. Price is what the market is offering you.
For example, I have calculated that Dell is worth $43/ share. If i recall correct morningstar has it at $42. Doesnt matter everyone's evaluation is different but late 30's early 40's is standard. But if you look at the price it is currently trading at 22.09 with a 52 week low of 18.95. So if we buy now we have a Margin of Safety of roughly 50%.

50% is great, we are truly getting 50 cents on the dollar.

so whats the big deal? simple the MOS allows us a cushion if we make an error and most importantly it guarantees we dont overpay.

Another way to explain the MOS is ............. if your a trucker, you dont drive a 9,900 pound truck on a bridge that supports 10,000. You make sure your truck is pretty light.

The people who bought Dell at $40 and never sold are having a tough time make their investment back.

Always and I mean Always buy with a margin of safety, try to have atleast a 40% discount (60 cents on the dollar) the greater the discount the better.

noreply@blogger.com (Anonymous) — Thu, 03 Aug 2006 00:14:00 +0000

Apologies for not writing lately I have been busy with some personal issues but I have added the feed on the blogg.
Some upcoming post I have in mind are listed belowe: (No particular order)

-Phil Town
-Peter Lynch
-Margin of Safety
-Market Swings
-Mr.Market

and many more!

noreply@blogger.com (Anonymous) — Tue, 01 Aug 2006 13:29:00 +0000

Swinging at every pitch....

What this phrase refers to is buying every stock that the market throws at you. The market will throw stocks in your face every day through CNBC, Boomberg or through friends. As a value investor, it is very important to stay disciplined and avoid all the stuff that the market "throws" at you. The downside of not swinging at everything is that you will miss a lot of stocks that eventually rise. Butttttt you will also miss the stocks that go down.

For example, around early March I was reading Peter Lynch's " One Up On Wall Street"and was learning about the different cattegories Lynch categorizes his stocks such as, Growth, Cyclicals, Stalwarts,etc.... So I looked at the cyclicals. The auto industry is one of them, when the economy is well auto's do well. This can be said for the steel industry as well. In the auto GM was trading in the low 20's, CEO Rick Wagner was doing a great job with the unions, etc. It was obvious GM was in a better turnaround position than Ford. There were tons of good news coming out of GM the company but yet the stock was getting punded because of interest rates and other Street excuses. As of now the stock is now trading in the low 30's after beating analyst estimates for the 2nd Quarter.
Point is that you might look at a stock, you might looked at a winner or a loser but you dont have to swing.

In my case I didn't swing because I thought GM's auto's were inferiors to the foreign cars. Second, GM's SUV's were likely to decline in sales do to high gas prices.

noreply@blogger.com (Anonymous) — Mon, 31 Jul 2006 03:53:00 +0000

Sticking to a strategy is a tough thing to do. My first interest in finance came abouts when I was 18 and finished reading the The Richest Man In Babylon by George S. Cleson.
If you havent bought the book, it is a must. It's a perfect place to start your financial independence on the right foot. Later on I went and read Julie Stav's Get Your Share.
I implemented her advice immediately with moderate success. Basically its a modified version of William O' Neal's How to make money in stock but with different terms. The problem with Julie Stav's strategy is that it requires for you to understand chart patterns and "buy signals", that I am not good at. Also, it requires that one pays special attention to the stock symbol and not the stock. I dont know about you but if I am going to spend money, I atleast want to know what I am buying rather than depending on "buy signals" to make my final decision. So after reading Julie Stav's Get Your Share I looked for more material to read, something that is proven and has logic behind it. Lord behold I came across the bible of value investing, Ben Graham's The Intelligent Investor.If you haven't read the book I must warn you that Ben Graham has a very academia style of writing which can be boring at time. The book was first published in 1949 and has been revised several times, the latest in 2003 by Jason Zweig. In the latest edition, the full context of the original book is kept in place, t Zweig has his own chapter after Ben Graham's and also includes his own footnotes on some of Graham's thoughts. I will not talk about the book in details but where I am getting at is that the book has sold over 1 million copies for reasons.

#1 He backs his philosophy with great evidence. Charts and Numbers are given throughout the book.

#2 Every idea has logic behind it. " Buy low, sell high" is what we want and yet we do the opposite

#3 and finally, the book provides the framework for sound investing , you just need to provide the discipline

Bottom Line: Look at #3 and reread this book every 3-6 months to keep your mind focused on value investing .

noreply@blogger.com (Anonymous) — Sat, 29 Jul 2006 14:53:00 +0000

so why value investing?

why not "growth investing 101" or the ever more exciting "technical analysis 101"?

For starters, Value Investing is a proven and successful way of investing that has withstood the test of time and one only has to look at Forbes Magazine's richest people for the past decades to fine one of Value Investing's deciples at or near the top of the list.

Second, when Value Investing one is not stuck in front of the computer all day looking for "trends" and "signals". Value Investing will take roughly 2-14 hours/week. 2 hours (or less) is all that is required to check your positions on the weekend checking for any major events. 14 hours or less if you are looking to buy a company and want to research it.

Third, there are tons of information out there to help you understand and implement the philosophy. The most popular being Benjamin Graham's: The Intelligent Investor.

Finally,Value Investing is the true philosophy that allows us to "buy low and sell high"

noreply@blogger.com (Anonymous) — Fri, 28 Jul 2006 13:42:00 +0000

So what is Value Investing?

Value Investing as defined by Investopedia.com

The strategy of selecting stocks that trade for less than their intrinsic value. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, causing stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.

http://www.investopedia.com/terms/v/valueinvesting.asp

Value Investing as defined by Wikipedia.org

Value investing is a style of investment strategy. Followers of this style, known as value investors, generally buy companies whose shares appear underpriced by some forms of fundamental analysis; these may include shares that are trading at, for example, high dividend yields or low price-to-earning or price-to-book ratios. The main proponents of value investing, such as Benjamin Graham and Warren Buffett have argued that the essence of value investing is buying stocks at less than their intrinsic value^[1]. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions. However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value concept even further as his thinking has evolved to where for the last 25 years or so his focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.

http://en.wikipedia.org/wiki/Value_investing

Value Investing defined by Value 101:

Value investing to Value 101 is buying a business that is worth $1 for the price of 50 cents , thats it nothing to complicated ,some people get it or they dont. As this blogg grows, I will be giving insights, step-by-step instructions on calculating the business value and some "stock tips"