One thing I've noticed in the stock market is that people tend to buy in rising markets and sell during depressing markets. To an extent, it makes sense. I mean, buy when it's rising so you don't miss out and sell when it's falling so you don't lose more. Repeat this process twice and essentially, what you're doing is buying high and selling low. People always talk about having an edge in the market to outperform it, how about doing the opposite. Selling during rising markets and buying during falling markets?
Want another advantage? How about focusing some attention on $100m market companies. Some may say that if you do that you're taking on excessive risk (and most of the time you probably are) but not always. While others may say you're wasting your time because others would have invested in it already. That too may be the case but not always. This is slightly more complicated in that many funds cannot target such companies due to legal and other constraints.
A big advantage a value investor has over most others is attitude, for example the ability to exercise patience. Remember, your stock broker makes money on activity, while you make money on inactivity. Rather than constantly buying new issues or stocks you hear on the TV, why not hold fewer stocks and concentrate more attention to each one. A famous boxer once said, it's often the punches you miss that wear you out the most. When investing, you don't need to swing at every pitch. You may swing often and get lucky on some and hit them out the park, but most of the time this doesn't happen. Most of the time, the swings miss, and only end up hurting your wallet. My point is to focus on the ones that are to be hit out of the park. To do so, you'll need to be prepared to do your homework on companies. No one said it was easy, because if it were easy, everyone would be doing it. So what are you waiting for?
Tuesday 30 September 2014
Sunday 28 September 2014
International exposure!
As i mentioned in my previous post, (G8 Educaiton/Sirtex update) i believe the US economy is on a good road to recovery and that 10 years from now i believe the economy will be in a much better state now. For example, i believe the GDP per capita to be relatively higher than it is now. Contrastingly, i also said that i believe Australia's future is bright but I'm somewhat cautious in making this statement (it comes down to how you define "bright".) I'll give you one of my reasons: if you look at the most recent reporting season, earnings grew at around 6-7%. This is fine, but the growth has come from cost-cutting and the firms have distributed the funds back to shareholders in the form of dividends. So, i question how such companies will grow with strength in the future.
I believe the search for yield is somewhat misinterpreted by market participants, especially retirees who tend to rely on such income. I don't think they have considered that a 6% dividend yield now is great, but its the growth in the dividend that matters. If the company is growing it's dividends at a low level, inflation will destroy you. Especially if inflation is growing faster than the dividend yield itself! Telstra is a good example of this. If you bought into Telstra in 2007 because of the dividends you would have received 28 cents per share. Fast forward to 2013 and whats the dividend per share? 28 cents. Factor in inflation at, say 2.5% per year (middle of the RBA target band) over the same time, your real loss is about 16% (due to the erosion of purchasing power brought about by inflation.) I could go on for a while but we'll leave it there for now. I hope it's sparked some different things to look at if you're using the traditional "dividend yield story" which as you can see, if you dig a bit deeper, is flawed. I've held capital appreciation constant here which of course isn't realistic but it makes the point clear. Of course this doesn't apply to every company.
Another probelem faced by the Australian economy is the depressing terms of trade (mainly due to the multifaceted problems faced by our miners) this will subtract from our national income. Tie this in with where our companies are going to grow, it becomes more apparent we may have some issues. All of these problems among others are the sorts of things running through my head when i made my initial statement.
So what can we do about it? I don't think I'm in a position to give my two cents for these sorts of issues as they extend slightly beyond my level. But what i will say is what I'm doing. I'm buying part-ownership in good businesses. Some of which (especially Sirtex) deriving most of their income from overseas. If you believe the $A is overvalued this might benefit you over your investment horizon. That's one way, another might be to avoid companies that are dependent on interest rates being low. Seth Klarman has been reported to give back ( or will be giving back) about $4 billion to shareholders. One of the reasons is because he believes the fairy tale of free money (this is more prominent in America than Australia as the Fed Funds rate is basically zero and has been for a while now) will have to come to and end soon and some companies aren't positioned well to deal with inclinations in interest rates. As you can probably see, these reasons among others all come back to finding good businesses. But how you define "good" is subjective and is difference for everyone.
Going back to Australia's future, i believe it maybe wise to allocate a certain portion (maybe around 20%) of my invest-able funds to the American stock market. The appropriate method for me will be a low cost ETF (Vanguard or Blackrock probably.) I will continue my focus on Australia, but some money in an international market whether it be certain Emerging Market economies such as China or India or even buying a tiny piece of corporate America will be ideal for investors. Due to my lack of experience i won't be engaging with Emerging Markets just yet (if at all.) As a note, i won't be doing bottom-up stock picking in global equity markets (hence the ETFs.)
I believe the search for yield is somewhat misinterpreted by market participants, especially retirees who tend to rely on such income. I don't think they have considered that a 6% dividend yield now is great, but its the growth in the dividend that matters. If the company is growing it's dividends at a low level, inflation will destroy you. Especially if inflation is growing faster than the dividend yield itself! Telstra is a good example of this. If you bought into Telstra in 2007 because of the dividends you would have received 28 cents per share. Fast forward to 2013 and whats the dividend per share? 28 cents. Factor in inflation at, say 2.5% per year (middle of the RBA target band) over the same time, your real loss is about 16% (due to the erosion of purchasing power brought about by inflation.) I could go on for a while but we'll leave it there for now. I hope it's sparked some different things to look at if you're using the traditional "dividend yield story" which as you can see, if you dig a bit deeper, is flawed. I've held capital appreciation constant here which of course isn't realistic but it makes the point clear. Of course this doesn't apply to every company.
Another probelem faced by the Australian economy is the depressing terms of trade (mainly due to the multifaceted problems faced by our miners) this will subtract from our national income. Tie this in with where our companies are going to grow, it becomes more apparent we may have some issues. All of these problems among others are the sorts of things running through my head when i made my initial statement.
So what can we do about it? I don't think I'm in a position to give my two cents for these sorts of issues as they extend slightly beyond my level. But what i will say is what I'm doing. I'm buying part-ownership in good businesses. Some of which (especially Sirtex) deriving most of their income from overseas. If you believe the $A is overvalued this might benefit you over your investment horizon. That's one way, another might be to avoid companies that are dependent on interest rates being low. Seth Klarman has been reported to give back ( or will be giving back) about $4 billion to shareholders. One of the reasons is because he believes the fairy tale of free money (this is more prominent in America than Australia as the Fed Funds rate is basically zero and has been for a while now) will have to come to and end soon and some companies aren't positioned well to deal with inclinations in interest rates. As you can probably see, these reasons among others all come back to finding good businesses. But how you define "good" is subjective and is difference for everyone.
Going back to Australia's future, i believe it maybe wise to allocate a certain portion (maybe around 20%) of my invest-able funds to the American stock market. The appropriate method for me will be a low cost ETF (Vanguard or Blackrock probably.) I will continue my focus on Australia, but some money in an international market whether it be certain Emerging Market economies such as China or India or even buying a tiny piece of corporate America will be ideal for investors. Due to my lack of experience i won't be engaging with Emerging Markets just yet (if at all.) As a note, i won't be doing bottom-up stock picking in global equity markets (hence the ETFs.)
Thursday 25 September 2014
G8 Education/Sirtex update
As I've been witnessing over the past few weeks G8 Educations share price has been getting slogged. It is now getting to a point where I'm getting interested in adding to my position. G8 education is the lowest weight in my portfolio and I've been keen to add to my position for a while. The method i think i will take if i decide to do it will be to put 1/3 of the amount i wish to add to my current holdings now and add the rest over time (a dollar cost averaging system, albeit, a limited one.) However, the only difference is that I'll only add to my holdings in the future (that is, after the initial 1/3) if it lowers my net average price. So in a sense, a dollar-cost average system where i only add to my holdings if it lowers my net average price, otherwise hold off. I have a few reasons why i would take this method.
On another note, Sirtex will be holding their Annual General Meeting on the 28/10/14 which I'll be going to. It'll be exciting (hopefully) to see what they will have to say about the future of the company. I hope some good questions get asked or i can ask some myself.
On another note, Sirtex will be holding their Annual General Meeting on the 28/10/14 which I'll be going to. It'll be exciting (hopefully) to see what they will have to say about the future of the company. I hope some good questions get asked or i can ask some myself.
Tuesday 23 September 2014
A brief history of my stock picks
I have now been involved with the stock market directly for about 9 months. On the other hand I've also been participating in the ASX Sharemarket game (of which i'm playing my second game as we speak) which has been good. Here's some of the worst picks I've made YTD:
1. Crown (ASX sharemarket game)
2. Aveo Group (held in my own portfolio but sold due to various reasons)
3. Next DC (only been holding for a few weeks and I'm breaking even on it in the ASX sharemarket game 2 however wouldn't own this in my personal portfolio.)
4. Vita Life Sciences (A stock I've only held personally)
On the other hand, I've made some great stock picks which have served very well. All of these have been mentioned in the past and permeate throughout my blog posts since i started doing them.
1.G8 Education (paid $4.13 in the ASX sharemarket game 1 and also hold it in the game the second time round. I also hold this stock in my own portfolio)
2. Sirtex (Paid $14.72 in the ASX sharemarket game 1 and currently hold it in the ASX game round 2. I also hold it in my personal portfolio)
3. Slater&Gordon (only held it in the ASX sharemarket game 1 and i believe i paid about $5.65 for it but had to sell because the game is very short term and the stock was under pressure.)
4. TPG Telecom (paid $5.31 and have held this stock in game number 1 and currently hold it in game number 2, but don't own it personally)
These stocks have been the key performers of mine both good and bad. A subtle but very important note is that I've used share price performance to judge my own performance here only because it's common practice and it will make sense to readers. However, when i analyse my own returns this is definitely not the route that i take. Rather, i judge my performance on how the business has performed i.e. change in book value. This is a key distinction between myself and the vast majority of market participants.
1. Crown (ASX sharemarket game)
2. Aveo Group (held in my own portfolio but sold due to various reasons)
3. Next DC (only been holding for a few weeks and I'm breaking even on it in the ASX sharemarket game 2 however wouldn't own this in my personal portfolio.)
4. Vita Life Sciences (A stock I've only held personally)
On the other hand, I've made some great stock picks which have served very well. All of these have been mentioned in the past and permeate throughout my blog posts since i started doing them.
1.G8 Education (paid $4.13 in the ASX sharemarket game 1 and also hold it in the game the second time round. I also hold this stock in my own portfolio)
2. Sirtex (Paid $14.72 in the ASX sharemarket game 1 and currently hold it in the ASX game round 2. I also hold it in my personal portfolio)
3. Slater&Gordon (only held it in the ASX sharemarket game 1 and i believe i paid about $5.65 for it but had to sell because the game is very short term and the stock was under pressure.)
4. TPG Telecom (paid $5.31 and have held this stock in game number 1 and currently hold it in game number 2, but don't own it personally)
These stocks have been the key performers of mine both good and bad. A subtle but very important note is that I've used share price performance to judge my own performance here only because it's common practice and it will make sense to readers. However, when i analyse my own returns this is definitely not the route that i take. Rather, i judge my performance on how the business has performed i.e. change in book value. This is a key distinction between myself and the vast majority of market participants.
Sunday 21 September 2014
Nothing but red
The ASX200 has recently been getting obliterated. Uncertainty among QE policy, depressed miners and the depreciating $A among many other issues may be causing problems here at Australia. As I've mentioned many times before and will continue to do so, red is good. Instead of speaking along the lines of "the trend is your friend" i think along the lines of "red is your friend." I believe volatility is good if you can take advantage of it.
To jump round slightly, i believe Australia's future is bright but i'm somewhat cautions in making this claim. I have little doubt that America will be far better off 10 years from now, but that's a different story. As the mining boom concludes and Australia scrambles to make-up for lost output ambiguity increases. However, i don't think it's all doom and gloom. People will still be spending money domestically on certain things, no matter what the circumstances are. Having a part-ownership in good businesses is my way to hedge against most risks.
To jump round slightly, i believe Australia's future is bright but i'm somewhat cautions in making this claim. I have little doubt that America will be far better off 10 years from now, but that's a different story. As the mining boom concludes and Australia scrambles to make-up for lost output ambiguity increases. However, i don't think it's all doom and gloom. People will still be spending money domestically on certain things, no matter what the circumstances are. Having a part-ownership in good businesses is my way to hedge against most risks.
Saturday 20 September 2014
What's new
I've been idle with my stock research recently due to other commitments. However, my positions haven't changed in terms of relative weights or new additions. Currently, I'm long G8 Education (ASX: GEM), Vita Life Sciences (ASX: VSC) and Sirtex (ASX: SRX).
However, Sirtex is more on the side of a speculative buy at these prices. Sirtex's near-term future may see a large inclination in both key fundamentals such as, both the top and bottom lines and a "step-change" demand in their products if the Sirflox study proves effective. However, if it doesn't come out positive or lack of take up by oncologists and all the rest of it will probably see the stock plummet which could be both a good and a bad thing, depending on what you do with it. I've bought into this stock myself and am completely aware of the risks involved (i.e. a decent chance that my quotational loss could amount to 70% of the price i paid for it). So the capital used to buy stock was money which isn't needed elsewhere per say.
I've been a big fan of G8 education and how their expansions are coming along. They are exercising due diligence, which can be seen through their organic growth, attractive multiples for the business they're buying and cost discipline (rising EBIT margins). There are of course some key risks such as a macro downturn may lead to a slump in demand. (As I'm also a big fan of the qualitative side of investing and Phil Phiser's methods, I've spoken to many mothers about their opinions on child care services and I'm very pleased with the results I'm hearing. I've talked with parents from both low economic advantage all the way to the other end and there is definitely some consistency throughout their reasoning from both sides when it comes to child care). The biggest risk for me is their solvency with rising debt. Debt is something i disapprove of with pleasure.
The only thing I'd like to add about my previous VSC coverage is that I'm hoping their advancement into Indonesia comes sooner rather than later. However, I'm willing to wait, as always because I've got nothing but time baby!
However, Sirtex is more on the side of a speculative buy at these prices. Sirtex's near-term future may see a large inclination in both key fundamentals such as, both the top and bottom lines and a "step-change" demand in their products if the Sirflox study proves effective. However, if it doesn't come out positive or lack of take up by oncologists and all the rest of it will probably see the stock plummet which could be both a good and a bad thing, depending on what you do with it. I've bought into this stock myself and am completely aware of the risks involved (i.e. a decent chance that my quotational loss could amount to 70% of the price i paid for it). So the capital used to buy stock was money which isn't needed elsewhere per say.
I've been a big fan of G8 education and how their expansions are coming along. They are exercising due diligence, which can be seen through their organic growth, attractive multiples for the business they're buying and cost discipline (rising EBIT margins). There are of course some key risks such as a macro downturn may lead to a slump in demand. (As I'm also a big fan of the qualitative side of investing and Phil Phiser's methods, I've spoken to many mothers about their opinions on child care services and I'm very pleased with the results I'm hearing. I've talked with parents from both low economic advantage all the way to the other end and there is definitely some consistency throughout their reasoning from both sides when it comes to child care). The biggest risk for me is their solvency with rising debt. Debt is something i disapprove of with pleasure.
The only thing I'd like to add about my previous VSC coverage is that I'm hoping their advancement into Indonesia comes sooner rather than later. However, I'm willing to wait, as always because I've got nothing but time baby!
Wednesday 3 September 2014
Portfolio update
So reporting season has concluded. It was an eventful period for me as it was the first time i went through a EOFY season. Like with most things, we saw the good, the bad and the ugly. Some companies produced astonishing returns while some others didn't. I'll leave market analysis to others.
I had to tweak my portfolio a bit. I downsized a position as i had too much of my money tied to the one stock which isn't the best idea. I also had the opportunity to purchase a new stock which I'm extremely excited about. When i first started i set out a target to try to achieve a 15% return on my investment in my first year. This is still my current target.
I had to tweak my portfolio a bit. I downsized a position as i had too much of my money tied to the one stock which isn't the best idea. I also had the opportunity to purchase a new stock which I'm extremely excited about. When i first started i set out a target to try to achieve a 15% return on my investment in my first year. This is still my current target.
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