At any point of time, no one can tell for sure if the market price reflects the actual valuation of the company.
Share price can be traded to be historical high and climbs higher. This happens along with the growing of the company's earning. However, the ratio between the share price's growing rate and the earning's growing rate is a big question mark and have to be found out by a value investor through a throughout study & analysis.
Friday, October 14, 2016
Shall we always invest in a company with high dividend yield?
With a dividend issue, share price can be adjusted wrongly if the companies give lower dividend and the share price is penalized.
"The share price of these shares should be higher rather than lower on account of the fact that profits have been added to surplus instead of having been paid out in dividends.
Most frequently, however, the stockholders derive much greater benefits from dividend payments than from additions to surplus; This happens because either the reinvested profits fail to add proportionately to the earning power or they are not true "profits" at all but reserves that had to be retained merely to protect the business. In this majority of cases the market's disposition to emphasize the dividend and to ignore the additions to surplus turns out to be sound" - quoted from Security Analysis by Benjamin Graham.
"The share price of these shares should be higher rather than lower on account of the fact that profits have been added to surplus instead of having been paid out in dividends.
Most frequently, however, the stockholders derive much greater benefits from dividend payments than from additions to surplus; This happens because either the reinvested profits fail to add proportionately to the earning power or they are not true "profits" at all but reserves that had to be retained merely to protect the business. In this majority of cases the market's disposition to emphasize the dividend and to ignore the additions to surplus turns out to be sound" - quoted from Security Analysis by Benjamin Graham.
Should we consider investing in a company with debts?
When analyzing a company to invest, we should look at the amount of debts.
A company with some manageable debts (not negligible debts) can be a good company to invest provided the company has recurring income.
On the other side, we should AVOID companies with heavy debts but without recurring income/profits.
A company with some manageable debts (not negligible debts) can be a good company to invest provided the company has recurring income.
On the other side, we should AVOID companies with heavy debts but without recurring income/profits.
So recurring income is very important.
Sunday, October 9, 2016
My Portfolio Update as of 10th October 2016
Below are my latest Portfolio update as per 10th October 2016:
(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share (ex-cludes Bonus Share)
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share
(5) 800 Super: bought @78cts/share
(1) Sunningdale Tech: bought @$1.02/share
(2) Best World: bought @71cts/share (ex-cludes Bonus Share)
(3) Global Invacom: bought @12cts/share
(4) Avi-Tech: bought @28.85cts/share
(5) 800 Super: bought @78cts/share
Oustanding Companies - market leader - One of A kind
(1) Companies with any of the Four Types of Economic Moats:
1. Low-Cost Producer: companies which can deliver their goods or services at a low cost, typically due to economies of scale, can offer lower price to their customers, thus can win over their competitors. E.g. Wal-Mart.2. High Switching Cost: companies which cause their customers to have difficulties in switching from their products/services to other suppliers as when they do, they will be to pay a one-time inconveniences/expenses. E.g. mortgage loan from one bank to the other
3. The Network Effect: companies which have many people using their product/service which cause the value of their product/service increases for both new and existing users. E.g. facebook, google, amazon.
4. Intangible Assets: companies which have advantages over competitors because the unique nonphysical or intangible assets (patents, trademarks, and copyrights) they have. E.g. Coca Cola, Gillette.
(2) Companies which are able to maintain Consistency and having a good System in all their products/services including all franchising - easy in expanding & monitoring.
(3) "We want to be a large company that is also an invention machine" Amazon's CEO.
(4) Companies which generates much cash in-flows to the companies every year and while the cash is idle, they use the cash to invest into other potential business to generate more cash.
Positive, Neutral, or Negative Working Capital?
What is Working Capital?
Working Capital is the different between Current Assets and Current Liabilities. Currents Assets include Cash & equivalents, Inventories, and Account Receivables, while Current Liabilities includes Bank Loan, Account Payables, and other Finance Leases.
Positive Working Capital is current assets is more than current liabilities.
Neutral Working Capital is current assets is equal to current liabilities.
Negative Working Capital is current assets is less than current liabilities.
Which is the best option in selecting a company to invest?
I personally prefer a company with Positive Working Capital. As this can prevent the company goes bankrupt. However, there must always be a through out study and analyzing about the company's financial reports and its future prospect. E.g. When a company has a high account receivables is not always be a good sign. A higher account receivables means the company is having a longer credit terms to her customers, and while a lower account payables mean the company is not able to have a longer credit terms from her suppliers. And this may indicates the company is not able to make use of supplier's credit terms to benefit in growing its business in the longer term - the company might need more financing facilities along with the growing of its business.
Higher inventories does not always mean positive as well. The movement of inventories has to be analyzed by an investor. In other words, the investor has to really study a complete situation of a financial report and some qualitative aspects in analyzing the company, including positive, neutral, or negative working capital.
Working Capital is the different between Current Assets and Current Liabilities. Currents Assets include Cash & equivalents, Inventories, and Account Receivables, while Current Liabilities includes Bank Loan, Account Payables, and other Finance Leases.
Positive Working Capital is current assets is more than current liabilities.
Neutral Working Capital is current assets is equal to current liabilities.
Negative Working Capital is current assets is less than current liabilities.
Which is the best option in selecting a company to invest?
I personally prefer a company with Positive Working Capital. As this can prevent the company goes bankrupt. However, there must always be a through out study and analyzing about the company's financial reports and its future prospect. E.g. When a company has a high account receivables is not always be a good sign. A higher account receivables means the company is having a longer credit terms to her customers, and while a lower account payables mean the company is not able to have a longer credit terms from her suppliers. And this may indicates the company is not able to make use of supplier's credit terms to benefit in growing its business in the longer term - the company might need more financing facilities along with the growing of its business.
Higher inventories does not always mean positive as well. The movement of inventories has to be analyzed by an investor. In other words, the investor has to really study a complete situation of a financial report and some qualitative aspects in analyzing the company, including positive, neutral, or negative working capital.
What are Catalysts?
In investing, catalysts are very important as it unlocks the value of the shareholders.
1. Earning rate with much higher than its normal rate.
2. Merger & Acquisition
3. Launching of new products
4. Secondary listing
5. Spin offs of slower growth or no growth business
6. Recapitalization/refinancing, especially from well-known business investors/funds/companies
1. Earning rate with much higher than its normal rate.
2. Merger & Acquisition
3. Launching of new products
4. Secondary listing
5. Spin offs of slower growth or no growth business
6. Recapitalization/refinancing, especially from well-known business investors/funds/companies
Revenue Trend, Earning Trend....do these help in analysing a company?
According to Benjamin Graham, investors not to look too seriously at the company's trend in earnings because, while mathematical, it's really psychological and quite arbitrary. Nobody can judge how far the trend will continue but investors often try, leading to vastly over or undervalued stocks.
While the trend may not be a sound basis for valuation, the company's past track-record should be used as a rough guide to the firm's future. Benjamin Graham suggests that we place a lot of value on a stable past record when evaluating the earnings record since business stability suggests an ability to withstand external events to a greater degree, and this allows us to more easily assess what the firm could possibly earn going forward.
While the trend may not be a sound basis for valuation, the company's past track-record should be used as a rough guide to the firm's future. Benjamin Graham suggests that we place a lot of value on a stable past record when evaluating the earnings record since business stability suggests an ability to withstand external events to a greater degree, and this allows us to more easily assess what the firm could possibly earn going forward.
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