Posts tagged " value investing "

Farting Camel’s Guide to Citigroup

April 29th, 2010 Posted by Stocks No Comment yet

 

Farting Camel’s Guide to Stock Picking – Citigroup, Inc (C)

Citigroup stock price has been very active lately not to mention how widely priced; trading as high as $5.06 to a low of $4.38 – just within the last month.

(Note: I assumed that readers do have access to Google finance or other finance media to look up company profiles and financial data.)

COMPANY

Citigroup, Inc. (C)

ANALYSIS

(1)   Return on Equity (RoE)

Citigroup is like two separate companies when I look at the performances of the company; one prior to the 2007 and another after 2007.  Prior to 2007 the company posted excellent and consistent returns averaging 16.7 percent.  However due to recent year’s performances the overall 10 years return was dragged to a low of just 9.7 percent.  The recent 5 years return is 4.9 percent; indicating a definite downtrend.  Worst of all, Citigroup loss money in both 2008 and 2009.

It doesn’t take a genius to see the trend – we just went through a major depression and the economy is still trying to recover.  In normal circumstance I wouldn’t even bother writing about a company going through a downtrend. However, the current circumstance is nothing close to normal.  Regardless, Citigroup is not making the grade in the returns area.

Grade: Fail

(2)   Intrinsic Value

Valuing Citigroup is more difficult than most companies; I have to side more on the art of valuation rather than on the science.  Why? Because if I strictly follow my model the valuation of the company is very low – indicating that perhaps the stock is trading at valuation, with a target buy price of around $3.9 per share.

However, I can’t simply plug in the numbers from the past years and ignore the potential return to a more normal circumstance in the banking sector – one in which Citigroup has a better then good chance of making a profit; the company did announced a $4.4 billion net income in Q1 2010 on April 19, 2010.  Perhaps things are turning around for Citigroup. As a result, I think in a normal market Citigroup is worth a lot more than $3.9 per share – my valuation for Citigroup is around $11 per share.

Grade: Pass

(3)   Relative to Market

If you were the few fortunate and brave souls you could have purchased the company in 2008 at around $36.7 billion or $6.69 per share – price was prior to the dilution of the stocks in 2009.  The company has since increased the number of shares outstanding from 5.5 billion in 2008 to 28.5 billion shares in 2009. Even though current price is trading lower than in 2008 the outstanding shares are much more; hence market value is higher.  (Market value of the company is price per share multiply by shares outstanding.)

Currently, the market value of Citigroup is at $132 billion or $4.64 per share – considering the net current asset of $475 billion I think there is room to maneuver if there is a second wave of economic setback.  Citigroup holds a $293 billion loan portfolio at the end of 2009; if they are right about their potential loss being under 6.5 percent or just under $20 billion, Citigroup could still safely cover current cost. The company has $25 billion ‘cash and due from banks’ at the end of 2009.

On the upside, from 2003 to 2007 the company market value has never been this low.  I think with the current restructuring; returning to its core banking business is going to help Citigroup in the long run.

Grade: Pass

(4)   Ethical Issues

Corporate governance in my mind is okay.

Executive pay is another story, Mr. Vikram Pundit, the current CEO earned $128 thousand in 2009; a far different scenario as compared to his pay in 2008 which toped at $38 million.  I still can’t understand the rationale behind executive compensation with regards to companies receiving TARP money.  Sure, Mr Pundit is only making $128 thousand but his subordinates like Mr. John Havens earned $11.2 million in the same year (2009) when the company overall loss $1.1 billion.

Grade:  Fail

SUMMARY

Citigroup fail to meet the grade required.  The stock is not cheap when I take into account the valuation.  In addition, the company performances in recent years are troublesome.  Lastly, I hate to buy financial institutions because in the past management takes most of the profit away from shareholders.  Nevertheless, I did purchased this stock for my portfolio as I can’t see any reasons why Citigroup can’t compete in the global economic recovery now and in the next few years; after the recovery is a different story.  In addition its net current asset exceeds its current valuation; a sign that the stock is worth more.

Farting Camel’s Guide to Stock Picking – EOG Resources

April 7th, 2010 Posted by Stocks No Comment yet

This morning I received a lot of email alerts for EOG from my broker.  Perhaps it is a good time for me to focus on this company today.

Note: I assume that reader does have access to Google finance or other finance media to look up company profiles and financial data.

COMPANY

EOG Resources, Inc. (EOG)

ANALYSIS

(1)   Return on Equity (RoE)

Sales have been disappointing for 2009; it reverted to 2006 level while the net income was even worst – about the same as 2003-04 level.  Much worst is the earnings per share (EPS) . It has been diluting shareholders ownership since 2002.

The results are much better if you were to exclude 2009 results. The performance for the past 10 years as well as the most recent 5 years have been superior – averaging around 20 percent.

Grade: Pass

(2)   Intrinsic Value

Book value has been increasing at the rate of 20.9 percent in the last 10 years.  The company earns 20 percent on equity.  Using my discounted cash flow model I placed the intrinsic value for EOG at 201.  That means I would buy the company stock whenever the price is below 120.7. The price as of April 6 is $97.

Grade: Pass

(3)   Relative to Market

EOG market capitalization at the end of 2009 is about equal to 2007 level.  While its revenue and net income are much lower; the company earned a lot less in 2009 compared to 2007  and close to the earnings in 2004.  Outstanding shares have been increasing since 2002 from 229 million shares to 252 million shares in 2009. Book value has been increasing steadily from 2000 at 1.3 billion to 9.9 billion in 2009.  Quick ratio seems to be improving since 2007 at a low of  0.88 to what is now 1.37.

In the last 10 years, the prices of EOG have been hovering in the range from 25.8 to as high as 145 per share; putting the market value of the company at a peak of 36.1 billion in 2008.  Since then the market cap has gone down, trading in a range from 11billion to 25.6 billion for 2009. It is amazing the range that EOG stocks trades for: in 2008 the range was 13.5 billion to 36.1 billion. Interestingly, EOG net current asset at the end of 2009 was 24.5 billion; if you were diligent you could have purchase the stock for less than half (11/24.5) of its net current assets (cash, short term investments, receivables, and inventory). What a deal!

Grade: Pass

(4)   Ethical Issues

I don’t like to see the Chairman and CEO, Mark G. Papa being the same person.  The board is annually elected so I can over look this point.  They seem to have a policy in place for related party transaction.  I also get very uneasy when it comes to executives pay.  EOG pays the Chairman and CEO 7.9, 13 and 23.4 million for 2006, 2007 and 2008, respectively.  That is a lot of money in relative to other executives’ pay.  The net income of the company drop 13 percent in 2007 but Papa’s pay increased 64 percent; go figured!  Who do you think the compensation committee works for… the shareholders? You wish.

Even though EOG has issues in this area, their overall corporate governance is good enough to pass.

Grade:  Pass

SUMMARY

This analysis was done a few months ago; the recent buzz expedited this post.  I did purchase this stock for my portfolio a while back.

Farting Camel’s Guide to Stock Picking – Investment Technology Group

April 6th, 2010 Posted by Stocks No Comment yet

Here goes my analysis on Investment Technology Group (ITG).  Today I thought it was long over due that I need to put down the words meant in good faith many months back; my analysis of stocks from my perspective.  I will try to keep to these points:  1) Return on Equity, 2) Intrinsic Value, 3) Relative to Market and 4) Ethical Issues.

Note: I assume that reader does have access to Google finance or other finance media to look up company profiles and financial data.

COMPANY

Investment Technology Group (ITG)

ANALYSIS

1) Return of Equity (RoE)

For the past 10 years RoE has been around 16.4 percent. This is good but when I separated the 5 most recent years I realized RoE has been dropping to just 12.8 percent.  The decline continues with 2009 RoE at 4.9 percent.  The main causes for the decline were due in part to lower margins and asset turnover.

I gave ITG a pass in this area because I value the long term outlook – nevertheless I’m concern about the short term outlook for the company.

2) Intrinsic Value

Using the compound return on equity of 16 percent and a book value of 19.81 per share; I figured the intrinsic value for the company to be around 59.25 per share.  With the margin of safety set at 60 percent, my target for the company is  35.55.  In other words, the price of the company stock has to be under 35.55 before I can buy. The grade for this area is a pass because the current price is well under 35.55.

3) Relative to Market

The market cap for the company swings widely from 1.2 billion in 2000 to 1.7 billion in 2002; drops steeply to 755 million the next year, rebounded two years later to 1 billion.  It gets better, at the height of the 2006 the company was worth 2 billion.  Since then it has fallen steady to the end of 2009 at around 968 million.

In contrast, the revenue of the company is more stable; from 2000 they earned 297 million and increasing from this number with not too much differences every year to the height of 654 million in 2008.  This same trend was reflected in the net income from 2000 to 2009; with lows and highs tracing the decline and rise according to its market cap.  More interestingly, the book value continues to rise without any drop since 2009 from 210 million in 2000 to 867 million in 2009.

What does it mean? If you were to take the revenue in 2009 at 532 million, assuming without the drop in margin the company should be worth around 1.9 billion; this is according to its historical market cap.  Would the company be able to increase their margin in the near future? I won’t be able to tell you that.  What I could tell you is that the company market price per share has been trading between 61.2 to 10.88.  At the current price of 17.92, the company’s market value is 784 million, while the book value at the end of 2009 was 867 million and the net current asset of 910 million (both more than market value!).

The grade for ITG is a pass with regards to how the market values the company going forward; lots of room to increase in value.

4) Ethical Issues

The company chairman and CEO are two different people; this i like.  What I don’t like about this company is that the top 6 executives earned 10, 11 and 14 percent of the company’s net income from 2006 to 2008, respectively.  Taking into consideration it had a fair corporate governance, so I gave the company a pass.

SUMMARY

ITG received a pass for the overall grade and I quickly added this company to my portfolio.

Who Wants To Be a Millionaire?

November 20th, 2009 Posted by Stocks No Comment yet

I was looking through my files and saw an old Excel file on the accumulative effect of a good investment plan.  I thought it would be interesting to show you.  If you want to be a millionaire it’s either easy or extremely difficult – mostly, it depends on your age.  There are other factors that are much more flexible but there is no getting around the ‘age’ thing.

My friend Henrik told me a story he read about a guy struggling to get by on a million dollar a year salary.  I was dumb founded having heard the story but I can understand the premise behind the rational. However, I felt sorry for myself because I can’t relate. Luckily for the rest of us and surprisingly, you don’t have to be born with a silver spoon to retire rich.  It is also interestingly, you don’t have to have a job that pays very well neither. Don’t get me wrong it wouldn’t hurt to be born rich or to have a high paying job if your goal is to become a millionaire.

Two Simple Plans

The Installment Plan

You start with just investing $200 per month every month in an investment that gives you a return of 15 percent annually.  It would be difficult to find this kind of returns but it is not impossible.  The hardest part is if you are procrastinator like me because you will need to invest this money every month for 30 years.  Here’s what your investment would be at the end of thirty years.  Look at the big difference if you only have 20 years.



10 Yrs

20 Yrs

30 Yrs

Pmt

Rate

Future

PV 3% Inflation

Future

PV 3% Inflation

Future

PV 3% Inflation

100

15%

27,522

20,396

149,724

82,232

692,328

513,081

200

15%

55,043

40,792

299,448

164,464

1,384,656

1,026,162

The Lump Sum Plan

You start with putting $20,000 in an investment that will give you a return of 15 percent per year.  Yes, the investment duration is also for 30 years.  The result is surprisingly similar.  Here’s what your investment would be at the end.  Again, if you only have 20 years left – difficult.


 


10 Yrs

20 Yrs

30 Yrs

PV

Rate

Future

PV 3% Inflation

Future

PV 3% Inflation

Future

PV 3% Inflation

1,000

15%

4,440

3,291

19,715

10,828

87,541

64,876

2,000

15%

8,880

6,581

39,431

21,656

175,082

129,752

3,000

15%

13,321

9,872

59,146

32,485

262,623

194,629

5,000

15%

22,201

16,453

98,577

54,141

437,705

324,381

8,000

15%

35,522

26,325

157,724

86,626

700,328

519,010

10,000

15%

44,402

32,906

197,155

108,282

875,410

648,762

20,000

15%

88,804

65,812

394,310

216,564

1,750,820

1,297,525

The moral of the investing story is start early, very early.  Make sure you have more than 30 years left. The sad truth of only having 30 years on this plan is obvious.  If this is you, think of the more positive aspect, it wouldn’t be so negative for your kin.

Howard

P.S.  Value investing is the only way to invest.

Minding Your Own Business? Open Source Investing

November 1st, 2009 Posted by Stocks No Comment yet

There seems to be a lot of information on the web. But there’s always a catch. I am very proud of the ‘open source’ community when it comes to Internet Technology where multifaceted experts around the world share information and contribute to some mission perhaps much bigger then they alone can tackle.  Open source is an area where developers exchange and build on each other experiences.

It is the alternative to proprietary and much guarded information secret from the likes of corporate giants. I really do think our advancements in IT will come more from the open source community rather than corporation giants.

My interest is in investing, where everything is a guarded secret. I often come across interesting and relevant information only to realize shortly afterward that it was just some teaser from some research house trying to get me to buy something.  I’m not an animal but often felt as if I’m being lured into a big trap. Frustrating!  I can understand that people need to make money.  It still doesn’t make me feel any better about the tactics used on me.

I learnt about IT from reading works done from the open source community.  I thought about it with regards to investing in stocks.  How can I connect the dots? I do want to give back to the community that has helped me much.  I can’t help them in the IT aspects but I can definitely share what I do in investing in stocks.

Similar to the advancement in IT, I do hope that with relevant and meaningful information on stocks that an investing community would one day break the chain of dependency. We as a society, currently hold truth with regards to so call finance experts.  Much work has been done by the corporate giants of finance in the last seventy plus years to brain washed the general investing public in believing that we are not competent enough or somehow not smart enough to invest our own money in the stock market.  Let’s change that.

I don’t know of anyone who would take better care of my own money than me.  It is much clearer if you come from a perspective that is real – most fund managers only care about their own job.  They are not there to help you make money.  They are only there to try to keep their jobs and avoid being fired.  So, for the vast majority of the time, fund managers work on reducing their risk and not your risk.

My good friend said it best; he said if you want to get ahead in today’s corporate giants, “Do nothing”.  The more you ‘do’ the more chances you’ll make mistakes.  The more mistakes you made, the more likely you will be fired. There is one thing that I can’t deny is that today’s finance experts are very smart.  The smarter they are, the more they are inclined to do nothing.  My advice, mind your own business because no one else would.

Howard

Copyright © 2009 by Farting Camel

A Step Forward

October 22nd, 2009 Posted by Stocks 1 comment

Investing Principles and Methods Series (IPMS), October 22, 2009

I want to outline a simple and direct way to figure out the value of the stocks or the company.

Taking into account there are a zillion ways to approach this task, I would much prefer the ‘simple’ method if I have to sacrifice the ‘direct’.  Yet it has to include all of the important elements I consider when I look at a company.

I currently have an approach I think is valuable, one that I have credited to Graham and Dodd.  I want to take this opportunity to simplify my old analytical routine, and add a few details that up to this point, I had every intention to, but for one reason or another, have not.

For the past few weeks, I have been pondering as the market is moving upwards.  While I do not particularly take the market into account during my valuation, the movement as massive as the late market surged is a cause for much consideration.

I don’t know who is reading as our site is still new.  I reckon if there is a reader out there, I owe you the next installment.  There is no way I would know for sure if ‘you’, actually exist. I’m rather lax the past weeks – focusing more of my time on the cosmetic of the site, rather precariously.

With this update behind us – I should have a concrete outline by tomorrow, an installment plan to this series.

Howard

Copyright © 2009 by Farting Camel

Intrinsic Value; What Makes A Deal Worth Buying?

September 26th, 2009 Posted by Stocks No Comment yet

Investing Principles and Methods Series, September 25, 2009

My wife and I considered ourselves to be savvy bargain hunters.  We both needed to purchase a watch in anticipation of our job interviews.  Due to the economic meltdown there aren’t many jobs for someone like me.  I didn’t take the usual track in the investment field.  I didn’t go to an ivory league school.  When I first came to New York it was something many recruiters told me – that lack of an ivory league education meant it was very difficult for me to find work on Wall Street.  I was young, so when people say things that are impossible I have a knack for thinking to myself, ‘let me try it’ anyway.  To think about it, back then I was fearless, now, perhaps much less.

I believe my wife is one of the smartest people I know.  She came from some of the top schools in Singapore.  In Singapore the standards are so high, if I was a child growing up in Singapore it would be difficult to imagine what it would be like for me.  Thank goodness I was fortunate to grow up in Utah.  What a wonderful place where I had many fond memories of my childhood.  Needless to say both of us are out of work hence I have time to work on this project.  I plan to continue with this project until I’m completely satisfied that my readers know enough in this area for it to be his or her second nature.  At the moment, I don’t know if anyone is reading this.  I will persevere as if I have at least one reader.

Investing is fascinating and it is something I feel anyone can do a satisfactory job as long as you have an interest.  Today’s topic: yes, let’s get back to the topic.  If you have ever visited New York City you might have been to ‘Ground Zero’ and just across the street on the east side is Century 21, they sell brand name merchandise for a fraction of the Manufacture Suggested Retail Price (MSRP).  My wife and I found a beautiful watch made by Bulova.  It isn’t the best or the most expensive brand but it was definitely not cheap.  Bulova make a very high quality product.  But for some reason it was available for 69 percent less.  We saw a watch on display for $129 with a MSRP tag of $425.  We purchased it but then realized it had a scratch.

Well, that was enough for us to declare a state of emergency – so the hunt for a different watch was on; one without a scratch.  What we saw were amazing while we shop.  The watch industry was in some kind of liquidation mode.  Merchants were selling brand name watches like Concord, Citizen, and Bulovo at substantial discounts.  I always had a liking to Concord but they were usually priced around $2,000, now one of the models was going for $495.  Still, Citizen Titanium Eco watches; the indestructible watch with everything you ever need in a watch was on sale for $169, usually retailed with MSP of around $650.

Nevertheless both were much more then I can spend.  My wife thought about buying it.  We begin our discussion, as you would, I’m sure.  Our discussion led to a level of comfort with spending to a point where we were thinking about Rolex and the likes.  At that point we realized that we could only afford something nice but affordable.  Our conclusion, of all the brands, we thought Bulovo was the best for the money we can spend.  We ultimately found a watch retailed or with MSRP for $795 for only $129 and another retailed or with MSRP for $625 for $88.  We are both happy with our purchases.  I love my watch, BTW.

Investing in stocks is nothing more complicated then the process we went through to make a purchase of things we like.  In my example above, the MSRP tag is similar to what most investing people called the intrinsic value.  I got my watch for $129 that is similar to the quoted price.  It is easy to find out what the quoted price for any given stock listed on the exchanges, you can access finance.yahoo.com or MSN Money.  However, the intrinsic value or price or the MSRP tag is much harder to find out.  Most of what we do in investing is to shop for quality brands at a discount.  We go thought the same process as the one I illustrated above.  We do not pay MSRP for anything.  We want to aspire to be the Century 21 for stocks.

Here’s where it becomes a challenge – our question, “What is the MSRP tag?”  If you don’t know what the MSRP tag is how will you know if you are not over paying?  In investing, you make money when you buy.  So we need to buy it cheap.

Copyright 2009 by fartingcamel.com

Safety of Principal

September 23rd, 2009 Posted by Stocks No Comment yet

Investing Principles and Methods Series, September 23, 2009.

Today we continue to explore Graham and Dodd’s definition of an investment and what is considered a “safety of principal”.  Let me illustrate why it is important to safeguard your principal.  If we are going to invest in the stock market our benchmark would be the Dow Industrial Average (Dow). It is one of the oldest indices comprise of a group of 30 leading stocks which suppose to represent the overall market.

The Dow in April 1, 1932 was at the lowest point in the history of the Dow, it was at 42.84, and by April 1, 2009 it was 8447.  If you were to invest from the beginning and never sold any of the stocks you had purchased and assuming your return mirrors the Dow your compound return (interest earning on interest) would be around 7 percent. That is an equivalent to investing $1,000 in April of 1932 and by April of 2009 your investment would valued at $183,000. Please refer to figure 1 below.

Figure 1.

AMOUNT

START

END

INTEREST

FUTURE VALUE

1,000

1932

1933

7%

1,070

1,070

1933

1934

7%

1,145

1,145

1934

1935

7%

1,225

1,225

1935

1936

7%

1,311

1,311

1936

1937

7%

1,403

1,403

1937

1938

7%

1,501

1,501

1938

1939

7%

1,606

1,606

1939

1940

7%

1,718

1,718

1940

1941

7%

1,838

1,838

1941

1942

7%

1,967

149,417

2006

2007

7%

159,876

159,876

2007

2008

7%

171,067

171,067

2008

2009

7%

183,042

To keep things simple, if we are going to invest in the stock market we have to try to beat that 7 percent mark.  That means to earn a higher return against our benchmark. Why?  It would be easier to simply buy an equivalent amount of each stock that makes up the indices and earn that 7 percent.  If we are going to have to do any more work than buying the indices than we need to be compensated for our time and effort.

How easy is it to beat the Dow Indices?  Logic tells us that the collective return of every market participant earns an average of 7 percent.  In essence you are trying to compete against everyone else and yourself.  The bigger you are or the more money you manage the harder it is to beat the average because you contribute a great deal to the average.  This is important to keep in mind.

I brought up the notion of the Dow to examine the issue of safety of principal.  Take two situations below, both earns an average return of 7 percent compound interest in the last four years.  However, the part that makes up the overall returns varies and it is important to note.

In Scenario 1, what must be going through your head if you are the investor?  In 2005, you achieved an average return of 7 percent.  Then, by 2006 you must be thinking to yourself, “Perhaps, I can beat the Dow”.  So you implemented your plans and by the end of 2006 your returns was 47 percent, amazing.  Your ego swells up, like wise cash in your account. With all the compliments, you might have thought, “This is easy.”  By 2007, yet another successful year, this time you earned 19 percent.  In the end, by 2008, you have done everything as before but this time you met your faith and loss 30 percent.  Your average is now 7 percent for the four years. Can you see how difficult it is to beat the market?

Contrary, in Scenario 2, your objective wasn’t to necessary beat the market but simply to earn the average return.  Your goal seemed much more obtainable and perhaps more realistic. Often, when you first got started with anything, you tend to be overly-optimistic.  In investing you have to make sure you have a reasonable goal. Do the work necessary to earn a desirable but realistic return compensated with the amount of work you are willing to put into investing.  This is what I believed your “satisfactory return” requirement should be – what do you expect to make in terms of returns on your capital, time, and effort?

Figure 2.

AMOUNT

2005

2006

2007

2008

COMPOUND INTEREST

FUTURE VALUE

Scenario 1

1000

7%

47%

19%

-30%

7.0%

1311

Scenario 2

1000

7%

7%

7%

7%

7.0%

1311

We all know that some short cuts in life actually take much longer to complete.  It is not how fast you succeed but if you can hold on to your wealth. The scenarios above highlight a theme similar to my favorite racing story of all time, between the rabbit and the turtle – there are many versions but in the end, the victor, always the steady turtle.  In life, things are less certain with all kinds of exceptions. However, if you stick to the norm, the notion of “steady wins the race” does apply to investing in stocks.

You don’t have to go after the incredible 47 percent gain if you take care to safeguard your investment by not losing your principal. The above example illustrated that even with a monumental gain of 47 percent in one year and a 19 percent in another, if there is a chance of 30 percent loss; you could stand to lose big, or at the best being mediocre.

Copyright 2009 by fartingcamel.com

What is considered an investment?

September 22nd, 2009 Posted by Stocks No Comment yet

Investing Principles and Methods Series, September 22, 2009.

In the introduction, Graham and Dodd stated, “Even though the last bull and bear markets have been unexampled in recent history as regards both magnitude and duration, at bottom the experience of speculator was no different from that in all previous market cycles.”  He elaborated, “That enormous profit should have turned into still more colossal losses.”[i]

You need to understand the background of our textbook and perhaps a little about the authors whose work was published in 1934, with fresh memories of the great depression just behind them.  Benjamin Graham, at the time was a profession at Columbia University and David Dodd was his assistant.  Benjamin Graham was also a practitioner of Wall Street.  It has been said that few people were aware, he lost a great deal during the depression and perhaps it was an additional incentive for him to teach at Columbia.

In his twenties after graduating he was offered several opportunities to teach at Columbia but turned it down for Wall Street.  This guy was a think tank.  His teaching inspires many but the most famous of all is Warren Buffett.  Good thing for the great depression which indirectly lead Graham to teach without which there would be no Warren Buffett and without Buffett I would not have had this fascination with investing.

Our topic today is Speculation.  So what is speculation?  Graham and Dodd felt that it would be easier to ask, what is not considered speculation? For instance what is an investment?  Their definition is, “An investment operation is one which, upon thorough analysis promises safety of principal and a satisfactory return.  Operations not meeting these requirements are speculative.”[ii] If there is a chance of loss under normal and reasonable assumptions that we have to take into account it is then speculation and not investment.

Copyright 2009 by fartingcamel.com


[i] Benjamin Graham, David Dodd,1962. Security Analysis, The Classic 1934 ed. United States of America: The McGraw-Hill Companies, Inc. at 1

[ii] Ibid at 54

Investing Principles and Methods Series

September 16th, 2009 Posted by Stocks 5 comments

What do I want to accomplish in the next year at Investor Intelligent?  I have been looking at how the average person views investing.  In this area there are two extremes, the most common has to do with investing in money market or mutual funds and the other is to do it yourself investing or trading.  I am not going to focus too much on the trading aspects as there are many resources available in the market.  Most traders use technical analysis as a road map indicating when to buy and sell stocks.  While I think there is a use for the technical analysis I am not going to be focusing on this.

What I will focus on is the fundamentals of individual companies. Our purpose is to investigate a company and discover for ourselves how they made money in the past and how much they are going to make in the near future.  We want to be able to assess the value of the company.  What is it worth to us in terms of three scenarios; 1) by itself, 2) relative to their competitors, and 3) relative to other investing opportunities?  The reason is obvious we need a value in order to assess if we can buy the company or a portion of the company, i.e. stocks at a fair price.

 In this series my concern is how an individual investor evaluates the company behind the stocks.  On one hand it is easy to use the reports written by Wall Street Analysts for most stocks covered by the Analysts.  In addition, there are all of the financial media outlets such as Mad Money, CNBC, Bloomberg, etc.  Also, don’t forget all of the financial newspapers and magazines.

On the other hand if you are like me and you are not sure or if you think there is an inherit bias; reporters reporting  simply need to have something to write about – most of the time the contents don’t even make sense – often times linking causes and events that defies common logic, sometimes the reasoning is so logical that makes you pondered if the reporter isn’t putting much work in the article, simply settling on an easy way out.

Then there are the expert authors whose writing is to educate you on the company or stock. Unlike the Analysts and the reporters the motivation behind the writing has to do with getting traffic.  You might have seen Jim Cramer, the host of Mad Money on CNBC.  I like the guy and his brand of helping the trader or speculator with money making ideas.  His motto is that he is not there to make friends, he is there on the air to help you make money.  His primary concern is with the traffic; number of people tuned in to watch.  All the rewards he gets are somehow tied into the traffic he generates.

My interest in writing is similar to Jim Cramer that is to help you make money.  While this is the ‘want’ there is no way I can claim that it will happen.  However, I’m more interested in helping the investors and not so much the traders or speculators.  I will go into the distinctions when we get started.  Unlike Mr. Cramer I don’t mind making a few friends along the way.  My payoff is very similar to Mr. Cramer the more people I reach out to, the better my rewards are in terms of building traffic to my website.

My goal is to write something every day.  We will start in the next few days. I will be using the ‘Security Analysis’ by Benjamin Graham and David Dodd; the classic 1934 Edition as the textbook for a general reference to the subject.  I want to make this as easy as possible for anyone to follow five times a week.  I hope to clarify the topic and expand on it using real live examples.  The purpose is not a book review but that of an assessment of the tool we have at our disposal in our investigation of public companies.

As I go through the book, I will assess the companies as I have done in the past and present for my own portfolio.  You as the reader will get the full picture of how I assess, evaluate, and manage a portfolio.  You can follow along daily.  However, please understand that I am not your financial adviser.  My purpose is to provide you with a real life example of what I do.  I do not tell you that you will be successful if you follow my method.  There is no way to tell if I am any good.  In the end you should use this only as an ‘informational pastime’.  It is something to keep me practicing my writing – keeping me entertained and hopefully, you get to benefit along the way.

Copyright 2009 by fartingcamel.com

I take it back about Cramer!

July 22nd, 2009 Posted by Stocks No Comment yet

Now, I never said anything about Jim Cramer, the hugely popular host of Mad Money on CNBC that I’ve come to regret. I never saw him in the same light as a good friend of mine who really thinks highly of Cramer neither. Today, I did a little looking around the net for news and came across this piece: click here.

I was amazed by what he said in this video clip on his take, titled, ‘Pros vs. Joes’. I have to say after viewing this it really got me thinking perhaps I should choose a side now. It does seem like there is line drawn in our minds eye – a virtual line dividing the norms of investing.

What is that? It is a way of thinking. Perhaps it is a line that divides those with the view that the professional money manager knows more and can do better in managing our money vs. the few and mostly unheard of investors advocating the opposite. On other hand you have Cramer who is well known and being the insider explains the fact that it is not right with the status quo. Investor equipped with both time and interest should be actively managing their portfolio.

I was never the inside man when it comes to investing. The media likes to put Goldman Sachs as the definitive insider, BTW, Cramer used to work for them. I’ve never worked for any of the Wall Street investment banks in this area. So, it is perhaps an easy side to pick. My take is if it is only between Wall Street and Main Street, Jim Cramer got it right.

Copyright 2009 by fartingcamel.com

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