Investment Firm with Value Investing

Some investment firms that do value investing:

1. Berkshire Hathaway
2. Third Avenue Value Fund
3. Kahn Brothers
4. Neuberger Berman

Firms that are in for the long haul (but may not necessarily be value investing based):

1. Capital Group
2. Temasek Holdings
3. GIC

Value Funds

1. Dodge & Cox Stock. Holdings here. Symbol = DODGX
2. American Century Equity Income. Holdings here. Symbol = TWEIX
3. Torray. Symbol = TORYX
4. Third Avenue Value 

Interesting Firms

1. Sanford Bernstein 

Companies potentially affected by Dubai

From Straits Times, 28 Nov 2009.

Dubai government investment firm Dubai World is asking for a 6 months delay in repaying a S$81b debt.

Potential maximum exposure:

1. HSBC - US$17b
2. Stanchart - US$7.8b
3. Barclays - US$3.6b
4. Mitsubishi UFJ Financial & Sumitomo Mitsui - US$xxx million (hundreds of millions)

Singapore companies potentially affected:

1. DBS (south beach project) - Total cost of South Beach project was reported to be S$2.5b
2. UOB (south beach project)
3. OCBC (south beach project)
4. SMRT (partnership with Nakheel) - 6 year contract worth S$120m
5. Labroy Marine - ?
6. Pan-United Marine - ?

US Stock Seasonality Site

Came across this site that does some seasonality analysis on US stocks (only). Added it to the list of useful sites on the right panel.

http://www.customeradmin.net/scharts/chartDisplaySeasonal.jsp

Seasonality may play a part for some companies, due to seasonal earnings report (eg. christmas period for retailers), or due to dividend policies. Of course, do validate if these reasons for the seasonality factors are still relevant prior to taking position in the stock.

Analyzing Companies

Just to drop some mental notes for reference.

When to use Price-Earnings (PE) ratio and when to use Price-Book (PB) ratio

Typically, use PB for banks, capital intensive, violatile, and cyclical industries. The rest PE will be more relevant. Of course, no harm looking at both, but need to know which is more relevant for the particular company.

Valuation

For conglomerates, use sum-of-the-parts valuation to get the fair value for the company.

Using the right tools

For range markets, use range tools like stochastic oscillator, RSI, bollinger bands.
For trend markets, use trending tools like MACD, moving averages, trendlines.

Indicators

VIX index to observe the volativity of the market.
M2 $ supply to observe the liquidity of the market.
Yield curve to observe the steepness of the curve (gradient) to observe the volativity of the market.

Stop Loss

Stop loss level should be adjusted only at significant price movements, else will end up activating the stop loss prematurely.

Other things to look out for

1. Insider trading transactions. Typically, if the management is buying in themselves, they are trying to signal that they are confident and bullish about their company.
2. Volume of the transactions. A low transaction stock could result in a liquity trap, whereby if you need to get back your $ fast, you will end up selling at a much lower price just to get a buyer.
3. Owners of the company. Find out about their style, whether they are here for the long haul (eg. GIC, Temasek, Capital Group), or out to make a quick buck.
4. Seasonality of the company stock. Some company stock tend to go up during certain months of the year. Most of the time it is the cyclical effect of their earnings, or the dividends.

Subtle stuff from Annual Reports

Some items from Annual Reports that are often passed over, but warrants some scrutiny.

1) Amount of tax that the company pays as a percentage of their earnings before tax
If the percentage is less than those typically levied by the country, do not be too happy and think that the company is good at managing their taxes! On the contrary, this could (not always, but could) be a tell-tale sign that the earnings reported in the Income Statement is overstated. Thus actual tax paid to the taxman is lesser. This info can be found in the Income Statement and Cashflow Statement.

2) Depreciation Policy
Look at how lax or conservative their depreciation policy is. For example, a conservative company may depreciate their plants over say, 10 years. While another company may depreciate it over 30 years. The one that depreciate over a longer period, may be able to report a higher earnings figures since the depreciation expenses are lower (spreaded over a longer period), even though both may have the same revenue and other cost expenses. This information can be found under the Financial Notes section of the Annual Report.

3) Financial Commitments and Obligations
These may include items like operating leases. For account purposes, if an event is deemed likely to happen, it will have to be accounted in the Balance Sheet. If an event is deemed 50%-50% of happening, then it will be reflected under the Financial Notes section of the Annual Report. However, sometimes a event that is bound to happen, such as a commitment for a long term lease which is not paid up yet, ends up in the financial notes. Such commitment has to be paid for eventually, and may rank in situ with a interest-free debt.

Useful Sites

Added a section on the right panel on useful sites that can help in analysing stocks. Do take a look.

I particularly like reuters. Create an account and set up your own dashboard. Create a watchlist of all the companies that you are interested in so that you can track their news easily.

What you need to know about Price Earning Ratio

The concept of Price Earning (PE) ratio should be pretty well-known by now. PE Ratio is the no. of times you are paying for every $1 that the company earns. For example, if Apple earns $10 per share, and the stock price is trading at $100, then the PE is simply 100/10 = 10. So you will be paying $10 for every $1 that Apply earns if you buy the stock now. From another perspective, it will take Apple 10 years to earn what you paid for the stock.

However, PE ratio, if not analyzed in the right context, will end up as a misleading number, and simply, just a number.

2 key scenario drives PE ratio.

I need a higher return NOW

why do i need a higher return now?

1) Inflation is going up. I need a higher return to offset the inflation loss in the value of $.
2) Tax is going up. Again, I need a higher return.
3) Risk of the company is high. High risk = high return expected.

In the above situations, I will only be willing to pay a lower PE, so that I will increase my chance of realising a higher return (think buy low sell high).

I can make do with a higher return in FUTURE

Again, why?

1) Return on Equity (ROE) of the company is high. Thus every $ re-invested by the company in terms of capital expenditure (thus lowering the earnings) should reap higher earnings in future.
2) Growth of the company is high. Again, I will be hoping for higher earnings in future.

In such situations, I will be willing to pay a higher PE now, so that I may get to enjoy higher earnings in future (think buy high sell higher).

Summary

Inflation up, PE should be lower
Tax up, PE should be lower
Risk up, PE should be lower

ROE up, PE can be higher
Growth up, PE can be higher