You are right that earnings matter. Actually most net nets that eventually go up in price due to some catalyst such as they manage to record some improvement in their earnings or maybe declaration of special dividend or privatization. However, the difference vs chasing growth stocks is that you buy them during the most pessimistic time when they are the cheapest and sell them once people get excited about them again.
There are many successful net net investors around. You can check out this blog on some examples on what to look out for when investing in net nets.
Icon, If you haven't read "The intelligent Investor", I recommend this book to you. Understand 1 thing.
1. Graham's method of investing focuses on cigar buff investing & net net investing. Both of them are a double edge sword, as while companies may be selling cheap, they are not necessary a good investment. The quality factor is not the concern there. This is what is happening to Calvin's method of investing. It is not totally wrong, but very risky. That's why I don't discount his method of investing, but not a fan of it.
Buffett used to have this method of investing until his investment firm grew to a sizable size, but this causes him to start losing money later. Later, his partner and lifelong friend Charlie Munger, advises him to shift his method from "Buying companies selling at a cheap price" to "Buying good quality companies at a fair price". Hence Buffett come to where we know he is today.
This is also how he come to say he is "85% Fisher, 15% Graham" today, instead of 100% Graham.
Another person who does this is Fong Silling. He always advises people to own high quality companies. Does this help clarify anything?
I must say I am thoroughly entertained by your piece. I agree that no one should blame KYY for their own investment decisions. If you want to win in this game, you work hard and research hard before KYY buys. If you are merely a follower than you only have yourself to blame. If you want to win, you have to be ahead of KYY, not follow him.
You're welcome, my friend. No need to be so formal with me since we're friends right? And oh, one more thing. The tagline "It Is The Future Earning That Matters, Stupid" is not entirely true. I don't always agree with Ricky Yeo's statement, but what he says is correct this time. Lemme explain why.
Warren Buffett’s investing principles focus on return of equity, ROE. This is his thought.
“Customarily, most investors measure annual company performance by looking at earnings per share (EPS). Did they increase over last year? Are they high enough to brag about? For his part, Buffett considers EPS a smokescreen. Most companies retain a portion of their previous year's earnings as a way of increasing their equity base, so he sees no reason to get excited about record EPS. There is nothing spectacular about a company that increases EPS by 10%, if at the same time, it is growing its equity base by 10%. That's no different, he explains, from putting money in a savings account and letting the interest accumulate and compound. Worse still, there are many companies borrow huge amount of money to improve EPS, but the marginal return is way below its borrowing costs".
It is the many many parts to put together to have a giant elephant. When one touch on one part of them, please continue to explore other parts too . A missed of any part will not make the elephant a complete and powerful one.
Posted by Ooi Teik Bee > Jun 23, 2016 08:18 AM | Report Abuse
It is the future earning drives up the stock price. It is the future growth on EPS, but not the past earning. The past earning is to determine how good is the management. A good management always able to deliver the good result. Thank you.
RAIDER COMMENT; OF COURSE, IT IS THE FUTURE EARNINGS LOH...!! BUT THEN WHY LOOK INTO PAST EARNINGS ? U LOOK INTO PAST EARNINGS TO DETERMINE THE QUALITY OF EARNINGS AND ITS STABILITY AND SUSTAINABILITY LOH....!!
IF U TALK TO SOME TEACHERS....THEY WILL TELL U THAT THE TOP 10 STUDENTS USUALLY PROGRESS WELL AND SCORE WELL IF THEY PROGRESS TO THE NEXT STAGE OF ITS FORM.
aiyo...touching parts and exploring....hmm stocks are as tricky as women... if only the objectives are as straight forward as it is for men...he he...
Objective: Find a stock which has the potential to give you 'future value of cash pile' (a) as much as possible compared to the 'cash you have taken out to buy the stakes' (b) within a time frame years of your concern (t) - that's all. i.e the CAGR = (a/b) ^ - 1/t
all discounting using cost of capital are just a comparison of the average return you can make from the market at large...and all variables you use...name it what ever you want...has only that one objective of predicting the future cash pile with the time frame you are concerned.
The differ between growth investing and value investing are those growth oriented investor really depend on future earning prediction of companies. They believes what past is past, and future matters. Value oriented investors tend to look the past performance to measure sustainibility of company. If the company cannot achive sustainibily in the past, how can they perform in future. They care the downside risk most of the time. Thus, IV is and MOS is top priority of value investor.
Who can... to harness... to simplify... to structure... to do the necessary... on how to identify growth companies... into a step by step approach..... that is simple yet reasonably reliable to use..
Anyone??
r°Moi Stockmanmy
You could well be on to something good...
All you have to do now is... to harness... to simplify... to structure... to do the necessary... on how you identify growth companies... into a step by step approach..... that is simple yet reasonably reliable to use..
May you be getting closer and closer to enlightenment...
And... be able....to harness... to simplify... to structure... to do the necessary... on how to identify growth companies... into a step by step approach..... that is simple yet reasonably reliable to use..
Haha share price move based on future profit. I agreed with this.
A good example is Gtronic. Why Gtronic which have a excellence result in the past drop about 50% from the highest? It is because the prediction of future profit will be drop.
Another example is FLBHD. Why FLBHD will shoot up to RM3.xx in the past but now only RM1.9x? It is also because of prediction of future profit will be drop.
Prediction = Speculative. It is the poison that killed many people on the wall street during dot com bubbles. Nowadays, those poison start to appear again. History keep repeated itself.
Speculator = Trader go with trend. Earning surge > people comes buying > price surge > trend ceeated > they buy high and think to sell higher until the trapped on top of trend. While an investor against them. Buy when no one care about the stock.
trader , speculators, investors are all advised to run with the trend... look for a trend , follow the trend...not just price trends, there are many many other sources of trends. find the strongest trends, find a revolutionary trend if you can find Alvin Toffler if you can.
iamvirtualinvestor > Jun 23, 2016 06:34 PM | Report Abuse
In order to get prediction(of earning growth) correct, one has to do a lot, a lot of homework. I wonder how many of genuine investors out there are really doing this consistently and seriously? Not to mention majority of investors who still have 9-5 daily job. Besides the regular job, I believe many of us still have other things to take care of: family, friendship, love, sports and many more.
I really salute those who devote themselves fully to investment/trading. I might not be able to do that.
So, choose the investing method that best suits your life style.
The trends only comes visible to him...when everyone already jump into the boat shouting happily...thats when the trend comes obvious to him...he he...by then its too late already...
again...its all about 'being in the game of your own competence'. Being the tip of the knife which cuts...
even in economics - its all about MVA 'Market Value Addition'. This is the 'price-P' you pay above the 'Book Value-b' of a firm...i.e the discounted cash flow of the EVA's - economic value addition due to competitive advantage.
You are about the only one that knew Brexit was done deal 5 days ago..
Impressive!!
probability The trends only comes visible to him...when everyone already jump into the boat shouting happily...thats when the trend comes obvious to him...he he...by then its too late already...
As a summary we need to make the correction on the Title, it should be:
‘its the CAGR of the 'Current cash + Future Excess Cash accumulation' within a period t' over the 'Cash you forked out' to claim the stakes of the cash pile.....that matters – goblok!
but speculation has a way to make the price move quite unrelated to the reality of the above 'CAGR potential'....and it all depends on the mentality of the influential majorities....the players….as everyone does not have access to the same information and the same intelligence for information processing.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
NOBY
936 posts
Posted by NOBY > 2016-06-23 12:39 | Report Abuse
You are right that earnings matter. Actually most net nets that eventually go up in price due to some catalyst such as they manage to record some improvement in their earnings or maybe declaration of special dividend or privatization. However, the difference vs chasing growth stocks is that you buy them during the most pessimistic time when they are the cheapest and sell them once people get excited about them again.
There are many successful net net investors around. You can check out this blog on some examples on what to look out for when investing in net nets.
https://www.netnethunter.com/net-net-blog/