Guide to Value Investing

LankanBusiness · 1 Guide to Value Investing Sat Sep 17, 2011 3:01 pm

LankanBusiness

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I think we need a best practice guide to selecting stocks - what to do and what not to do

Feel free to add your own comments, best practices, successes etc - if everyone contributes I think we'll have a great "Guide"

Let me get the ball rolling by providing my two cents - free of charge Smile

Have an investment strategy and a target rate of return â€“ e.g. say the TB rate is 7% then a 35% return (over one year) on your portfolio could be considered acceptable for a beginner.

Factor in risk of a share â€“ revise target rate of return to a much higher rate for risky shares

Include the value of dividends received when computing profit from an investment

Liquidity is important - select shares that are being traded frequently - Conversion to cash can be done without incurring big losses if cash is needed in a hurry

Cash is King!!! - in bear AND bull markets keep your personal liquidity high to take advantage of any opportunities that come along

Diversify BUT don't over-diversify or you won't be able to keep track of all your shares - focus your attention on a few good industries and select the best companies in that industry to invest in.

Always select shares that are long term winners with good earnings potential and good management

Keep a clear record of the weighted average cost of the shares purchased - adjust for rights, splits etc - only then will you be able to compute profit from any subsequent sale accurately - I use an Excel spreadsheet

Study if the Share is seasonal and/or cyclical and THEN decide when to buy and sell - always buy low and sell high.

Concentrate on your own portfolio not others â€“ if you achieve your target rate of return on your portfolio then be happy and celebrate!!!

Don't panic if share price falls - this happens - be ready for it - study the Company earnings and industry performance and decide if it's a permanent loss of value - if so then sell.

Don't listen to rumors and never invest based on rumors

Finally, never lose hope :-)

You can respond or comment based on your own experiences

bakapandithaya · 2 Re: Guide to Value Investing Sat Sep 17, 2011 5:40 pm

bakapandithaya

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keep going

sriranga · 3 Re: Guide to Value Investing Sat Sep 17, 2011 5:47 pm

sriranga

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Well said.
Happy to see this type of post to guide everyone to sense the sucess.
God bless you.
My + rep for you.

LankanBusiness · 4 Re: Guide to Value Investing Sat Sep 24, 2011 11:25 am

LankanBusiness

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For value / long term investing macro factors play a vital role

Macro factors affecting the cse:

1. Inflation – has been under control for awhile
2. Interest rates – have been flat and low which is good for the cse
3. Global economic situation – very bad and is also bad for the cse as it leads to more foreign selling – traders tend to switch to markets with the best bargains – CSE is relatively more expensive with less returns
4. Sri Lanka’s reputation/ economic track record – this has been a mixed bag right throughout
5. Market liquidity – how much liquidity will be made available, number of big IPOs, rights issues etc

Seasonal demand / Market prices affecting the cse:
1. Most company’s make big profits in the last two quarters – hotels, poultry, investment companies, holding companies, commodity companies, food companies etc
2. Fuel/ gas prices expected to go up due to winter heating demand
3. Rubber prices will increase due to increase in crude oil prices. As by-product of crude oil is used to make artificial rubber
4. Tea prices normally rise over the winter period due to seasonal and cold weather.
5. Hotels expected to have good winter season – due to extreme weather patterns
6. Poultry prices expected to rise due to December seasonal demand and increased demand from hotels
7. Seafood prices will go higher due to lower sea stocks and same reason as above
8. Commodity prices will gradually rise due to seasonal demand trends and weather pattern changes
9. Sugar prices expected to rise over time especially if used as a raw material to create a substitute fuel to crude oil. Similar to what happened vegetable / corn oil with ethanol. Weather pattern changes have also reduced supply of sugar
10. Lastly, watch out for “budget changes” usually have short to medium term impact on cse companies – I think CSE will be given a boost by the budget.

Now the challenge will be to factor in the above before deciding to invest in individual companies.