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Posted: 27 November 2009 - 9 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

 

The PE ratio is a quick measure to compare the Price (P) and the Earnings of a share (E). How then to consider the merits of shares with different PE ratios? Well some say that the Growth (G) can be used to "normalise" a range of PEs across several shares, and so help you choose. The PEG ratio simply divides PE by G to give you a new figure - the PEG ratio. 

 

To see if the "PEG ratio" helps you decide on a share, you have to understand that its about the shape of the earnings profile, not the trivial  arithmetic...

 

Link to this little sheet - it should help...

 

user_uploads/PEGIllustrator2.xls

 


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Posted: 27 July 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

 

We are spoilt for choice on the JSE, with toward 6 trillion rands worth of shares to choose from. That represents an asset class with a multi-decade past track record of compound growth of 12% per annum, with an annual dividend on top of that of around 2.5%.
 
This table sets out the make up of the larger companies on the JSE, and shows one way to group them, by considering what broad area of activity drives their fundamentals.
 
alt
 
 
And lets understand something, there are over 400 listed companies, and a greater number than that of unit trusts, not to mention CFDs SSFs and all the other “enhanced ” ways of getting exposure to the equity assets through investment products. Clearly, some of the shares do really really well at times (don’t you wish you had put 100% of your portfolio into Capitec?), as do some of the red hot investment products.
 
But does all this choice help us, or is it making our life as direct investors just too complicated.
 
So how can a small direct investor get started?
 
1.       For small amounts, the best place to start is to get onto the overall market index. It means you step onto that uneven 12% escalator to wealth, and you needn’t worry about a single share you choose going belly up. All JSE share investors, professionals and amateurs, have a 50% probability of beating the index. Half of the money beats the index, and the other half gets beaten by the index, every day, every month, and every year. And That Is Before Costs! So what is the best way for you to get onto the index? Probably an index product, even if it offers tracking of just the Top 40 companies, which add up to around 90% of the whole JSE. So think about your amount to invest, your time frame, whether you can add monthly or at other intervals to your investment, what you will do with dividends (cash out or re-invest), and then choose based on what the cost structure will be over time.
2.       Once this is in hand, grow your pot diligently until you can consider changing to a cheaper platform. You will have more buying power and better understanding of the sometimes subtle costs, and can shop around.
3.       Also feel free to look at thoughtful ways to try and get a “top half” result – you may like to try a dividend-yield-based or a fundamentals-based product. But be careful of choosing an index product that is not all-share exposed – for example the gold index is also an index, but it takes a strong view to put all your cash on an index product which follows that sector!
4.       If you reach a point where you can confidently try to beat the index by picking individual shares, you will find that you probably need about a R¼million rand to get a cost effective portfolio – with an acceptable risk spread. A smart way to start is to leave 90% of your cash in the index product you have identified, and to take the other 10% and select a share. You must have a rational argument that your choice will beat the index over say a 12 month period, and you must know why it will. If it does, and you are sure it was because of your skill and not mere luck, take another 10% across, and run two shares in your second year. Ideally the first one you will keep, since you chose so well and so you can avoid trading costs and taxes! And then repeat a few times – if after five years, your share selections have beaten your index holding five times, then you will be well placed to do your own portfolio!
5.    And when you want to design a portfolio, start off by allocating percentages to the broad sectors in the table above, and seeing what rand amount you can therefore put into each area. You will quickly see two things - one is the folly of trying to spread say R20,000 or even R100,000 across every sector - it cannot be done economically; and the other is that by being clear on which sectors you back, you can get a sharply different exposure to, and thus performance from, the overall market.
6.    So - how to start? For small amounts - buy the index in the most cost effective way for your circumstances. For larger amunts, either do the same, or when you feel you want to back yourself, start by allocating your sector amounts - and only then start to pick the shares you can buy to meet the sector weights that you want.

 

I take this approach further in the Model Portfolio Group - see  http://www.tickertalk.co.za/blog.php?user=stuart&blogentry_id=2662

 

Cheers

Stuart


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Posted: 19 February 2010 - 2 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

 

What are the benefits of adding several decades to your investment horizon?

 

By Gregg Wolper, a senior mutual-fund analyst with Morningstar.com.

 

 

It may be heretical to note that in an investment sense, 10 years is not an eternity. Yes, as an alternative to the all-too-common focus on one-year returns or other short stretches, a 10-year measure provides welcome perspective. It's apt to cover more than one market cycle and a variety of macroeconomic environments. We here at Morningstar often cite that period for such reasons. But for an individual investor, there are benefits to thinking far beyond a mere decade. How about 30 or 40 years?  

 

Science-Fiction Territory

It's understandable why most people don't peer decades into the future. For a 22-year-old just graduating college, even turning 30 seems eons away. For new parents, the main challenge consists simply of getting the baby to stop wailing. And for others, the idea of a 30- or 40-year time horizon is more likely to conjure up thoughts of aching joints than of happy investment returns. Even when people do turn their attention to the distant future, they're not likely to expect to own the same investments they hold today. After all, by the year 2052, say, an asteroid could have struck the earth, and the handful of us remaining alive will be wandering around a scarred landscape in ragged clothes and carrying battered grenade launchers. At least, that's what you learn at the multiplex.

  

In fact, it's not uncommon for people to own the same fund (or stock) for decades. And if one has the good fortune to enjoy an average life span or more, an investment horizon could last as long as 50 or 60 years. That doesn't mean investors should ignore prudent allocation advice; short- or medium-term goals deserve appropriately low-risk investments, and reallocations over time make sense. A stock-fund allocation that was appropriate at age 35 probably isn't at 75. But that 75-year-old might still own some stock funds. And the bond funds that will dominate his or her portfolio at that stage could be the same ones bought nearly half a century earlier. For long-term money that's not specifically targeted for a house or college, consider letting your thoughts stretch way, way out.  

 

The important thing is to recognize just how lengthy the long term really is. Thinking of your investment horizon as a very long arc has a number of benefits.

 

The Power of Dividends

With a limited investment horizon, the idea of getting a 2% or 3% dividend yield from a stock or stock fund may not have much impact. But as the time period under consideration lengthens, the compounded numbers add up. Over 30 years or more, the difference between even a modest dividend and none can no longer be ignored. It doesn't make a lousy stock or fund worth buying, and dividend levels aren't set in stone. But extending your time frame helps magnify the power of dividends.  

 

Helps You Relax

Suffering through downturns can be hard on all but the most hardened investment veteran. If a reversal extends to a year or more, the idea of shifting all your money into short-term CDs or ultrashort bonds can be tempting, even if you know--in vague terms--that you have time to recover. But if you've truly absorbed that your investment horizon extends many decades, it's easier to accept that a one-year downturn likely isn't the catastrophe it feels like at the time.

 

Encourages Deeper Consideration of Advisor's [or Fund's or Share's] Qualities

If you think you might own a fund for 30 years or more, you'll pay close attention to the source. After all, it's not likely that the same individual will be running it when we pass this century's midpoint. Of course, you can sell a fund if the manager changes and the replacement doesn't impress you. But it would be easier--and cause fewer tax issues--if you could continue holding the same funds for your long-term goals. Owning a portfolio managed by a reliable, shareholder-friendly advisory firm that keeps its focus on investing rather than marketing increases the likelihood that the fund will still be a keeper many years down the road.

 

Boosts Your Attention To Cost

It can be easy to ignore high fund costs for a couple of years, especially when a fund is pumping out juicy returns during a strong rally. But if you think you'll be paying that steep fee year-in and year-out until 2050 or so, you might think twice. That's a good thing.

 

Reduces the Temptation to Capture Short-Term Trends

If a decade is your definition of long term, it might be tempting to shift money around in an effort to take advantage of what seems likely to outperform in the next couple of years. That's 20% of your time frame. But with an extended time horizon in mind, such tactics won't seem worth the effort. You might feel confident in your ability to forecast the next few trends, but how about your skill at predicting such patterns consistently well over three decades or more? Just the thought of it is exhausting. Anything that steers investors away from a strategy of rapid, trend-seeking moves is welcome.

 

See the attached pic from the Share Selection course, highlighting time power, and of costs and dividends...

user_uploads/JSE longer term returns.ppt

 

 

Conclusion

Taking a truly long-term perspective does not mean you must own the same fund [or share] forever. Of course you should make adjustments if your personal circumstances change or if the funds change. And, to repeat, the advice to extend your investment horizon to several decades applies only to money that has been relegated to the long-term category and also doesn't have a specific end-date such as the time a current 5-year-old will enter college.  So, let your investment thoughts wander well down the road. And, just in case, stock up on sturdy clothes. If that Hollywood-style apocalypse does occur, times will be tough, but there's no reason we should have to wear rags.


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Posted: 23 July 2010 - 1 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

A while back I posted a  cheat sheet for people to set out and record their view of a company.

 

A further example in this genre is this one per the Ben Graham mindset - you may need to offset for US norms, but if you get the underlying philosophy you can benefit plenty

 

Ben Graham -checklist

 

Spreadsheet of Ben Graham checklist

 

Cheers

Stuart


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Posted: 26 July 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

After a planned hiatus from Tshabalala's opening goal to Iniesta's finisher, the Standard Bank OST face-to-face courses on fundamentals start again this week with Durban as the venue - no doubt seriously threatening attendance at Saturday's re-dated Durban July. 

 

You can find more on them under Events Link (on the menu or the home page) , and in due sequence the dates of courses offered for the rest of the year will also appear there. You can also join the groups, there is one for either course at Share Selection course Group or  Advanced Finacials course Group or

 

Standard Bank only offers these courses in South Africa's main cities at present - if there is adequate demand, maybe a webinar or similar could be set up to benefit from the intaction and connectivity of tickertalk - any views?

 

Cheers

Stuart

 

 

 

 

 


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Posted: 19 October 2010 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

For you to manage your own money, you need to decide how much of which asset to own. I will be putting up the basics of the 'how much?' issue over the next while, to help you get your thinking how you want it. Whatever you call your style of investing, you will have a certain mix of assets in your portfolio at any time, and knowing why you have them [many people end up owning the residue of various trades], and the contribution each holding makes, is vital to you managing your portfolio.

 

Establishing an appropriate asset mix is a dynamic process and it plays a key role in determining your portfolio's overall risk and return. As such, your portfolio's asset mix should reflect your goals at any point in time. There are a few different strategies of establishing asset allocations, and here we outline some of them and examine their basic management approaches.

1. Strategic Asset Allocation
Strategic asset allocation is a method that establishes and adheres to what is effectively a "base policy mix." Some use the term 'Jupiter portfolio' to try and portray what an occasionally visiting spaceman from Jupiter who was wise enough to know he that  knows precious little would do:- he must just select a robust mix and then leave well enough alone. The result is a proportional combination of assets based on expected rates of return for each asset or  asset class. For example, if shares have historically returned 18% per year and bonds have returned 8% per year, a mix of 50% shares and 50% bonds would be expected to return 13% per year. And obviously a further split between different shares could be done to see which shares would return which percentages...
 
More in due course
Stuart

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Posted: 4 February 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

Just to share - this picture shows the time plot of the  TTK1 Model Portfolio (interest and dividends get added as they come in) against the rebased All Share. 

 

It was drawn using  ShareMagic - a product I don't know well yet, but am starting to quite like.

 

And a lot of work is going on in the Group  behind the scenes - because of  Hot or What

 

Understand the group better as follows

 

A pay-to-belong group.

Initial subscription is R2880.00 per annum plus VAT at 14%, payable in advance. Users requesting membership will be contacted to give them relevant banking details and the necessary reference for their deposit. Once their deposit has cleared, membership will be enabled.

This group will reveal an actual running model portfolio - tracked against the relevant JSE index as a benchmark.

Paid-up members will get to see the underlying makeup of the portfolio, the detailed performance - and to see the debate about composition/design as well as changes in the portfolio - before and as they happen.

Group members will thus be free to: follow/replicate it in their own affairs; or use only those parts of it that they understand accept and endorse; or they can simply watch the performance over time and take what they can from the thinking and investment debate.

 

Cheers

Stuart

 

alt


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Posted: 4 March 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

I can find a pure chart quite frustrating. My logical side wants to know more - I battle with the "its only the price you need to know, stupid" approach.

 

So now, I am a happier camper, and you can see why:-

 

Take Sasol - I found a fair value of 340 a few weeks ago (see Sasol Valuation)

 

yet here is the price - leaving me in the dust:-

 

alt

 

To see what else may be of influence, I can add an overlay of the share's eps (with a constant multiple, of my own choosing)

 

alt

 

OK, so it seems that the eps is predicted a year ahead by the price, and maybe there is something else in the mix. So I add an oil price. Oil in rands, not dollars.

 

And look now:-

alt

 

So I now see an elaborate option on the rand oil price! 

 

See also Carbon tax impact 

 

And for more on the charting tool, visit Share Magic Group

 

Cheers

Stuart


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Posted: 16 August 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

Note - The Daily Ticker is no relation...

 

Granted, the stock market is a casino analogy is a cliche. But the truth is it's been used in countless investing stories because there's lots of truth to it. And, recent events with markets swinging 400+ plus points make it feel more true than ever. In the accompanying clip The Daily Ticker's guest Lance Roberts CEO and chief economist of Streettalk Advisors says poker, more than most parlor games "provides a great set of rules for the average investor."

So what are the lessons to be learned?

Investors don't need to be "all in."

Roberts says ignore brokers or pundits who advise investors to be fully invested 100% of the time. "In a game of Texas hold'em if you bet yourself all in every hand you will lose. Same goes for being 100% invested at all times." This is especially true for baby boomers headed into retirement. As he notes, being 100% invested during the crash of 2001-02 and 2008-09 did irrevocable harm to portfolios in after the 2-year bull market that followed. "Professional poker players they understand the risk versus the reward for every potential hand that they bet on," says Roberts. "And you know what? when they don't have a good hand they don't bet they fold and walk away."

Bet heavily when the odds are in your favor.

On the other hand, when opportunity does present itself, bet big. In most cases you don't want to bet it all in one hand or put too much of your portfolio in a few stocks but when there's panic in the streets and everyone is selling, that's when it's to bet big. (See: March 2009)

Don't get emotional.

At the poker table it's important to keep your cool under pressure. The same is true in investing. When others are panicking it's important to keep your wits about you. "You want to be a seller when markets are rising and getting extended you want to be a buyer when people think that world is coming to an end," says Roberts.

 

 


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Posted: 30 September 2011 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]

Easy guideline - 15 rules to try and follow

 

Cheers

Stuart

 

 

All 15 in one pdf:- user_uploads/15 tips on how successful people think.pdf

 

Or one at a time from source:-  http://www.businessinsider.com/how-successful-people-think-john-maxwell-2011-9#


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