020-2020 Alles uber Aktien

Title: Alles ueber Aktien

Author: Joachim Brandmaier

Hello dear investors.

Unfortunately this book is only available in German, and won’t be of much use to non-German speakers. However, I still think that the message I learnt from this book is valuable to those that would like to get to know this investment strategy.

There might be quite a few investment strategies out there and every slowly develops their preference for one, or more of them. However, this one was new to me until February this year, and I hadn’t heard it before from any other fellow investor before.

It is called the Growth Strategy, but not growth of new/small/medium companies. Rather, investing with bigger companies that are already well established in the market, but still have some power of potential growth left within them yet. Especially since the world is consistently changing, companies (even big ones) need to continue to make changes to keep on fitting in.

To get started as a new investor, the suggestion is:

  1. Invest in the market leaders of the industry
  2. As a starter, invest in at least 10 – 12 different shares, across different branches, and potentially even different countries
  3. Investing in shares is something that should be done for the long term, not the short-term horizon, as the greatest value is derived from long-term investing
  • Strong emphasis is added to long-term, because the money that should be used for this form of investing should be money that can be afforded to be invested (i.e. won’t be needed for anything in the next month/s or even year/s, but can actually lie and be ignored – it can be ignored since it is with big, and well-established companies, and not volatile jumpers)

For those new to investing, you might have heard of the word ‘index’ when someone talked about shares. Basically, that is the benchmark against which you can measure your own share’s performance. The index is a composition of the biggest companies in the same industry, or general economy (depending which index you are using).

Another thing you should know is taxes. When you invest over the long term, your shares have an opportunity to grow significantly in value and if that was the case, once you dispose of them, you could get a bigger gain when you sold them off. If you traded them regularly you would not only always pay more in taxes for the gains you made, you would also pay more brokerage fees.

Next, one message that you will hear from Warren Buffet, Peter Lynch and many more long-term investors. Stop listening to the noise in the crowd. They will cause you to panic, and sell off your shares when there is a frenzy, and since the crowd is doing it as well, the price of the stocks drop significantly.

  • Message = stop listening to the crowd.

Since investing for the long run is a commitment, it is a wise choice to analyse different companies out there for different factors in order to find a good company to acquire shares when you have funds available for investing. Some of these include:

  1. Turnover = $1 bn
  2. Profit = $100 mn
  3. Which products does the company produce?
  4. How popular are the products among customers?
  5. Is the company busy in filling orders regularly?
  6. What are the chances for the products continued future success?
  7. Who are the main competitors?
  8. Will price increases significant the market?
  9. How well does management function within the firm?
  10. How has the turnover and profit developed over the past period?
  11. Have there been strategic problems in the past?
  12. How large is the companies debt?
  13. How much cash reserves does the company have, and is it liquid?
  14. How large is the company equity?
  15. How are the dividends developed over the periods?
  16. ….etc. (this list is not exhaustive)…

Another few factors that can be analysed are the following:

  • the companies EPS (earnings per share), P/E Ratio (price earning ratio), Dividend Yield (and its consistency in pay-out)
  • how the turnover has developed over the long-term
  • how the profit has developed over the long-term
  • operating profit vs. net profit
  • turnover and profit p/operating segment
  • cash flow
  • Dividends
  • Dividend pay-out ratio
  • Book Value
  • R&D expenditure
  • No. of staff
  • Company/group structure
  • Market capitalization

Essentially, why the author stresses the importance to differentiate between long-term and short-term investing is because in the short term the prices of a stock tends to be volatile since investors don’t know what to expect from the firm and therefore sell and buy frequently at inflated and deflated prices. However, as time passes the price becomes somewhat stabilized in a certain range, until investors once again buy and sell frequently, and cause the price to be volatile once more.

  • For new investors, the message I wish to give to the above scenario is the following: the share price doesn’t necessarily reflect that true value of the company, but only the value of investors. The true value of a company lies in the value of the revenue and profits it generates during the year. Therefore, when the market is excited for a stock, it generally results in the share price being over- or understated from its true value.
  • By buying a share in a company, you have the opportunity to participate in the long-term success of the company.

As an intro book to the investment world, the book teaches you to get-to-know the world of investing, by buying the top companies, investing for the long-term, only bring a small amount of companies into your first portfolio, so that you also do the analysis exercise, and not be overwhelmed by the numerous companies out there. Most importantly, it teaches you to learn to be patient, and not become a speculative investor, without knowing the game as well yet.

Summary:

Great book, teaches everything you would need to know as a newcomer to the world of investing. Teaches the importance of being patient, the value of investing for the long-term, seeing the importance of analyzing a company before buying it, and making smart decisions. The book deserves a strong 4.7/5

I hope that this new strategy is of some value to anyone that is new, and would like to give it a go, as well as to experienced investors who would like to change their strategy somewhat with a new goal.

Happy reading, and happy investing!!!

011-2020 7 Secrets to investing like Warren Buffet

Title: 7 Secrets to investing like Warren Buffet

Author: Mary Buffett & Sean Seah

Good afternoon everyone,

Today, I give you a review of a book that a friend recommended to me a while ago, which I haven’t previously gotten around to reading yet. We regularly exchange information on companies we feel have the potential for growth, as well as what we think could be something we should be looking out for in the next few years. I would say he is the first member of my Master Mind Group. (if you want to find out where that reference comes from, I would recommend the book “Think and Grow Rich” by Napoleon Hill)

The book is split between two topics, intentionally. Between becoming a person (habits and mindset) that is happy, healthy and up for the game of investing ; and then of course the investment strategy part.

The order in which the chapters were structured are clear, because they wish to get you to understand that you can change small things to get into a good state of mind before taking part in the game of investing. Then they introduce you to the term ‘value investing‘, which itself is the strategy adopted to approach buying shares in companies.

The idea of applying a strategy of course is to approach a situation as best prepared as we possibly can be, and mitigate the risks as much as possible, rather than going in unprepared and exposed to the full impact of all risks combined.

With this favoured approach, you are taught a whole bunch of lessons, some of which you may have even heard from interviews with Warren Buffet. Among them are the following:

  • Circle of Competence
  • Economic Moat
  • Financial Statement Analysis
    • Is the Equity growing over time?
    • Does the business have huge debt? (Debt-Equity ratio)
    • How consistent are the company profits?
    • Is the company using its returns efficiently? (Return on Equity)
    • What is the Net cash from Operating Activity position?
    • What is the Free Cf position of the company?
  • Valuation
    • Net – Net Valuation (current A vs current L)
    • Price to Book Value (stock price vs company book value)
    • PE Ratio (stock price relative to latest earnings)
    • Dividend Yield (dividend pay-out relative to stock price)
    • Graham’s Growth Formula (calculate value to include earnings expected of the future)
  • Margin of safety
  • Portfolio Risk Management
  • etc.
  • They also have a website where you could advance you training, which I haven’t tried but just thought I can mention as a bonus (www.buffettonlineschool.com – search for the name in Google and you should be able to find it)

Not giving away too much, a brief summary from my side of some of the topics listed above:

  • You shouldn’t follow with the crowd and invest in what everyone else is investing, just because that’s what the crowd is doing. You should invest in what you believe holds the greatest value, and will continue to do so. That said, you generally can only make such a call if you understand what the product/service is that they are offering.
  • Since an investment holds some risks, it would be ideal to know of some factors that mitigate those risks to support you to move ahead with the decision to invest.
  • As much as it is important to consider the factors above (qualitative factors), we cannot conclude on a big decision without also performing some sort of financial analyses, to establish whether the company is able to carry on with its trading activities.
  • Finally, when a decision was made to invest, we need to further consider whether we hold that same belief in the coming years, for all the companies we invested in. We check back in our portfolio to see whether the value we expected the company to have still exists present day, and whether the future prospects are what is in line with our investment approach.

I had already read some other finance material in the past, and thus even wondered if I would gain more financial insight if I read this as well, or whether it would just be a refresher of what I already knew. However, I believe it was of benefit to read this little booklet as well, as the authors really broke down the finance jargon into easily understandable lingo, and even made some clarifications to some of the jargon that I had previously over-complicated.

Summary:

Good intro read for anybody that is interested to get started with investing in the stock market. Chapters are short and straight to the point, without long complex explanations. The book for me deserves a good 4.5/5, since it is very good to help a large audience to enter another industry, vital for anyone that wishes to improve their financial independence.

Until next time, happy reading!