1. First look for stocks with a Price/Earning or Price/Book less than 80% of all stocks.
2. These stocks must outperform the indexes
3. Make sure the company has good management and solid plans and strategies for growth
4. Focus on stocks with above market returns (7%). The stocks market returns must exceed the cost of money and inflation.
5. Invest and hold
6. Act like a business owner of the stock and now a momentum trader
7. The top money managers with 20 year records are value guys. Take for example, American Express, this stock compound 22%, for 10 years.
1. Buy low Price/Book, Low Price/Earnings, low Price/Cash flow stocks.
2. Contrarian investing has out performed markets spanning 50 years and the S&P for the last 10 years.
3. Buy good blue-chip stocks, which, on the whole, are growth stocks with 10-15 % growth.
4. Seek a solid balance sheet and above average dividends
5. Volatility is helpful. Contrarians are looking for top-performing stocks that have been knocked down. They love bear markets. Bear markets represent bargins, too buy cheap, wait until the market recognizes the value, and sell when price changes and other factors combine to suggest a sell. Bear markets allow the contrarian to purchase 10,20, 30 percent growers at a cheap price.
1. Emerging franchises are younger companies and represent good potential for growth and emergence into saturated markets.
2. Establish a target price based on 12 to 18 month interval. Note that an analyst has 1/14 billion chance predicting price within 5%.
3. As a stock reaches its 12 to 18 month target price; we look to see what has changed.
4. One of the biggest mistakes is to sell emerging franchises to early.
5. The sale of really great companies can lead to lost opportunities.
1. I'm particularly interested in how the company is getting to profitability
a. By examining trends in sales and administrative expenses
b. We want to see how the ratios stack up against the competition
2. To determine normalized earnings, we predict what sales should be, and then put a margin that the company has been able to generate over time on those sales.
a. Historically, 8 times Peak earnings to get Price
3. If the current earning estimate is higher than normalized earnings, we are not interested.
a. The best companies grow between 8-15%
b. The return on capital that exceeds the cost of capital
c. Sell a stock when the story turns out wrong or when you find something better.
1. Buy companies that can be easily understood.
2. When buying a stock, look at what might go wrong. Weight out the risks.
3. Sell when the price goes up or the value goes down.
4. Hold as long as the stock has value, the company is growing, and operations are good
5. Measure the value in ratio to the cash flow
6. Buy a stock that over the next 5 years will outperform the market
7. The market between 2000-2010 prediction is that it will experience a 10% return.
8. Growth investors do well, they do well because the companies they bought grew faster and longer than the market believed. The value investor bought when the company was undervalued; undervaluation was caused when the market becoming pessimestic about a negative event, as a result the market overreacted and panic sold; the value buyers realizing the overreaction and the value of these companies bought cheap; the market realized their mistake and began to buying up the valueable stock, raising the price, and the value buyers recognized overvaluation and sold for a 20-30% profit.
9. The problem for a value investor is finding stocks that look statistically expensive, but are cheap.
10. Management activity is important; the business value and management ability to execute a profit plan. Management must play the confidence game and create the perception they can provide value.
1. P/E of 17 is the mean (Boggle would agree)
2. 4.5 is the normal interest rate (this was a revelation)
3. A value oriented P/E should be no more than 2.5 multipled by the growth rate
4. Find a value stock means going to the value line
a. It must have a good return on equity (14%+)
b. Fairly priced
c. P/E value must below the ROE
d. If the company is good and no management changes and the price suddenly drops then buy more and leverage profits on the return to fair price.