Financial Data Websites

June 26, 2007

I use Google Finance and Yahoo Finance on a daily basis. But have come across www.advfn.com.

The site offers a wealth of financial data with all the financial statements broken down into far more detail than either Yahoo Finance or Google Finance.

For example:

I will continue to use Google Finance for my search needs. So finding companies and other related companies. While still using Yahoo Finance for high level financial info. But for anything more I plan to use www.advfn.com.

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Charlie Munger’s Nuggets Of Wisdom

June 26, 2007

Morningstar has an article from 2006 about Wesco Financial’s annual meeting and a “few nuggets of wisdom” from Charlie Munger.

Opportunity cost

  • When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own.
  • So when you hear about the new hot stock in the next can’t-miss sector, ask yourself two questions:
  1. Do I understand the investment as well or better than one I already own?
  2. Is the risk and reward profile of the investment superior to all other alternatives?

Rationality

  • To succeed as an investor, one has to make good decisions that are anchored in reality and free from emotional and cognitive distractions.

Envy

  • When a group of people make money, others are compelled by an irresistible force to get a piece of the action, even though prices have risen so far above fair value as to guarantee disappointing returns.

Learning

  • After you compile all the reasons you should buy a stock, invert the question and state the reasons why you should not buy the stock.

Mistakes

  • Forgetting your mistakes is a terrible error if you are trying to improve your cognition.

Risk

  • There is a lot to be said that when the world is going crazy, to put yourself in a position where you take risk off the table (talking about the use of leverage).
  • Taking on risk only makes sense when it is sufficiently outweighed by the potential reward, which is why we only buy stocks when there is a margin of safety.

 


Contrarian Investing

June 21, 2007

Equity Private has a good quote in a recent post about how to think about contrarian investing. 

  1. Present the current state of affairs. 
  2. Present the inefficiency embedded in the state. 
  3. Explain the problem that has thus far prevented a correction of the inefficiency. 
  4. Present the new development that now permits the correction.

Equity Private goes on to say:

An amazing amount of clarity can be introduced into investment theses just by framing the problem in this fashion.  This, in my view, is the essence of deep thinking as a prerequisite to action, the foundation of my approach to contrarian investing, and why I love buyouts.


How To Be A Top Research Analyst

June 18, 2007

I came across this post about How to be a top research analyst by Mark on Markets.

Mark summarises this interview with Michael Mauboussin and the three principles that have guided his analysis.

  1. He focused much more on cash flow than on earnings.
  2. He emphasized competitive strategy analysis and viewed this as vital for his valuation work.
  3. He tried to understand the expectations for financial performance that the stock prices implied.  He believed that today the single biggest error in the investment business is a failure to distinguish between fundamentals and expectations. These are two different things.

On clicking through to the original interview I also discovered a list of three sources of investment ideas. 

  1. Broad reading, including traditional business periodicals (e.g., The Wall Street Journal, Fortune, The Economist) as well as periodicals most investors don’t read (e.g., Nature, Scientific American). Books of all sorts are also very helpful. These sources often provide important context, idea sparks, and possible signals.
  2. What other great investors are doing. Find a list of investors you deeply respect, investors who operate with a similar philosophy and time horizon, and pay attention to their actions. Here, too, some good ideas can surface.
  3. Speaking with a limited group of investors. Discussing stocks all day with other investors is a bad idea because it severely impedes your ability to think independently. By the same token, bouncing ideas off a respected business friend or colleague can provide a good opportunity for feedback and constructive criticism.

 


Playing In The Currency Markets With A Peashooter

June 18, 2007

Here are some links about the RBNZ’s intervention in the currency markets. I especially like the comparison of RBNZ’s efforts and that of a peashooter made by The Economist.

Economist – A warning shot

CONFRONTED by a growing army of speculators, on June 11th the Reserve Bank of New Zealand decided enough was enough—and let rip with the peashooter.

 

Most nations with strong currencies should refrain from following its lead. After all, peashooters are of little use against a determined foe.

But The Lex Column (subscription required) in the Financial Times makes the point that currency intervention is meant to work in one of three ways.

  1. Directly affecting the supply and demand of the currency.
  2. Hinting at future monetary policy.
  3. Signaling that the currency is out of whack.

The column rightly points out that only the last two have any real chance of working. If the RBNZ is determined to defend the currency at a specific level then there are “players” in the foreign exchange market with far deeper pocket than the RBNZ. But this YahooXtra article states the RBNZ will not attempt to defend a particular level for the kiwi.

If the “exchange rate is exceptional and unjustified in terms of the economic fundamentals” to borrow the words of Allan Bollard then as the Lex Column says, it may turn out to be a good punt by the RBNZ.

Other coverage:

Tom Scott - Currency Intervention


Follow The Leader

June 14, 2007

If you are interested in where famous investors are putting their money check out www.gurufocus.com. The site tracks investments from the likes of Warren Buffett, Wallace Weitz, Martin Whitman, Carl Icahn etc.


Market Cap vs Intrinsic Value (SKC, SKT, TRH, TTK, WHS)

June 14, 2007

Below are high level valuations for SKC, SKT, TRH, TTK and WHS. They compare the current market cap to my estimate of each companies’ intrinsic value. The list below also shows the growth expectation of the market.

For example I have assumed Teamtalk’s revenue continues to decline by 1% year, while the current market has priced in a revenue decline of 5% a year.

Company: Market cap / intrinsic value

  • Sky City: 1.15
  • Sky TV: 1.00
  • Toll: 4.70
  • Teamtalk: 0.63
  • Warehouse: 1.88

Company: Revenue growth rate implied by current market cap

  • Sky City: 14% to 3% over the next 10 years
  • Sky TV: 12% to 3% over the next 10 years
  • Toll: 14% each year till 2016
  • Teamtalk: -5% each year till 2016
  • Warehouse: 11% each year till 2016

Assumptions:

  • Valuation based on a 10 year DCF model.
  • Historical revenue growth assumed to move toward long term growth rate assumption over ten years.
  • Forecast EBTIDA margins historical rates.
  • Deprecation and capital expenditure based on historical levels, but forecast to grow with revenue.
  • Discount rate and asset betas from PwC Cost of Capital report (pdf).
  • Long term growth rate of 3%.