New Ard here

Hi Guys, I am new around here. Have been in the trading scene for 2 years and did not do well in trading. Felt I was not suitable for it and decided to do passive investing instead one year ago.

Recently went for a free course which taught us how to value companies in the context of "Buying the assets and get the business for free". The way of calculation was to use the (Cash + properties - Total Liabilities ) / number of shares to get the price. If this price is below the current share price, then there is a chance this stock is undervalued. There are 3 more criterias.

1) Free cash flow for the past 3 years
2) PE ratio cannot be too high
3) Last one I can't really remember.

As I am quite new in value investing, can the old birds advice on this form of valuation? They did mention it is quite similar to an investor called Walter Schloss. Thanks.

Even though I'm an inactive member, but can't help not to comment.

"(Cash + properties - Total Liabilities ) / number of shares to get the price"
isn't this Net Asset Value per share?

" If this price is below the current share price, then there is a chance this stock is undervalued"
isn't this Price/Book ratio < 1?

The course you have attended just taught you the very basic.
Valuation of a company is more than that.

Perhaps you should start reading up on value investing & related books and read up on some of the members' postings here.

Welcome!

(12-05-2014, 01:49 AM)VIChris Wrote: Even though I'm an inactive member, but can't help not to comment.

"(Cash + properties - Total Liabilities ) / number of shares to get the price"
isn't this Net Asset Value per share?

" If this price is below the current share price, then there is a chance this stock is undervalued"
isn't this Price/Book ratio < 1?

The course you have attended just taught you the very basic.
Valuation of a company is more than that.

Perhaps you should start reading up on value investing & related books and read up on some of the members' postings here.

Welcome!

hi Chris thanks for the reply. It should be lesser than the nav because we do not take into account inventories, receivables and goodwill etc.

Yup you are correct the price to book in this case will always be less than 1.

I agree that this is very basic. I will be reading up on the intelligent investor and thanks for your reply really appreciate it.

(11-05-2014, 11:45 PM)CigarButts Wrote: Hi Guys, I am new around here. Have been in the trading scene for 2 years and did not do well in trading. Felt I was not suitable for it and decided to do passive investing instead one year ago.

Recently went for a free course which taught us how to value companies in the context of "Buying the assets and get the business for free". The way of calculation was to use the (Cash + properties - Total Liabilities ) / number of shares to get the price. If this price is below the current share price, then there is a chance this stock is undervalued. There are 3 more criterias.

1) Free cash flow for the past 3 years
2) PE ratio cannot be too high
3) Last one I can't really remember.

As I am quite new in value investing, can the old birds advice on this form of valuation? They did mention it is quite similar to an investor called Walter Schloss. Thanks.

Hi Cigarbutts,

I believe I attended the same thing as you, conducted at Park Mall last week?

While I found the workshop logical, I found that there wasn't enough depth. Then again, what do you expect when something is free?

The last one is a DE ratio of < 1.

I felt that more metrics could be considered like ROE, Profit Margins, etc...

I found intelligent investor very difficult to read, I'm still trying to finish it, meanwhile, I've drifted to many other books instead. You can consider:

Common Stock Uncommon Profits by Philip Fisher
The Little book that beats the market by Joel Greenblatt
How to make money even in a falling market by Ho Kin Mun (I think)

I found these to be easy reads prior to reading intelligent investor.

I've only barely started last August, but learnt a lot from this forum and from reading.

Welcome!

(12-05-2014, 11:13 AM)Ferns Wrote:

(11-05-2014, 11:45 PM)CigarButts Wrote: Hi Guys, I am new around here. Have been in the trading scene for 2 years and did not do well in trading. Felt I was not suitable for it and decided to do passive investing instead one year ago.

Recently went for a free course which taught us how to value companies in the context of "Buying the assets and get the business for free". The way of calculation was to use the (Cash + properties - Total Liabilities ) / number of shares to get the price. If this price is below the current share price, then there is a chance this stock is undervalued. There are 3 more criterias.

1) Free cash flow for the past 3 years
2) PE ratio cannot be too high
3) Last one I can't really remember.

As I am quite new in value investing, can the old birds advice on this form of valuation? They did mention it is quite similar to an investor called Walter Schloss. Thanks.

Hi Cigarbutts,

I believe I attended the same thing as you, conducted at Park Mall last week?

While I found the workshop logical, I found that there wasn't enough depth. Then again, what do you expect when something is free?

The last one is a DE ratio of < 1.

I felt that more metrics could be considered like ROE, Profit Margins, etc...

I found intelligent investor very difficult to read, I'm still trying to finish it, meanwhile, I've drifted to many other books instead. You can consider:

Common Stock Uncommon Profits by Philip Fisher
The Little book that beats the market by Joel Greenblatt
How to make money even in a falling market by Ho Kin Mun (I think)

I found these to be easy reads prior to reading intelligent investor.

I've only barely started last August, but learnt a lot from this forum and from reading.

Welcome!

hi ferns yup I think we went to the same free seminar. Thanks for the book recomendations.

(11-05-2014, 11:45 PM)CigarButts Wrote: Hi Guys, I am new around here. Have been in the trading scene for 2 years and did not do well in trading. Felt I was not suitable for it and decided to do passive investing instead one year ago.

Recently went for a free course which taught us how to value companies in the context of "Buying the assets and get the business for free". The way of calculation was to use the (Cash + properties - Total Liabilities ) / number of shares to get the price. If this price is below the current share price, then there is a chance this stock is undervalued. There are 3 more criterias.

1) Free cash flow for the past 3 years
2) PE ratio cannot be too high
3) Last one I can't really remember.

As I am quite new in value investing, can the old birds advice on this form of valuation? They did mention it is quite similar to an investor called Walter Schloss. Thanks.

Will just be blunt here. One of the problems with public seminar-style finance 'education' is that they are just embellished garbage that has not much real value to the student. Value investing itself is a behemoth, and the seminars usually have no pedagogy for a proper educational efficacy.

There's an old idiom which goes "better untaught than ill-taught", and I think that it'll be good to follow that advice. Investing requires knowledge beyond what has established in formal financial academia, and works best if you have as wide a knowledge as possible.

Before you hop onto the works of Graham, it'll be good to consider to have an understanding (if you don't already have) on:
1. The basics of micro and macro economics
2. The history of financial markets (bubbles etc.)
3. Current Affairs (to due interconnectedness of economies)
4. Accounting Principles
5. Nature of different businesses

The above mentioned "criteria" by the course on buying an "undervalued" stock is simply arbitrary. Book value/NAV seldom tell you anything about the business, unless you bother about the business going bankrupt and you are interested in how much money you will be getting back on your buck.

Let me quote Graham in his Security Analysis:
"Some time ago intrinsic value (in the case of a common stock) was thought to be about the same thing as “book value,” i.e., it was equal to the net assets of the business, fairly priced. This view of intrinsic value was quite definite, but it proved almost worthless as a practical matter because neither the average earnings nor the average market price evinced any tendency to be governed by the book value."
(From Chapt 1: THE SCOPE AND LIMITATIONS OF SECURITY analYSIS. THE CONCEPT OF INTRINSIC VALUE; Examples of Analytical Judgement)

Here are further concerns of the criteria:
1. Cash flow indicates the quality of earnings. It is regarded for prudence sake, but it doesn't tell you whether or not a business is going to be prosperous or not.

2. PE ratio is relative to growth. A company with a higher growth potential usually has higher PE. Firms from different industries have different PE levels as well. Construction firms usually have a lower PE compared to a tech stock, and that doesn't mean the construction firm is a better buy than the tech stock, ceteris paribus.

3. DE ratio is almost also relative and absolutely pointless if an arbitrary figure is ascribed to it. Business from different industries require different level of gearing. Construction firms usually require a great deal of leverage, and certain business (e.g. retail) can do without gearing at all. The point here is comparison with the industry average and make a personal judgement to see if the level of debt is prudent for that kind of business.

All the "criteria" pointed out in the course point to 1 direction: A "safe" investment (quotation marks used deliberately)

It doesn't tell you anything about earnings, ROE, and all the different segments of a business that are extremely important (marketing, branding, employee management, expansion strategies etc. etc.). If the steps as of the seminar are followed, all that you're buying is the assets of the firm. A firm which falls into the said criteria can be something like Noel Gifts International -- though not a bad buy, not exactly a good buy either.

Also, there're a lot of books recommended here which are good books. But I implore a beginner to spare no cost (in time and effort) to educate himself on the very basics first. Investing is huge work. Effort must be in place. The best way of course is to enrol yourself in a business course, but self-education can work too. I must stress investing is an uphill battle for the layperson, and sometimes it is actually better to just put your money in index funds than to go through all these troubles at all.

*

"The fool and his money are soon parted."
-- Old English Proverb

(12-05-2014, 07:09 PM)profeszor Wrote:

(11-05-2014, 11:45 PM)CigarButts Wrote: Hi Guys, I am new around here. Have been in the trading scene for 2 years and did not do well in trading. Felt I was not suitable for it and decided to do passive investing instead one year ago.

Recently went for a free course which taught us how to value companies in the context of "Buying the assets and get the business for free". The way of calculation was to use the (Cash + properties - Total Liabilities ) / number of shares to get the price. If this price is below the current share price, then there is a chance this stock is undervalued. There are 3 more criterias.

1) Free cash flow for the past 3 years
2) PE ratio cannot be too high
3) Last one I can't really remember.

As I am quite new in value investing, can the old birds advice on this form of valuation? They did mention it is quite similar to an investor called Walter Schloss. Thanks.

Will just be blunt here. One of the problems with public seminar-style finance 'education' is that they are just embellished garbage that has not much real value to the student. Value investing itself is a behemoth, and the seminars usually have no pedagogy for a proper educational efficacy.

There's an old idiom which goes "better untaught than ill-taught", and I think that it'll be good to follow that advice. Investing requires knowledge beyond what has established in formal financial academia, and works best if you have as wide a knowledge as possible.

Before you hop onto the works of Graham, it'll be good to consider to have an understanding (if you don't already have) on:
1. The basics of micro and macro economics
2. The history of financial markets (bubbles etc.)
3. Current Affairs (to due interconnectedness of economies)
4. Accounting Principles
5. Nature of different businesses

The above mentioned "criteria" by the course on buying an "undervalued" stock is simply arbitrary. Book value/NAV seldom tell you anything about the business, unless you bother about the business going bankrupt and you are interested in how much money you will be getting back on your buck.

Let me quote Graham in his Security Analysis:
"Some time ago intrinsic value (in the case of a common stock) was thought to be about the same thing as “book value,” i.e., it was equal to the net assets of the business, fairly priced. This view of intrinsic value was quite definite, but it proved almost worthless as a practical matter because neither the average earnings nor the average market price evinced any tendency to be governed by the book value."
(From Chapt 1: THE SCOPE AND LIMITATIONS OF SECURITY analYSIS. THE CONCEPT OF INTRINSIC VALUE; Examples of Analytical Judgement)

Here are further concerns of the criteria:
1. Cash flow indicates the quality of earnings. It is regarded for prudence sake, but it doesn't tell you whether or not a business is going to be prosperous or not.

2. PE ratio is relative to growth. A company with a higher growth potential usually has higher PE. Firms from different industries have different PE levels as well. Construction firms usually have a lower PE compared to a tech stock, and that doesn't mean the construction firm is a better buy than the tech stock, ceteris paribus.

3. DE ratio is almost also relative and absolutely pointless if an arbitrary figure is ascribed to it. Business from different industries require different level of gearing. Construction firms usually require a great deal of leverage, and certain business (e.g. retail) can do without gearing at all. The point here is comparison with the industry average and make a personal judgement to see if the level of debt is prudent for that kind of business.

All the "criteria" pointed out in the course point to 1 direction: A "safe" investment (quotation marks used deliberately)

It doesn't tell you anything about earnings, ROE, and all the different segments of a business that are extremely important (marketing, branding, employee management, expansion strategies etc. etc.). If the steps as of the seminar are followed, all that you're buying is the assets of the firm. A firm which falls into the said criteria can be something like Noel Gifts International -- though not a bad buy, not exactly a good buy either.

Also, there're a lot of books recommended here which are good books. But I implore a beginner to spare no cost (in time and effort) to educate himself on the very basics first. Investing is huge work. Effort must be in place. The best way of course is to enrol yourself in a business course, but self-education can work too. I must stress investing is an uphill battle for the layperson, and sometimes it is actually better to just put your money in index funds than to go through all these troubles at all.

*

"The fool and his money are soon parted."
-- Old English Proverb

hi thanks here for taking your time to type this reply. I will prefer blunt facts if they can allow me to learn. How I wish someone had gave me these blunt facts while I was trading a year ago.

(12-05-2014, 06:47 AM)CigarButts Wrote:

(12-05-2014, 01:49 AM)VIChris Wrote: Even though I'm an inactive member, but can't help not to comment.

"(Cash + properties - Total Liabilities ) / number of shares to get the price"
isn't this Net Asset Value per share?

" If this price is below the current share price, then there is a chance this stock is undervalued"
isn't this Price/Book ratio < 1?

The course you have attended just taught you the very basic.
Valuation of a company is more than that.

Perhaps you should start reading up on value investing & related books and read up on some of the members' postings here.

Welcome!

hi Chris thanks for the reply. It should be lesser than the nav because we do not take into account inventories, receivables and goodwill etc.

I have to disagreed.
That will depends on the company industry it is in. Asset light or heavy asset company and the receivable scheme.

If you disregards them, you might missed out on a gem.

(12-05-2014, 11:14 PM)VIChris Wrote:

(12-05-2014, 06:47 AM)CigarButts Wrote:

(12-05-2014, 01:49 AM)VIChris Wrote: Even though I'm an inactive member, but can't help not to comment.

"(Cash + properties - Total Liabilities ) / number of shares to get the price"
isn't this Net Asset Value per share?

" If this price is below the current share price, then there is a chance this stock is undervalued"
isn't this Price/Book ratio < 1?

The course you have attended just taught you the very basic.
Valuation of a company is more than that.

Perhaps you should start reading up on value investing & related books and read up on some of the members' postings here.

Welcome!

hi Chris thanks for the reply. It should be lesser than the nav because we do not take into account inventories, receivables and goodwill etc.

I have to disagreed.
That will depends on the company industry it is in. Asset light or heavy asset company and the receivable scheme.

If you disregards them, you might missed out on a gem.

hi Chris thanks for the reply. Will definitely take ur advice Into considerations. By the way the seminar author have made a blog post on it.
http://www.bigfatpurse.com/2014/05/analy...-strategy/

(12-05-2014, 07:09 PM)profeszor Wrote: Will just be blunt here. One of the problems with public seminar-style finance 'education' is that they are just embellished garbage that has not much real value to the student. Value investing itself is a behemoth, and the seminars usually have no pedagogy for a proper educational efficacy.

There's an old idiom which goes "better untaught than ill-taught", and I think that it'll be good to follow that advice. Investing requires knowledge beyond what has established in formal financial academia, and works best if you have as wide a knowledge as possible.

Before you hop onto the works of Graham, it'll be good to consider to have an understanding (if you don't already have) on:
1. The basics of micro and macro economics
2. The history of financial markets (bubbles etc.)
3. Current Affairs (to due interconnectedness of economies)
4. Accounting Principles
5. Nature of different businesses

The above mentioned "criteria" by the course on buying an "undervalued" stock is simply arbitrary. Book value/NAV seldom tell you anything about the business, unless you bother about the business going bankrupt and you are interested in how much money you will be getting back on your buck.

Let me quote Graham in his Security Analysis:
"Some time ago intrinsic value (in the case of a common stock) was  thought to be about the same thing as “book value,” i.e., it was equal to the net assets of the business, fairly priced. This view of intrinsic value was quite definite, but it proved almost worthless as a practical matter because neither the average earnings nor the average market price evinced any tendency to be governed by the book value."
(From Chapt 1: THE SCOPE AND LIMITATIONS OF SECURITY analYSIS. THE CONCEPT OF INTRINSIC VALUE; Examples of Analytical Judgement)

Here are further concerns of the criteria:
1. Cash flow indicates the quality of earnings. It is regarded for prudence sake, but it doesn't tell you whether or not a business is going to be prosperous or not.

2. PE ratio is relative to growth. A company with a higher growth potential usually has higher PE. Firms from different industries have different PE levels as well. Construction firms usually have a lower PE compared to a tech stock, and that doesn't mean the construction firm is a better buy than the tech stock, ceteris paribus.

3. DE ratio is almost also relative and absolutely pointless if an arbitrary figure is ascribed to it. Business from different industries require different level of gearing. Construction firms usually require a great deal of leverage, and certain business (e.g. retail) can do without gearing at all. The point here is comparison with the industry average and make a personal judgement to see if the level of debt is prudent for that kind of business.

All the "criteria" pointed out in the course point to 1 direction: A "safe" investment (quotation marks used deliberately)

It doesn't tell you anything about earnings, ROE, and all the different segments of a business that are extremely important (marketing, branding, employee management, expansion strategies etc. etc.). If the steps as of the seminar are followed, all that you're buying is the assets of the firm. A firm which falls into the said criteria can be something like Noel Gifts International -- though not a bad buy, not exactly a good buy either.

Also, there're a lot of books recommended here which are good books. But I implore a beginner to spare no cost (in time and effort) to educate himself on the very basics first. Investing is huge work. Effort must be in place. The best way of course is to enrol yourself in a business course, but self-education can work too. I must stress investing is an uphill battle for the layperson, and sometimes it is actually better to just put your money in index funds than to go through all these troubles at all.

*

"The fool and his money are soon parted."
-- Old English Proverb

I found this while digging around the site. And thought this is a very well-articulated and realistic advice for those thinking about dipping their toes into this murky water known as investing. 

VB is a gold mine, albeit with less new material these days. Hopefully profeszor will return and post some more.