The Next Big Crash - Are You Prepared?

[felixleong]

haha I dunno when is the best time to buy
if I value the stock at $1 and it now sells for 70 cents I'll buy some
if it sells for 50 cents I buy more and run out of cash
it hits 30 cents i can't buy anymore but its fine, I'm human anyway... i can't always get the bottom but I can make a good return on my capital ^^

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http://stockbrokerplayspoker.blogspot.sg...value.html

A Story Selling Gum Told By A Value Investor

[Image: gum.jpg]

A number of years ago I was trying to explain to my son what I did for a living. He is 11 years old. I spoke about selling gum.

Jason, a boy in my son’s class, sold gum each day at school. He would buy a pack of gum for 25 cents and he would sell 5 sticks of gum for 25 cents each or $1.25 in total revenue for each pack he sells.

He sells 4 packs a day, 5 days a week, and 36 weeks in the school year or about $720 a year in pure profits. If he has 6 years until he graduates, that is about $4,320 in total profits he would make by the end of high school.

What if Jason offered to sell you half the business today? What would you pay?

My son replied, ―Well, he may only sell three packs a day so he would make $3000 a year. Would you pay $1,500 now? Why would I do that if I have to wait several years for the $1,500?

Would you pay a $1? Yes, of course! But not $1,500. I would pay $450 now to collect $1,500 over the next few years, which would be fair.

Now, you understand what I do for a living, I told my son.

I sit around trying to figure out what businesses are worth, and then I try to pay a lot less for them. I think you get the point.

[TheMillennium]

haha I dunno when is the best time to buy
if I value the stock at $1 and it now sells for 70 cents I'll buy some
if it sells for 50 cents I buy more and run out of cash
it hits 30 cents i can't buy anymore but its fine, I'm human anyway... i can't always get the bottom but I can make a good return on my capital ^^

But how do you know you'll make good return on yr capital? What if the price goes to 30cents, and recovers only to 50cents?

Also, if there were such a company, and the directors themselves did not buy back their shares to show shareholders their confidence and instead let the price fall, does it send any danger signals?


PS: interesting story, and I'm sure all of us are trying to buy businesses for much less than their worth. Or else what's the point of investing? ^^

[Bibi]

But how do you know you'll make good return on yr capital? What if the price goes to 30cents, and recovers only to 50cents?

Then u diversify into a few shares. If still worried, buy blue chips that give consistent good dividends. If still worried, then u wait STI reach 2k points. If still worried, wait for world recession then buy from a few countries. If still worried, no choice liao, put money in bank or buy gold bars if scared world war.

[felixleong]

depends on the companies you buy
I tend to buy companies that pay out at least half of their earnings as dividends
if its worth $1 and earns 10 cents a year and pays out 5 cents dividends
a purchase at 50 cents would yield 10% dividends
if the price falls to 30 cents so be it, I will be glad to take the 10% dividend year after year, good returns indeed ^^

[freedom]

haha I dunno when is the best time to buy
if I value the stock at $1 and it now sells for 70 cents I'll buy some
if it sells for 50 cents I buy more and run out of cash
it hits 30 cents i can't buy anymore but its fine, I'm human anyway... i can't always get the bottom but I can make a good return on my capital ^^

a more important question to ask is when the $1 is going to be realized.

If you bought at 70 cents or even 50 cents, the $1 is only realized 10 years later. are you wining or losing?

there are more value traps in local market. just be careful. 70 cents can stay 70 cents for longer than you expected.

[TheMillennium]

Then u diversify into a few shares. If still worried, buy blue chips that give consistent good dividends. If still worried, then u wait STI reach 2k points. If still worried, wait for world recession then buy from a few countries. If still worried, no choice liao, put money in bank or buy gold bars if scared world war.

depends on the companies you buy
I tend to buy companies that pay out at least half of their earnings as dividends
if its worth $1 and earns 10 cents a year and pays out 5 cents dividends
a purchase at 50 cents would yield 10% dividends
if the price falls to 30 cents so be it, I will be glad to take the 10% dividend year after year, good returns indeed ^^

Dividends seem to still be the key then.. I was thinking along the same lines as felixleong that even if it drops to 30cents, if there is 10% yield, provided the company does not reduce the dividends, it seems to be very good.

Bibi, just to check, there are other companies besides bluechips that give consistent good returns at higher yields right? So does it make more sense to buy these companies? Just for one example, LKH. As long as fundamentals are good, that's the most impt?

Side qn: So how come Warren Buffett focuses more on capital gains than dividends? Is it because USA has tax on dividends so focusing more on growth is better in the long run?

[Temperament]

This what we call Pyramid Down 1,2,3,4,5,... if we are sure of the fundamentals of the company. But from financial books i read, not one author favours this. All recommended Pyramid up.
That is we buy 5,4,3,2,1; Let's assume everything being equal, then pyramid down 1,2,3,4,5, is the same as pyramid up 5,4,3,2,1, , isn't it?
Is it really the same? i don't think so. Nothing is perfect but all the professional financial book authors have very good reasons.
The most important is still we better be quite sure the fundamentals of the company we are betting is sound and strong. That it will recover healthily and stronger after its an ill wind that blows no good. i found it hard to pyramid up, because how to know the falling knife has struck. Have to try though because it is really more advantages to pyramid up.
from the base 5,4,3,2,1.

[TheMillennium]

haha I dunno when is the best time to buy
if I value the stock at $1 and it now sells for 70 cents I'll buy some
if it sells for 50 cents I buy more and run out of cash
it hits 30 cents i can't buy anymore but its fine, I'm human anyway... i can't always get the bottom but I can make a good return on my capital ^^

a more important question to ask is when the $1 is going to be realized.

If you bought at 70 cents or even 50 cents, the $1 is only realized 10 years later. are you wining or losing?

there are more value traps in local market. just be careful. 70 cents can stay 70 cents for longer than you expected.

But Freedom, do you agree with felixleong that if it remains at 70cents for 10years, but gives a high dividend yield of 7-10%, is it ok?

Just want to know the different views.

Thanks!

[KopiKat]

haha I dunno when is the best time to buy
if I value the stock at $1 and it now sells for 70 cents I'll buy some
if it sells for 50 cents I buy more and run out of cash
it hits 30 cents i can't buy anymore but its fine, I'm human anyway... i can't always get the bottom but I can make a good return on my capital ^^

a more important question to ask is when the $1 is going to be realized.

If you bought at 70 cents or even 50 cents, the $1 is only realized 10 years later. are you wining or losing?

there are more value traps in local market. just be careful. 70 cents can stay 70 cents for longer than you expected.

But Freedom, do you agree with felixleong that if it remains at 70cents for 10years, but gives a high dividend yield of 7-10%, is it ok?

Just want to know the different views.

Thanks!

I have yet to come across any Value Traps that pays 7%! If so, I'd gladly stay trapped.... The ones I'd gotten trapped before usually pays 3-5% dividends but pays themselves at higher and higher salaries + bonuses over the years, thro' thick and thin.....

[Temperament]

a better Q to find out is what is the "normal" DIY annualised return of a SGX stock portfolio (p/a) for 10 years ? For 20 years? Compare to S & P 500 Index or STI ETF