Invest on quantitative financial numbers;disregard all other qualitative aspects

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http://www.grahamanddoddsville.net/wordp...chloss.pdf

See point 11 from walter schloss.
If want to care less about qualitative factors, buy in a way that is less dependant on earnings...

[wahkao]

1) In my view, financials are lagging indicators of performance. Qualitative data such as industry outlook

where do I get these qualitative data? Can you teach me where to find them and how to analyze them?

[wahkao]

firm positioning must also be taken into consideration to get a better forward looking view to future performance.

Firm positioning as in market positioning?
Think like a marketing manager? Consider the 4Ps, price, place, promotion, product?


From experience working in fortune 500 MNCs doing B2b business, even marketing managers they themselves do not know what market share they have. This is because most of these information are kept very secret. They have to hire external management consultants who would piece together a nice story for them.

Most of whatever they forecasted is based on previous year's revenue + GPD growth. OR previous year's revenue + Boss's targeted growth

[wahkao]

2) When finding a very cheap/undervalued stock, i would like to know the possible reasons for the undervaluation. This way, i can better appreciate the risks i'm taking and develop a framework to test my investment thesis and assumptions.

I agree. I will also dig deep into why this company is so undervalued.
Surely there's some dirt hidden somewhere.

For example ERATAT LIFESTYLE LIMITED
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rolling PE of 1.8, Price/NAV of 0.25. Low debt. Amazing right?
My first suspect was their DSO and indeed, they have a DSO of 6.6months!
Ever since this case study, I learnt to include DSO and inventory turnover days as part of my quantitative study.

These data points are not easy to get because they involve a lot of manual work of digging through their financials.

From a qualitative business stand point, my guess is that they are probably doing consignment type of business where their distributors have the option to return unsold goods anytime they want. And this company would book those unsold goods as revenue. Real Sneaky !

[wahkao]

http://www.grahamanddoddsville.net/wordp...chloss.pdf

See point 11 from walter schloss.
If want to care less about qualitative factors, buy in a way that is less dependant on earnings...

for #11, I have already considered this. I have Price/NAV as one of my valuation screens.

Especially so for REITs, financials and property counters

Honestly, I have disregarded price/NAV very often when PE is an attractive one.

[zf87]

As a beginner and learner of investment, rather than disregard all qualitative aspects, I would like to rate a company by scores on each of the important qualitative aspect, such as equity dilution, dividend policy, quality of auditor, director's interest, etc. In this process, then I feel that I can compare different companies on a more objective basis. Another way, is to give a pass or fail based on the scores, meaning whether the financial numbers can be trusted or not.

Of course, how to give rating and the proportions/factors of the aspects is an art more than a science, and everybody will come out with his/her own preferences.

As smallcaps mentioned, this method more applicable to value/asset play rather than growth play. For sustainable growth company with moat, there are two extremes. one is discounted cash flow, which makes a lot of assumptions. The other one is the qualitative analysis of - Economic moat, Competitors, Trends, Management etc. Still finding my way in between. I feel that prediction of the future is much harder than realization of intrinsic value.

[Greenrookie]

How do you manage risks? (religare- litigation land issue, foreland-customer's suit case, NamLee- pending expiry of contract with major customer in 2014, APTT tax issue, funny expansion etc), Most of these issues do not have numbers whether they do rights or not.

It is my belief that quantitative numbers will stack as much odds in my favor as possible.

I honestly do not know how to see through these facts and I am not going to act like I know.

I treat these unfortunate events as unique risks that can happen anytime. I treat them as 100% unpredictable events. No matter how much study I do, or how much due diligence I conduct, even if I am an employee of the company, there is absolutely no way to predict them.

The only way to manage these unpredictable risks is to diversify.

If anyone here can teach me how to make them more predictable, I am all ears.

U dun need predict all the above issues, just a serious read into the prospectus, AR or recent announcements will show u these are the existing risks. U will then have to decide how defensive or strong the company earnings are against such risks actually happening and if the price has overshoot to the downside or is blind to such risks. U would want to be properly compensated for whatever risks u want to take.

Of course, there could be unknown risks too, but if u are blind even to the known risks, how are the odds going to stack in your favor?

Another example, the strikes at HPHT's ports, was it an unknown risk? Nope, it is already me mention in 2011 prospectus that they have a large base of contract workers and labor relations depend on how their sub-contractors manage their workers.

Anyway, YMMV

[wahkao]

How do you manage risks? (religare- litigation land issue, foreland-customer's suit case, NamLee- pending expiry of contract with major customer in 2014, APTT tax issue, funny expansion etc), Most of these issues do not have numbers whether they do rights or not.

It is my belief that quantitative numbers will stack as much odds in my favor as possible.

I honestly do not know how to see through these facts and I am not going to act like I know.

I treat these unfortunate events as unique risks that can happen anytime. I treat them as 100% unpredictable events. No matter how much study I do, or how much due diligence I conduct, even if I am an employee of the company, there is absolutely no way to predict them.

The only way to manage these unpredictable risks is to diversify.

If anyone here can teach me how to make them more predictable, I am all ears.

U dun need predict all the above issues, just a serious read into the prospectus, AR or recent announcements will show u these are the existing risks. U will then have to decide how defensive or strong the company earnings are against such risks actually happening and if the price has overshoot to the downside or is blind to such risks. U would want to be properly compensated for whatever risks u want to take.

Of course, there could be unknown risks too, but if u are blind even to the known risks, how are the odds going to stack in your favor?

Another example, the strikes at HPHT's ports, was it an unknown risk? Nope, it is already me mention in 2011 prospectus that they have a large base of contract workers and labor relations depend on how their sub-contractors manage their workers.

Anyway, YMMV

i guess the risk section is the place to look at? thanks for the tip
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[Clement]

1) In my view, financials are lagging indicators of performance. Qualitative data such as industry outlook

where do I get these qualitative data? Can you teach me where to find them and how to analyze them?

This differs from industry to industry and across geographical regions. For some industries, I agree it can be difficult to obtain reliable data.

In general, the outlook and commentary sections of financial reports and presentations of the firm and it's peers can be a good starting point. Another good area to get some market colour is in sell side analyst research reports, they can provide a decent overall view as to the trends and challenges of the industry.

As to the question about positioning, I meant operational and financial positioning. Factors such as degree of operating leverage, degree of financial leverage, production capacity and inventory levels.

[smallcaps]

http://www.grahamanddoddsville.net/wordp...chloss.pdf

See point 11 from walter schloss.
If want to care less about qualitative factors, buy in a way that is less dependant on earnings...

for #11, I have already considered this. I have Price/NAV as one of my valuation screens.

Especially so for REITs, financials and property counters

Honestly, I have disregarded price/NAV very often when PE is an attractive one.

Ok neat. How about earnings...have you considered using normalized earnings instead of trailing?

I guess another important question before determining the methodology might be to decide the amount of return that one expect from spending so much time on selecting stocks for investment? Like 8%,12%,15%,20%,25%, etc...

Presumably the amount of return could also influence the method(s) to use. There r LOTS of ways of choosing stocks for investment. Maybe you might want to go through all of them and find one or more that you think might be suitable, and experiment with it and if comfortable with it, take it up and then start to tweak it. Can understand this problem u r having as I personally have tried various approaches/combinations for around 13 years, like GARP, net net, asset play, high ROE, low P/B, high net cash, low PE, turnaround, change in business mix, etc.