Invest on quantitative financial numbers;disregard all other qualitative aspects

[wahkao]

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

I could not interpret trailing earnings. They dont give me anything insightful.

Just 2 days ago, I added a worse case PE calculator.

I ask myself this question: In the past 5 years, what's their worse 4 quarter earnings performance?
I calculate that PE based on price today. This allows me to look at the type of PE I will be facing assuming the company's business slumped back to square 1.

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...

quantitative analysis is really easy because you can use the computer like SAS or simple microsoft excel to compute the data.
I spend 5 mins analyzing 1 company because computer do all the hard work for me very fast.

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.

Been tweaking it day in and out.

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.

nice! which is the most consistent method?

[smallcaps]

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

I could not interpret trailing earnings. They dont give me anything insightful.

Just 2 days ago, I added a worse case PE calculator.

I ask myself this question: In the past 5 years, what's their worse 4 quarter earnings performance?
I calculate that PE based on price today. This allows me to look at the type of PE I will be facing assuming the company's business slumped back to square 1.

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...

quantitative analysis is really easy because you can use the computer like SAS or simple microsoft excel to compute the data.
I spend 5 mins analyzing 1 company because computer do all the hard work for me very fast.

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.

Been tweaking it day in and out.

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.

nice! which is the most consistent method?

Think after your reply, I'm not so certain of wat u meant by quantitative. Do u mean juz take the ratios at face value? Normally when doing security analysis, would need to investigate into things like whether depreciation is too much/too little, take out exceptional items, so as to make adjustment to the earnings/NCAV etc. It is actually a lot of hard work. That is what I understood by quantitative, that is in depth analysis of the numbers with less focus on business/industry forecasting.

My personal preference would High ROE (with explainable reason) at a reasonable price, good current ratio, relatively low PPE for manufacturing, no borrowings (not juz net cash +ve), moderate amount of dividends, management look for growth opportunities but cautiously, no share buyback, no options, no warrants, no placements, no rights, around 50 to 150 mil market cap, singaporean founder(s) and still managing the company, non-cyclical earnings (might not mean non-cyclical industry), accounts in SGD or USD, a good amount of retained earnings, little to no goodwill.

[opmi]

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

I could not interpret trailing earnings. They dont give me anything insightful.

Just 2 days ago, I added a worse case PE calculator.

I ask myself this question: In the past 5 years, what's their worse 4 quarter earnings performance?
I calculate that PE based on price today. This allows me to look at the type of PE I will be facing assuming the company's business slumped back to square 1.

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...

quantitative analysis is really easy because you can use the computer like SAS or simple microsoft excel to compute the data.
I spend 5 mins analyzing 1 company because computer do all the hard work for me very fast.

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.

Been tweaking it day in and out.

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.

nice! which is the most consistent method?

Think after your reply, I'm not so certain of wat u meant by quantitative. Do u mean juz take the ratios at face value? Normally when doing security analysis, would need to investigate into things like whether depreciation is too much/too little, take out exceptional items, so as to make adjustment to the earnings/NCAV etc. It is actually a lot of hard work. That is what I understood by quantitative, that is in depth analysis of the numbers with less focus on business/industry forecasting.

My personal preference would High ROE (with explainable reason) at a reasonable price, good current ratio, relatively low PPE for manufacturing, no borrowings (not juz net cash +ve), moderate amount of dividends, management look for growth opportunities but cautiously, no share buyback, no options, no warrants, no placements, no rights, around 50 to 150 mil market cap, singaporean founder(s) and still managing the company, non-cyclical earnings (might not mean non-cyclical industry), accounts in SGD or USD, a good amount of retained earnings, little to no goodwill.

For my inv criteria, a mixture of quanti and quali. Not a fan of stock screens.

mkt cap is trading at big disc to market valuation of cheap and good assets. e.g. k1 in 4Q2011

track record of the key man - smart people can create something out of nothing. e.g. bet on Simon Cheong before he was Simon Cheong.

corporate actionables - personal assets of key man for asset injections
e.g. Benaty Chang's stake in PPL injected into Baker Tech

Special Sits - Change of mgt or ownership, failed GOs
e.g. Forterra, EHL, k1

[chialc88]

my inv criteria is also a mixture of quanti and quali.
I'm not a fan of stock screening too (because some of the data are not accurate)

Most of the time, I start with a tips (eg. insider, company buy-back, VB, blogs etc). <daily activities, it's part of my interest/routine>


Then, I'll skim thru the 10 years annual report (either SGX or read from library), focusing on the 1-foot hurdle. <this will takes me max 1 hour per counter>

If it couldn't pass the 1-foot hurdle, make a remark and out it go.

If it pass the 1-foot hurdle, then I read more about this company. (AR: chairman message, more blogs, read the entire VB thread, read industry trends, read shareinvestor) <this will takes me a good half a day of entertainment. totally enjoy the process>

If something is not correct or does not make sense or even contradicting, then make a remark and out it go. I had spend enough time on this stock.

If everything still seems good, then I will gather all the available AR and read them in reverse order. I see what the mgt promise and how they realise their vision. To me this is like reading Percy Jaso... fun and exciting.
As for the numbers, I'll key them into spreadsheet and do my adjustment according to what make sense to me.
The funny thing is I did not have a fixed/same set of criteria when I do 2nd type number crunching for these company. I just take what make sense in the AR and do vertical and horizontal analysis (with peers of course).

Another funny thing is my favourite company always exhibit certain excellent numerical numbers or characteristics that most other company (especially peer) don't have. These exception numbers/characters (varies from company to company) gives me the hunch to invest heavily into them.

For example, remember Adampak?
Most of the senior mgmt team have accounting background.
When most of the company was doing damage control due to Bangkok flood, guess what, Adampak is one of the rare one that has a insurance policy which cover the flood damages.

Speed, Intelligence and Integrity. Without integrity, the first two will kill you fast!

For my inv criteria, a mixture of quanti and quali. Not a fan of stock screens.

[CityFarmer]

Let's learn from guru. Base on my limited exposure, I knew at least two guru are practicing value investment base on only quantitative data. One is the late Mr. Walter Schloss and Mr. Joel Greenblatt.

Late Mr. Walter Schloss held 50-100 stocks at any given time, and he didn't do company visit, attend investor seminar and etc. His analysis was based on quantitative data only.

Mr. Joel Greenblatt applies his magic formula on his Gotham Capital fund, with quantitative data only. Gotham Capital owned close to 900 stocks at one time.

For those interested on the strategy, may be a good starting point is a research on them.

[opmi]

Let's learn from guru. Base on my limited exposure, I knew at least two guru are practicing value investment base on only quantitative data. One is the the late Mr. Walter Schloss and Mr. Joel Greenblatt.

Late Mr. Walter Schloss held 50-100 stocks at any given time, and he didn't do company visit, attend investor seminar and etc. His analysis was based on quantitative data only.

Mr. Joel Greenblatt applies his magic formula on his Gotham Capital fund, with quantitative data only. Gotham Capital owned close to 900 stocks at one time.

For those interested on the strategy, may be a good starting point is a research on them.

Joel 'you can be a stock genius' greenblatt is more special situations.
The magic formula is his side adventure.

[CityFarmer]

Let's learn from guru. Base on my limited exposure, I knew at least two guru are practicing value investment base on only quantitative data. One is the the late Mr. Walter Schloss and Mr. Joel Greenblatt.

Late Mr. Walter Schloss held 50-100 stocks at any given time, and he didn't do company visit, attend investor seminar and etc. His analysis was based on quantitative data only.

Mr. Joel Greenblatt applies his magic formula on his Gotham Capital fund, with quantitative data only. Gotham Capital owned close to 900 stocks at one time.

For those interested on the strategy, may be a good starting point is a research on them.

Joel 'you can be a stock genius' greenblatt is more special situations.
The magic formula is his side adventure.

Yes, I am a follower of his special situation strategy, but not on his magic formula.

More info about him on wiki

http://en.wikipedia.org/wiki/Joel_Greenblatt

[chialc88]

Thanks City.

Googled Joel Greenblatt and realised that he taught value investment and his students had captured his lesson into notes.

I skim thru his notes and Joel is definitely a fellow value buddies.

His financial matrix (besides using Magic formula for stock screening) is well documented and make sense.

Special Situation Strategy to me needs a lot of gambling/gaming instinct. This suit my personality too.

Thanks for highlighting to me/us.

[CityFarmer]

Thanks City.

Googled Joel Greenblatt and realised that he taught value investment and his students had captured his lesson into notes.

I skim thru his notes and Joel is definitely a fellow value buddies.

His financial matrix (besides using Magic formula for stock screening) is well documented and make sense.

Special Situation Strategy to me needs a lot of gambling/gaming instinct. This suit my personality too.

Thanks for highlighting to me/us.

Welcome. One small correction. Special situation strategy doesn't need gambling instinct, if done right. In fact, similar concepts of IV and MOS are applied. WB did with his arbitrage deals, with quite a similar concept.

[chialc88]

yes, done correct is the key.

One example is desperate seller (especially major shareholder).

Recall UIS:
when Laxey selling heavily...
the stock drop to 35% off its NTA.

it's a closed end fund aka like unit trust and ETF which usually selling at NTA.

At that point in time, I dare says that only buyer with guts feeling will dip their toes.

Unfortunately, I did not.

I waited until UIS do it's stock buy-back then initiate my game plan.

Now, with formal training by Joel...
I hope to profits more from it.

Really appreciate your tips.

once a teacher... will be my teacher for life.


A Life not Reflected is a Life not Worth Living.