How low will the ASX go?

[oracle]

Yes Oracle, nothing lasts forever or is guaranteed, especially the longer the time span. Time is risk, even moreso in this climate. What was a good company yesterday, can be a bad company today.

My focus for the time being is based on reducing time risk and exploiting slightly more predictable volatility.

I often wonder which data value investors use to reduce the uncertainty surrounding future profits projections, and how many just rely on profit downgrade announcements as they come.

Ofcourse, WW...I have also tried to play the shorter timeframe game, with trading and CFDs. Gone through the emotional roller coster. I found my psychology not suited to shortterm profit making. Personally, I think the bigger players most of the time run over you. They take you for a ride. Just when you expect certain events to have certain effect on the market the bigger players tries to fool you by going in the opposite direction to only come back. But by then you would be stopped out.

Having said this I am pretty sure money can be made using the shorter timeframe (Trading). It's just something I found a bit stressful and the returns weren't that great for me to justify the stress.

In regards to what metric I use to invest in companies. There are a few, I look at

1) Growth metrics
5-10 year earnings growth, dividend growth, Free cashflow growth

2) Risk
current debt/equity, current ratio, quick ratio, market cap

3) Economic moats
Increasing profit margins, earnings stability

4) Value
Use the discounted cashflow model and another model which i read in a book (No name). It's mainly based on P/E ratio, earnings stability, dividend payout ratio and past earnings growth

Finally, I use my own judgement on what kind of business it is and whether I think the business is niche (strong popular product line Healthcare/Medical/Pharmaceuticals) or a commodity type (products which are more commodities eg. Telcos, ISP, etc. ) where competition can wipe out your strong profits unless you have other advantages (Woolies vs Coles)

I believe all of the above when used together can help in mitigating the risks against uncertain times which lead to high share price volatility.

Hope this help. By no means I am an expert, I am learning this game everyday and trying to improve myself.

Cheers,
Oracle.

 

[Ridin-High]

Howdy,



First gross up the dividend (dividend/0.7), eg $1000 dividend= $1000/0.7= $1428. So you have received income of $1428, but paid tax of $1428-$1000=$428.
Add this on to your tax return, depending on the amount of dividends you could go above your 30% personal tax rate.



Assume negatively geared, so say interest cost is $1500.
So income is $1428, interest expense $1500= income loss of $72+ you still have the $428 of tax credits to offset against other income.
If you were on 30% tax rate, you should get a refund equal to $72x0.3=$21.6 +$428 of tax credits equals $449.6



(Dividends paid)/0.7

However note not all companies are fully franked, so go to www.asx.com.au
check out the relevant company and you will see a section on dividends declared including their tax components.
Some stocks like QBE, BXB, CSL etc have low franking credits because of overseas opperations.

IV, wouldn't the 428 worth of tax credits only be worth 30% of 428?

So refund would be 21.6 + (428x0.3)?

So Neg geared before tax, but positive after?

Regards,

RH

 

[willair]

This is a quote i like from,,Nassim Taleb,..
Know how to rank beliefs not according to their "Plausibility but by the harm they may cause..
Page 203,Being a Fool in the Right Places,"The Black Swan"

 

[Intrinsic_Value]

IV, wouldn't the 428 worth of tax credits only be worth 30% of 428?

So refund would be 21.6 + (428x0.3)?

So Neg geared before tax, but positive after?

Regards,

RH

ha?
428 tax credits are tax credits, they are 'worth'
428/0.3= 1426 of income at 30 %

this is tax paid already, not income.

 

[Intrinsic_Value]

This is a quote i like from,,Nassim Taleb,..
Know how to rank beliefs not according to their "Plausibility but by the harm they may cause..
Page 203,Being a Fool in the Right Places,"The Black Swan"

this is a quote i like from someone,
in the long term we are all dead, so whats the use trying to do anything.

If all you think about is harm, then stick to bank deposits.
after all maybe a big black swan metor will strike the earth next year, gold/property/shares/life wont mean squat.

even better still, a black swan normally doesnt occur after a black swan, and less so when everyone is looking for that black swan. here swany swany, where are you, i know you are here somewhere, come out where every you are.

Calculated probability with as much reinsurance as possible is all i am interested in.

 

[Intrinsic_Value]

actually my post above doesnt sound vague enough, therefore it isnt 'intelligent enough'

give me a few days to come up with something more vague, maybe a quote from someone several hundred years ago, after all if its been quoted it must be right, especially if its vague enough, left of field enough right guys

chee i might even start to sound intelligent on this forum, after all, the new name of the game is to sound intelligent by presenting a few quotes.

 

[Sunfish]

Gary’s Note: Over the last two weeks we’ve asked you to open your eyes and accept that not only might things never get better, they may well get worse. If you’ve taken our advice to heart, you know that your survival over the next few years is tied to how well you’re prepared. This week, we start investigating pro-active steps you can take to increase your odds of surviving the coming Greater Depression. In other words, we’re going to start talking about things you can do to give yourself a fighting chance.

So begins the latest Whiskey and Gunpowder. There are many who believe the Greater Depression is about to befall us. I have, personally, thought it a possibility for many years but as this worldwide deflation continues it is looking more likely than ever.

I repeat: I see no compelling reason to be buying shares.

 

[steveadl]

I've still been buying in similar strategy to Oracle.

I'm using debt so need to be more careful and proactive as IV has pointed out, but I'm happy with the portfolio being built. I'm never good at picking the bottoms so not really interested in trying too hard in that regard, but I'm happy with the yields I'm picking up and the portfolio is CF+. Dividend growth will kick in and make it a nice earner in coming years.

 

[kum yin lau]

Hi, I'm also using debt & have found all the pits to fall into!! At least I'm out of that dastardly insurer we all know.

I'm currently in a very convoluted pattern of borrowing, then buying in the smsf, selling those in my own name thereby creating a paper loss to offset tax.

I wish things were easier or simpler.

As with property, it seems to work only if I can stick to a budget & pay down debt.

Forced savings, that's what it's all about.

KY

 

[steveadl]

Hi, I'm also using debt & have found all the pits to fall into!! At least I'm out of that dastardly insurer we all know.

Was feeling uneasy with that one so I ended up selling out at $21 for a small profit. Didn't really want to as I like it long term, but hey - cheaper now. Only problem with it is still the low franking, which I'm getting spoilt by with the others I'm holding now!

 

[Intrinsic_Value]

In regards to what metric I use to invest in companies. There are a few, I look at

1) Growth metrics
5-10 year earnings growth, dividend growth, Free cashflow growth

2) Risk
current debt/equity, current ratio, quick ratio, market cap

3) Economic moats
Increasing profit margins, earnings stability

4) Value
Use the discounted cashflow model and another model which i read in a book (No name). It's mainly based on P/E ratio, earnings stability, dividend payout ratio and past earnings growth

Finally, I use my own judgement on what kind of business it is and whether I think the business is niche (strong popular product line Healthcare/Medical/Pharmaceuticals) or a commodity type (products which are more commodities eg. Telcos, ISP, etc. ) where competition can wipe out your strong profits unless you have other advantages (Woolies vs Coles)


Cheers,
Oracle.

Very good points oracle, those who are new to investing in shares can really pay attention to this.

In fact the only point on which i differ is market cap.
Small caps are inherintly more risky because of their business models, however in the current environment they can also be safer?
Why?
no shorting/cfd/hedge fund movements against the index effecting the underlying share/no LVR ratio (so less speculative borrowed money).
And with small caps investors are 'used' to normal price volatility due to low volume, so its built into the investment models.

Its the big caps on extreme price movements that are the headaches.

 

[oracle]

Ofcourse, WW...I have also tried to play the shorter timeframe game, with trading and CFDs. Gone through the emotional roller coster. I found my psychology not suited to shortterm profit making. Personally, I think the bigger players most of the time run over you. They take you for a ride. Just when you expect certain events to have certain effect on the market the bigger players tries to fool you by going in the opposite direction to only come back. But by then you would be stopped out.

Having said this I am pretty sure money can be made using the shorter timeframe (Trading). It's just something I found a bit stressful and the returns weren't that great for me to justify the stress.

In regards to what metric I use to invest in companies. There are a few, I look at

1) Growth metrics
5-10 year earnings growth, dividend growth, Free cashflow growth

2) Risk
current debt/equity, current ratio, quick ratio, market cap

3) Economic moats
Increasing profit margins, earnings stability

4) Value
Use the discounted cashflow model and another model which i read in a book (No name). It's mainly based on P/E ratio, earnings stability, dividend payout ratio and past earnings growth

Finally, I use my own judgement on what kind of business it is and whether I think the business is niche (strong popular product line Healthcare/Medical/Pharmaceuticals) or a commodity type (products which are more commodities eg. Telcos, ISP, etc. ) where competition can wipe out your strong profits unless you have other advantages (Woolies vs Coles)

I believe all of the above when used together can help in mitigating the risks against uncertain times which lead to high share price volatility.

Hope this help. By no means I am an expert, I am learning this game everyday and trying to improve myself.

Cheers,
Oracle.

There is one last thing I would add to the above. That is it is all well and good to study and find fundamentally good companies, but that is only half the job done. The other half is determining what price to pay. For eg. CBA bought at $60 in 2007 would turn out to be an average investment decision today but CBA bought in 2009 at $30 bucks would have resulted in a good investment decision.

So always be mindful of the price you pay. No matter how good the company fundamentals are, if you overpay your investment return would be poor/average. It can turn out to be a waiting game but it will be worthwhile in the end, like I have still got my eyes on couple of companies but am waiting for the price to drop further 4-5%. Even after all the the correction going on right now these companies don't fall that much. Very rarely do you get to buy them at bargain.


Cheers,
Oracle.

 

[willair]

. For eg. CBA bought at $60 in 2007 would turn out to be an average investment decision today but CBA bought in 2009 at $30 bucks would have resulted in a good investment decision.

So always be mindful of the price you pay. No matter how good the company fundamentals are, if you overpay your investment return would be poor/average. It can turn out to be a waiting game but it will be worthwhile in the end, like I have still got my eyes on couple of companies but am waiting for the price to drop further 4-5%. Even after all the the correction going on right now these companies don't fall that much. Very rarely do you get to buy them at bargain.


Cheers,
Oracle.

I have been investing in CBA from 1996,when they were around $10.45
there is a pattern in this every time the "Chaos Theory" and the Bell Curve come into play,not saying it's about to happen again,but once you break into the numbers on who owns what,from the private stand alone investors,super funds,sole high end investors with above 50,000 units the numbers become hard to follow when lined up with total volumes of sales each day but there is a pattern in there,..imho..willair..

 

[Intrinsic_Value]

There is one last thing I would add to the above. That is it is all well and good to study and find fundamentally good companies, but that is only half the job done. The other half is determining what price to pay. For eg. CBA bought at $60 in 2007 would turn out to be an average investment decision today but CBA bought in 2009 at $30 bucks would have resulted in a good investment decision.

So always be mindful of the price you pay. No matter how good the company fundamentals are, if you overpay your investment return would be poor/average. It can turn out to be a waiting game but it will be worthwhile in the end, like I have still got my eyes on couple of companies but am waiting for the price to drop further 4-5%. Even after all the the correction going on right now these companies don't fall that much. Very rarely do you get to buy them at bargain.


Cheers,
Oracle.

Oracle, you have just highlighted both sides of the equation.

Its really great to hear other people talking in this sought of mindframe.
Hopefully it will make for much more intelligent future discussions.

 

[Intrinsic_Value]

Even after all the the correction going on right now these companies don't fall that much. Very rarely do you get to buy them at bargain.

Cheers,
Oracle.

I think it depends very much on the sector that the stock operates in.
If you take WOW, its a defensive stock, so its 'attractiveness' in the current climate is increased, especially with institutional investors who may not have the option of going to cash, so they cycle to the least risky.

Which brings me to one very important point for retail investors:
When you hear talk from the 'experts' about moving to defensives, this doesn not always mean you should follow suit. In a declining market defensives 'loose' less money. Now why would you invest just to 'loose' less money. Just stay out of the market altogether then (this is an option insitutional players dont have

Hence you probably wont get WOW at a bargain in the current environment.

But there are sectors that are getting trashed at the moment (this doesnt mean that they wont get trashed further).

If it was me i would be looking at the sectors that are getting trashed based on short term thinking. ie future upside/downside risk return.

I have started my purchase run on banks again with an effective 1st buy in of NAB at $22.8, and WBC at $19.5 (both using options to create a lower effective buy in point). Even after the purchases my total portfolio is only 10% banks (against an 'market index' weight of approximately 25%) so i still have lots of room to move.

I am also getting ready to dollar average into the insurance company you talked about. I will start hitting at $16 or when i can achieve this level using options. I dont care if there are no short term catalysts on this one.
With a partially franked yld of approximately 8%, i am happy to start acquiring again.

To finance these potential purchases i will partially offload certain stocks with less upside potential (such as metcash, which has been a great stabiliser in my portfolio).

 

[WinstonWolfe]

Let me ask the value buyers whether a Japanese investor would have been successful using a value approach in the last 25 years. The Nikkei is 9200 today, around the same as in 1985.

The Nikkei highlights why value buying must include an understanding of what drives economies nationally, which requires an understanding of global fundamentals.

 

[oracle]

Let me ask the value buyers whether a Japanese investor would have been successful using a value approach in the last 25 years. The Nikkei is 9200 today, around the same as in 1985.

The Nikkei highlights why value buying must include an understanding of what drives economies nationally, which requires an understanding of global fundamentals.

WW...Can you tell me what was the avg P/E ratio of Nikkei stocks when it hit it's peak at 40,000? No value investor would have touched it or entered at that point. Value investing is also about knowing when something is overpriced and selling/getting out of it. So most value investors would have been out of it around that time.

Cheers,
Oracle.

 

[WinstonWolfe]

WW...Can you tell me what was the avg P/E ratio of Nikkei stocks when it hit it's peak at 40,000? No value investor would have touched it or entered at that point.

You seem to be saying value investors set P/E targets to sell at. What are yours?

 

[Intrinsic_Value]

You seem to be saying value investors set P/E targets to sell at. What are yours?

depends there are relative value (x is cheaper to y on a relative basis) investors and absolute value investors.

More interesting though is your comment re the japanese market.
Not many 'value' investors would have got caught at the top, but plenty might have been caught in the various 'bottoms' with very little or no growth for a number of years (value trap).

Hence your good comment about required future growth.

However i prefer to focus on company specific future growth rather than just the macro. (i look at the macro, just dont focus on it)

 

[oracle]

You seem to be saying value investors set P/E targets to sell at. What are yours?

Anything above the long term average (between 12-17 for most companies), I would be very careful holding it. During the dotcom bubble most internet companies were trading at anywhere between 50-200 P/E ratios. That is just asking for trouble. I definitely won't be holding anything if the P/E goes beyond 25-30.

Companies that are growing rapidly usually trade at a higher P/E (above 20). It's the premium you pay to buy growth. I personally do not buy such companies as I don't think it's worth the risk. The same companies get hammered if they miss analyst forecasts even if it is for 1 quarter. That might actually be a good time to buy. They call it GARP (Growth at reasonable price.)

Cheers,
Oracle.