How low will the ASX go?

[WinstonWolfe]

IV and Oracle, the issue I have with value investing is that you are making decisions based on historical data, and are exposed to the uncertainty and instability associated with macro events.

IMO, we have entered a period when the macro climate is likely to influence stock price more than usual. THerefore, I think an astute value investor would be wise to take into consideration company AND macro data.

If I was seeking value in a company, I would definitely want to know how if its market would expand or contract, in addition to whether it could expand its market share.

Do you guys factor in stuff like retail sales, interest rates, unemployment in analysing/confirming a company's future revenue forecasts?

 

[oracle]

IV and Oracle, the issue I have with value investing is that you are making decisions based on historical data, and are exposed to the uncertainty and instability associated with macro events.

IMO, we have entered a period when the macro climate is likely to influence stock price more than usual. THerefore, I think an astute value investor would be wise to take into consideration company AND macro data.

If I was seeking value in a company, I would definitely want to know how if its market would expand or contract, in addition to whether it could expand its market share.

Do you guys factor in stuff like retail sales, interest rates, unemployment in analysing/confirming a company's future revenue forecasts?

WW, I understand your POV. History is all we have. Whether it's technical analysis or fundamental analysis. Both look at historical data. One looks at historical price movements and the other at historical financial data.

That is 50% of the equation. The other 50% is guessing based on what you believe the future is going to be like. No matter how certain you are about the future, there is always a chance of some event happening that will change the economic environment. We have all see this happen in the past 2 years. All the fear and economy coming to stand still existed when the ASX hit 3200 in March 09. The thing is corporate earnings for the majority of companies didn't go down as it was initially anticipated. All these companies adapted to the changing economic environment. That resulted in the recent rally we had.

WW, you have to remember companies with good management and good product line adapt to the changing circumstances. You or me don't know what they will do to ensure the profitibility is maintained and increased whereever possible. It could come through cost cutting, innovation in products or something else. You just have to look at the historical track record of the company and the business and hope the management will do the right thing as it has always done in the past to stear the company through the difficult time. You know you are buying the company at bargain prices. Today things don't look rosy but nothing lasts forever and when things do improve these compaines would bounce back rapidly. If you wait for such a time the price would have already moved up significantly thereby reducing your ROI if you decide to jump in then.

It is not an exact science, where things always work out for you. Sometimes they don't. You just have to make sure the odds are in your favour. Just like the casino does it, they know they will lose out on a few bets, but overall they will always come out ahead.

Cheers,
Oracle.

 

[Intrinsic_Value]

IV and Oracle, the issue I have with value investing is that you are making decisions based on historical data, and are exposed to the uncertainty and instability associated with macro events

.

Most of the analysis with historical data, is to get a 'feel' for the company, how strong are its margins over time, how consistent are profits, hows its ROE, has it expanded through organic growth or acquisition growth. etc etc

This gives you a 'guestimate' of the future ability of the company. But the stronger the features above the higher the probability that the company will continue into the future.

So the first stage is 'stability' of the company. The next stage is price.
If one doesnt over pay for a share, then over the long term, the share price is less at risk from an uncertain future environment, because more uncertainty is built into the price.

IMO, we have entered a period when the macro climate is likely to influence stock price more than usual. THerefore, I think an astute value investor would be wise to take into consideration company AND macro data

.

I mentioned above that i do take macro data into account, but the focus is on the company specific share. I cant fine tune macro data into company specific valuations, its impossible.

So generally i am just looking at broad strokes in macro data. Are the 'general' conditions positive or negative with relation to share prices. I look at the future economic indicators and are they 'broadly' positive/negative.

If I was seeking value in a company, I would definitely want to know how if its market would expand or contract, in addition to whether it could expand its market share.

If i was running a concentrated portfolio i would have to pay closer attention to this, but i dont i run a 'loose' porfolio with a number of stocks that have a reasonable degree of achieving satisfactory returns. Stage one (stock selection) is important for your point here as a form of insurance. Remember i am playing an 'odds' game here, some will work out some wont, but its the net odds that concern me.

Do you guys factor in stuff like retail sales, interest rates, unemployment in analysing/confirming a company's future revenue forecasts?

Yes but only in 'broad strokes':
retail sales: are they positive/negative, whats the overall trend. Specific details will not necessarily correlate with stock specific numbers.

Interest rates: are they up/down stable, does it appear that the influence is being valued in stocks already?

Unemployment: general trend.

The trouble is WW i think you like to create 'certainty', and in the stock market you dont get certainty. When general conditions are 'certain' its often the most dangerous time.

 

[Intrinsic_Value]

IMO, we have entered a period when the macro climate is likely to influence stock price more than usual. THerefore, I think an astute value investor would be wise to take into consideration company AND macro data.

This is a very interesting comment.
In my opinion we have two over riding issues at the moment.
(a) increased volatility due to less 'trust' in the market and increasing market trading.
(b) the relationship between future stock prices and future earnings. One explanation for the current pull back is that the growth factor in earnings over the next few years is not going to be as strong as analysts originally thought. If the growth factor disappoints, then this will give a fundamental reason for the pull back in equity prices. The current downturn in equity prices is the market being proactive and increasing the discount factor of this occuring (hence you see prices decline before this knowledge becomes a known known).

 

[Intrinsic_Value]

This is a very interesting comment.
In my opinion we have two over riding issues at the moment.
(a) increased volatility due to less 'trust' in the market and increasing market trading.
(b) the relationship between future stock prices and future earnings. One explanation for the current pull back is that the growth factor in earnings over the next few years is not going to be as strong as analysts originally thought. If the growth factor disappoints, then this will give a fundamental reason for the pull back in equity prices. The current downturn in equity prices is the market being proactive and increasing the discount factor of this occuring (hence you see prices decline before this knowledge becomes a known known).

Some decent articles in the Fin Review today (monday) pages 20-22, covers this exact theme.

Also another nice article on page 49 regarding UXC, which highlights that market pricing is not efficient in the short term.

Talk of a takover and the stock rises 14%.
So what is the value? the price the day before/the price today/the price tomorrow.

Same company just the relative 'worth' of the company in different hands.

And this is exactly WHY IT IS SO EASY TO MAKE MONEY.

 

[Intrinsic_Value]

Do you guys factor in stuff like retail sales, interest rates, unemployment in analysing/confirming a company's future revenue forecasts?

and now we come to another issue, trying to impose macro forecasts onto equity pricing.

Just got my Goldmans global institutional 'package'. Makes for very interesting reading.
Goldman Sachs was one of the more bullish firms out there with regards to future global growth prospects, and now?????

they are now saying that 2H2010 will slow down more than expected in the US, mainly from the fading on fiscal and inventory rebuilding (with fiscal fade expected to increase through 2011) and with downgrading China to 'consensus' views.

Now why is this interesting?
(a) potential conflicts between the trading desk and the advisory desk (but this is an issue for another day)
(b) it refers to exactly what you were talking about WW. Here is one of the best global advisory firms (the quality of their reserach is generally very good, just dont take the suggested advice, only the research) trying to do what you suggest WW. Extrapolate future macro factors into investment ideas.

The trouble is from a short term perspective, the big players are thinking alike.

Thats why as a retail investor, you cant play the big boys game. If you do you loose.

I highlighted the australian banks in case in this forum with the carry trade and the impact of hedge funds.
i bought banks during the depth of the GFC, i unloaded most of my holdings in 2010 (based on intrinsic values, not trading), and now i am slowly dollar averaging back in.

Goldmans was one of the most aggressive re-australian banks. I refused to play the game, my investment time horizon is different.

As a retail investor, your money is your own, you dont need to achieve short term alpha, just an adequate return over longer time periods (nobody is going to fire you for short term underperformance).

 

[WinstonWolfe]

A nice overview by new Eureka Report contributor Tom Lovell.

Forget Apocalypse Now.......it's Austerity Now.

And earnings upgrades/downgrades is <1.

 

[Intrinsic_Value]

A nice overview by new Eureka Report contributor Tom Lovell.

Forget Apocalypse Now.......it's Austerity Now.

And earnings upgrades/downgrades is <1.

Fits pretty much with my strategic outlook 2010.
Because i am prepared for it i am not greatly effected by it.

The biggest risk factor for me is an unexpected recession in australia that props up with little forewarning.

 

[Ausprop]

The biggest risk factor for me is an unexpected recession in australia that props up with little forewarning.

to some extent it feels like it is upon us

 

[Intrinsic_Value]

to some extent it feels like it is upon us

haha, actually i dont think australians know what it feel like to have a recession, we havent had one for 16 years.

But if we go through one its going to get nasty, really nasty, our asset classes are too finely tuned.

 

[Ausprop]

could be some good work then in being a sherriff - the one i spoke to last week reckons he cant keep up with demand. the local bailiffs office is run off its feet. trying to get a trial date in our courts is a joke

I was pretty serious actually IV - there is not much feel good factor in business. no one is trusting each other, there is no credit, every man and his dog is going bankrupt and all asset classes are in free fall. I guess a lot of the pain has been directed to business owners and the upper middle class - some of the pain will be felt by the lower classes as job probems start to arise and lower end property values drop in line with premium properties

 

[Intrinsic_Value]

I was pretty serious actually IV - there is not much feel good factor in business. no one is trusting each other, there is no credit, every man and his dog is going bankrupt and all asset classes are in free fall. I guess a lot of the pain has been directed to business owners and the upper middle class - some of the pain will be felt by the lower classes as job probems start to arise and lower end property values drop in line with premium properties

this is interesting to hear, can you go into more detail. Do you think maybe its just WA (and then just certain industries).
Which business industries are you talking about?
Is the situation improving/getting worse?

look forward to your comments.



I

 

[twobobsworth]

Our sales are up 12% on last year and last year was a record. I wish it was quieter because I need a holiday.

 

[D.T.]

Our sales are up 12% on last year and last year was a record. I wish it was quieter because I need a holiday.

Be careful what you wish for.

 

[Ausprop]

i think a lot of it must be just WA because I hear places like melbourne are having a boom which seems incredible.

the WA property market has become quite distorted - such that diff between the eastern suburbs and western suburbs has seriously narrowed...tends to happen when one drops 30% and the other rises 10%! i think a correction is in order but i am not sure where or in what form it will strike.

as far as B2B, to me it seems across the board. a lot companies have been burned with bad debts and the respective managers disciplined... credit hounds on the case after just a few days now

IMO the west was far from in good shape when they started ramping up rates and things seem to be just getting worse. the mining boom looked set to change that - and indeed it still could - however the global outlook is looking very gloomy

 

[D.T.]

IMO the west was far from in good shape when they started ramping up rates and things seem to be just getting worse. the mining boom looked set to change that - and indeed it still could - however the global outlook is looking very gloomy

Are you suggesting there should be a different interest rate in each state?

 

[Ausprop]

Are you suggesting there should be a different interest rate in each state?

well they refer to the 2 speed economy, perhaps there are just 2 economies?

 

[Intrinsic_Value]

i think a lot of it must be just WA because I hear places like melbourne are having a boom which seems incredible.

the WA property market has become quite distorted - such that diff between the eastern suburbs and western suburbs has seriously narrowed...tends to happen when one drops 30% and the other rises 10%! i think a correction is in order but i am not sure where or in what form it will strike.

as far as B2B, to me it seems across the board. a lot companies have been burned with bad debts and the respective managers disciplined... credit hounds on the case after just a few days now

IMO the west was far from in good shape when they started ramping up rates and things seem to be just getting worse. the mining boom looked set to change that - and indeed it still could - however the global outlook is looking very gloomy

thanks let me ask you a few more questions:

(a) how are media advertisements going? Your main newspaper is West Australian News right? are the more advertisements or less advertisements in the paper. What about the property lift out section, is it thicker or thinner than several years ago?

(b) how about the cinemas. Do you go to the cinemas much? are they busy? has anyone complained about the increase in ticket prices? if they have complained do they still go?

(c) how about the local grocery chain (coles/woolworths) are they busy? how many check out staff are they using, more or less. Have they introduced automated checkouts in big w/coles/woolworths over there yet.

(d) i havent been to perth since i was a kid, but how is the city looking. Is it becoming 'bigger?', are there lots of 7-eleven stores that have been set up in recent years. What about IGA mini markets?