What to invest in?

[Sunfish]

Let me make one thing quite clear, a price chart gives absolutely no indication of intrinsic value.
None, zippo, zilch, nothing.

Can i make myself more clear!!!!!

Maybe 'tis time I made myself more more clear also.

WHAT THE F**** IS "Intrinsic value". You have hit us over the head with it for ages now and I STILL have no idea how you calculate it.

What you dismissively call a "price chart" (as if price doesn't matter to an investor) I call a "sentiment chart".

BTW Are you investing your own dollars or that of fellow boers who just want to get their money out of SA and will happily (sort of) cop a loss while doing so?

 

[Value Emperor]

Let me make one thing quite clear, a price chart gives absolutely no indication of intrinsic value.
None, zippo, zilch, nothing.


To state that an uptrend suggests surprises have been factored into into the share price is NAIVITY.

What about CSL, what about CBA, what about WOW, what about QBE when they first started their run.
To merely have deleted their shares from your screen just because they were running would have left you without many years of future gains IN INTRINSIC VALUE (note how i am not talking about share prices here, just INCREASES in intrinsic value).

Sorry, I was trying to keep my post brief.
When I said
"An uptrend on increasing volumes suggests to me that any potential positive suprises have already been factored into the share price"

I should clarify and add that even though it "suggests" the above, it would warrant further analysis at that point to determine whether it has reached anywhere close to fair value. Otherwise you would be excluding too many good stocks from your watch screen.

One of the shares I own was up this week on increasing volumes but I'm still holding as according to my calcs its still around 70% discount to fair value.

It's NAIVETY not to know history though and that is - The expected return following a short term spike on increasing volumes is an underperformance against the rest of the market.

 

[whatever123]

Let me make one thing quite clear, a price chart gives absolutely no indication of intrinsic value.
None, zippo, zilch, nothing.

Can i make myself more clear!!!!!

Not so sure about that.
If I looked at the prices on 10 random share price charts, I'm fairly sure there would be a good correlation between their respective intrinsic value and the average price shown on the chart. Never exact but what you're saying is that not only are the markets not 100% efficient, they are not even 1% efficient.

So the intrinsic value of RIO could easily be the same as PHW (0.004) because the price chart tells you zippo, zilch, nothing.

 

[Intrinsic_Value]

Maybe 'tis time I made myself more more clear also.

WHAT THE F**** IS "Intrinsic value". You have hit us over the head with it for ages now and I STILL have no idea how you calculate it.

What you dismissively call a "price chart" (as if price doesn't matter to an investor) I call a "sentiment chart".

BTW Are you investing your own dollars or that of fellow boers who just want to get their money out of SA and will happily (sort of) cop a loss while doing so?

You have so much difficulty calculating the range of intrinsic value, because of the nature of the shares you invest in.

Secondly i invest, i dont trade.

Hence the continued requirement to know whether you are an investor or a trader.
There are different rules.

 

[Intrinsic_Value]

Not so sure about that.
If I looked at the prices on 10 random share price charts, I'm fairly sure there would be a good correlation between their respective intrinsic value and the average price shown on the chart. Never exact but what you're saying is that not only are the markets not 100% efficient, they are not even 1% efficient.

So the intrinsic value of RIO could easily be the same as PHW (0.004) because the price chart tells you zippo, zilch, nothing.

or really?
so the dot.com share price rise was based on a rise in intrinsic value?
the potential resource bubble is based on a rise in intrinsic value?

the market in the short term is a voting machine, in the long term its a weighing machine. always has been always will be.

I plan to weigh my investments, not subject them to a 'popularity' test as determined by near term price movements.

 

[Intrinsic_Value]

It's NAIVETY not to know history though and that is - The expected return following a short term spike on increasing volumes is an underperformance against the rest of the market.

not necessarily.
Again it depends on the reason for the movement, was it due to an increase in the intrinsic value of the share due to new information, or just due increased 'popularity' of the share.

I know where you are comming from, but you must differentiate movements in intrinsic value, from movements in share prices.

 

[Intrinsic_Value]

BTW Are you investing your own dollars or that of fellow boers who just want to get their money out of SA and will happily (sort of) cop a loss while doing so?

what loss Sunfish?
Using intrinsic value, i have generated a return on my investment of more than 300% over the last 3 years. The returns are NOT based on continued excessive debt (something you highlight here on this forum with regards to property), they have been cash flow positive.

So far for 2010:
the property side of things is still going up because of price appreciation (however i am taking money off the table by gradually selling down my property holdings).
the share portfolio is marginally negative for 2010, but it is cash flow positive, it has 'outperformed the index' after transaction costs and interest costs. So i can afford to wait. I generate around $100k a year now just from the dividends after interest borrowing costs.

You constantly deride those who invest in residential property not to look at 'the price trend' yet you are happy to look at the share price trend.

You are not consistent.

 

[Intrinsic_Value]

What you dismissively call a "price chart" (as if price doesn't matter to an investor) I call a "sentiment chart".

what has sentiment got to do with intrinsic value.

Again i say are you an investor or a trader, confusing the two leads to ineficient decision making.

 

[Intrinsic_Value]

BTW Are you investing your own dollars or that of fellow boers who just want to get their money out of SA and will happily (sort of) cop a loss while doing so?

and lets back up here for a moment sunfish.
You seem to have a lot to say, but if age correlates to wealth and knowledge, and experience, you should be the wealthiest member of this forum.

or did i just touch a sensitive nurve here.
don't punch unless you are happy to enter the ring.

 

[Bill.L]

IV,

Could you please define "intrinsic value" as you use it??

Most 'value' investing looks at things like EPS, NTA, ROE etc, what are your criteria??

bye

 

[urbanprospector]

Well charts mean nothing i called 1250 top (using a chart ) please tell me the intrinsic value of gold ??? rather than skirting the issue ..

Please explain how you come out with the figure you do .
As in what factors you use to determine the intrinsic value.

on a side note do the same for cba .

 

[whatever123]

or really?
so the dot.com share price rise was based on a rise in intrinsic value?
the potential resource bubble is based on a rise in intrinsic value?

I never said or even implied that. I don't think you understood what I was saying.

the market in the short term is a voting machine, in the long term its a weighing machine.

You know you're really supposed to give credit to the author of sayings like that or else it looks like you're passing it off as your own.
Be careful though, if you quote someone, you can be deemed a "follower" of the said person which can set you up for ad hominem attacks.

 

[Intrinsic_Value]

IV,

Could you please define "intrinsic value" as you use it??

Most 'value' investing looks at things like EPS, NTA, ROE etc, what are your criteria??

bye

In simple terms its the 'worth' of a business from a business owners point of view. So the 'intrinsic value' of of a share is just the 'worth' divided by the number of shares on offer.

 

[Intrinsic_Value]

Well charts mean nothing i called 1250 top (using a chart ) please tell me the intrinsic value of gold ??? rather than skirting the issue ..

Please explain how you come out with the figure you do .
As in what factors you use to determine the intrinsic value.

on a side note do the same for cba .

i have absolutely no idea what the intrinsic value is for gold

 

[Sunfish]

60% of my portfolio I've held for many years yet you keep hitting me over the head with the "trader" tag and the way you use it, it is a swear word.

It is far easier to value a miner than Myer. One has some product in the ground and a reasonable guestimate at mining costs. Myer has a "brand" and goodwill. They probably don't even own their shops and would not have paid for the stock yet. So can you do better than guess it's true value? In fact, like art, it is worth what someone will pay for it. History gives you that.

 

[Value Emperor]

Please explain how you come out with the figure you do .
As in what factors you use to determine the intrinsic value.

on a side note do the same for cba .

I know this wasn't directed towards me but as I have been working on calculating the intrinsic value of CBA recently.
A very basic intrinsic value estimation would involve reading the financials. If you did this and had a required IRR of 8%, CBA would come back as a strong buy thanks to its current earnings yield.

A more details intrinsic value calculation would require calculating the intrinsic value of all the external factors that affect the value of its balance sheet components and future earnings.And this is where it gets difficult.

One of CBA's major assets is loans to Residential property holders. Now if I listened to some, I would estimate that this is one of the safest assets in the world so accept the value of this loan book as guaranteed and may even discount some of the corresponding impairments.

I like to go a bit further than this. My research (and it may well be flawed), suggests that Australia could well be heading towards the recession we never had last year, thanks to global influences I won't go into now.
This will cause unemployment to rise, bank margins to fall, property values to fall and mortgage stress really expected to ramp up. With a $270 billion resi loan book, I am predicting a 5% writedown of these loans over the next few years which is $13 billion. (note 5% is nothing compared to the % losses of US and UK bank loan books).

Needless to say, my estimation of CBA's intrinsic value is significantly lower than its current share price. So much in fact that I have a short position.

Someone else with different intrinsic valuation techniques or views of the global economy or the resilience of the Aust property market may come up with a higher valuation of CBA. This is great, as it allowed me to go short when CBA had a fairly high price. If everyone came to the same price concusion as me, it would not be worth going short unless I was betting on an even larger negative suprise.

In summary and IMHO, the potential upside of CBA is a lot less than the potential downside so one should either have no position, or be short.

 

[whatever123]

60% of my portfolio I've held for many years yet you keep hitting me over the head with the "trader" tag and the way you use it, it is a swear word.

It is far easier to value a miner than Myer. One has some product in the ground and a reasonable guestimate at mining costs. Myer has a "brand" and goodwill. They probably don't even own their shops and would not have paid for the stock yet. So can you do better than guess it's true value? In fact, like art, it is worth what someone will pay for it. History gives you that.

Isn't that also true of product in the ground ie its worth what someone will pay for it?

As we don;t seem to be able to calculate the true value of the minerals, we need to rely on its current selling price, but it could just as easily go back to the price of "just above its extraction cost".
I know, I know its running out and all that, but it was also "running out" when mineral prices were around cost of extraction.

 

[Intrinsic_Value]

Isn't that also true of product in the ground ie its worth what someone will pay for it?

As we don;t seem to be able to calculate the true value of the minerals, we need to rely on its current selling price, but it could just as easily go back to the price of "just above its extraction cost".
I know, I know its running out and all that, but it was also "running out" when mineral prices were around cost of extraction.

This is a very good point and its exactly why i dont invest in resource stocks.

 

[Sunfish]

Well that's the most sensible thing written about "value" yet. But the single most valuable asset of CBA is it's brand and heritage and I have no idea how to value that.

But this bit is the kicker: Someone else with different intrinsic valuation techniques or views of the global economy or the resilience of the Aust property market may come up with a higher valuation of CBA. This is what makes a market. On any day only half the value investors will be right.

I must do an evaluation on a stock before I buy because I don't buy if/when a chart tells me nor do I throw a dart. The biggest difference in approach might be that I study the macro environment and form an opinion about the world around us. My reading tells me that resources is the place to be (that's a decadal view) so I limit myself to that area but I must stress that that is an opinion reached after hundreds of hours of research over many years, not a chat site.

Because I started investing late in life I didn't have the bank or the time to do it the Graham way so I look for prospectors that might make it good. It's not as hard as it sounds, I've found a few. Sadly I've only held one to fruition. I've posted the chart before but from everything I've read, you "value" types would have sold long ago because it would have been overvalued at times. It certainly was "overbought" a few days ago.

 

[urbanprospector]

Isn't that also true of product in the ground ie its worth what someone will pay for it?

As we don;t seem to be able to calculate the true value of the minerals, we need to rely on its current selling price, but it could just as easily go back to the price of "just above its extraction cost".
I know, I know its running out and all that, but it was also "running out" when mineral prices were around cost of extraction.

no not just extraction costs ,also transport ,refining, storage , insurance .mark up . .



on the issue of cba to many unknown factors to possibly value it .like the exposure to certain financial instruments they wont disclose . also losses held off balance sheet etc .

personally i think we are in recession as the gov spending borrowed money to prop the economy can really be counted a gdp .

expect this leg down in the stocks to continue and we will see the asx at 2000 ish. gold may pull back to 1155 before heading higher but with the amount of uncertainty about this may not happen .

and dare i say that D word as personally i think that's where we are headed (i'm a very optimistic person in general)