Investment in Stocks

Archive for the ‘Value Investing’ Category

When choosing businesses to buy, one of the ratios we look at will be the Return on Equity.

Return on Equity measures the rate of return on business owner’s interest or equity.

Return on Equity =        Net Income

Share Holder’s Equity

Each time a business makes profits, it can use it in a few ways.

1. Issue profits out as dividends
2. Retain the profits which adds to the Shareholder’s Equity
3. Reinvest in itself by either expanding or buying back its own shares.
   
   

In other words, the profits which the business has made can either be issued to us, or kept by the business for continued operations or investments. If the business is keeping the profits, it is kept mainly as part of the owner’s equity and we want to know that this amount of money is put to efficient use. Return on Equity tells us how well this amount of money has been used.

For example, ABC company makes $100,000 this year and the amount of share holder’s equity it is holding is $5,000,000.

Return on Equity =        $100,000 = 2%

$5,000,000

What?! We put or keep $5million with ABC company and it only made 2% or $100,000 out of it. That is simply not efficient and thus ABC company does not seem like a good place to put our money in. As a gauge, we should look for companies that have a consistent average ROE of 15%.

ROE is only one of the ratios we look at when we are checking a business’ track records. It is important to look at a few figures as a cross check to make sure that these numbers are not manipulated to fool investors.

Do come and join us for our free workshop as we run through some items to check to avoid the pitfalls of investors who simply do not know where to look. Be an intelligent investor and join us at our workshop.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Hi,

Today I would like to share my experience regarding “Hyped Up” advertisements! Fortunately or not, i do not yet have the ability to display my feelings through my writing, otherwise, you will be able to feel my anger, frustration, compassion and disappointment.

For those who have read my book, “Winning the Money Game”, you would have read on the part where I started venturing into the stock market after one of my friend, Suffian, showed 6 of us that it is possible to make money from stocks. After our talk with Suffian, I began searching.

To my excitement, I found many courses that promised me that I can get rich quick, quit my job, be a full time trader etc etc…

I paid about $5,000 (i think), joined the course and became confident. I traded some money and won. My confidence grew, so the next step i did was to be a nice kind person and asked 2 of my good friends if they want to make money as well. They said yes, so i took their money and graciously lost about 50% for them. I never forget the feeling.

But i didn’t give up. I attended more courses and lost more money. The funny thing during the time i was trading was this – I identified myself as a Trader. I began to feel good about trading. I read books, attended courses, traded every night. I honestly want to find the “magic” system, strategy… whatever.

Years later, I have arrived at a stage where i began to understand the stock market much better so much so that i can make consistent profits… interestingly, not using any of the techniques taught by me from the courses i attended, but through some guidance from some personal mentors, some books and some practice.

Looking back, i do not think it is fair to say that those course I have attended are fraud, scam etc etc. These course do teach the participants certain amount of skills and i think for beginners, if you need guidance in Trading, it is probably a good idea to get someone to help you get started.

BUT! What ANGERS me is the HYPE in all the marketing!

“I made 700% in my first trade”; “After attending the course, I made my first 3 trades and  make $75,000!”

HYPEsss! I hate to wake you up from your dreams…. In fact those of you who attended such courses probably already woke up!

I recently brought my 2 boys to a drum class. And without a single bit of biasness, they are excellent, had so much potential and talent… just like their dad. But even then, i am clear headed enough to know that they need more than a few drum sessions to make them professional. Being a Professional Trader is the same, it takes years…

I met a nice gentlemen at Philips Capital who used to be a Professional Institutional Trader. He traded millions, made and lost billions and he say that when he saw those claims from trading courses, he is wondering “why MAS is not doing anything to clamp these guys down.” (His exact words). He knew that it is not possible for anyone to make money consistently as claimed by these advertisements.

But even with this post, with all the newspapers journalist warning people, there will still be many people who “see and hear what they want to see and hear” – that is, How to Get rich Quick over night and how to be able to sack their boss 3 months from now….

If you want a real solid plan on your financial destiny, if you want to really learn how to invest- not get rich quick… then I am here to help you. Because i have been through the pain, I understand the feeling and frustration. I see many of my initial trading coursemates had a worse life because of the course we attended.

It is my appeal to you: To be a wise, Intelligent Investor, not a greedy blind mouse. Take a moment to pause and observe your feelings and be honest to yourself… Are you willing to take effort to learn and take time to… W.A.I.T. (Btw, W.A.I.T does not stand for anything, it just means wait, but i want to create the pause effect after each alphabet, just to make you wait…).

Ok, after all this, I do have good news. If you are able to just take time to learn, you can in fact “get rich quick”… in 2 to 5 years! And let me tell you a secret, 2 to 5 years is QUICK!

But that also depends on your starting capital, your needs and your effort. So you can either B – Buy Assets, and if you are starting out with huge cash, with the proper knowledge, you can buy so much cashflow into your life. I know a couple of people who started out with huge savings. After learning how to Invest properly (not trade… mind you), they become much richer, much faster.

I really do wish to share with you, but only if you are willing to be rationale, to learn and to use what you learn. Do join us at our free workshop where i share how to really avoid the hypes and how to have a real plan for a real future.

Click HERE to book a Free Investing Workshop.

To your dreams,

In the meantime, Don’t Let the HYPE Bite You!

Sean Seah
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

It is commonly said that the stock market is like a jungle of animals. There are the bulls describing situation when markets rises or even people who aims to make money when market rises. There are the bears, situations where market falls, or people who speculate the fall of the stocks to make profits. There are also the sheeps, people who follow the crowd.

The saying goes that the bulls and the bears make money while the sheep gets slaughtered.

Well, I have taken on the role of the bulls, bears and sheeps and my final conclusion is that i didn’t like any of those roles, because the fundamental mindset of these animals is to make a KILLING in the stock market.

Have you ever seen a mam fighting a bull or bear? Or have you seen a sheep get slaughter?

Lets just take a bull fighting scenario… If you watch these bull fights on youtube, you will notice, that when the man successfully trap the bull, he looks sleek, cool and admirable. Like a hero. But you should go ahead and watch the times when the bull gets the man, the downfall looks tragic. And if you want to watch a man fall the bear… go ahead and enjoy the blood scene.

This is pretty similar to the stock market when you are speculating and trying to make a killing. When you win, you look good, but when you lose, death may be the result.

And even though i was hooked and addicted by the trill of making a killing in the stock market, there were times, i was the loser and it felt painful too. I decided that it was not the kind of life that i want for myself and my family.

Value Investing takes on a different approach to the stock market. Instead of trying to make a killing, Value Investors identify and acquire Cash Cows and bargain price. Cash Cows (Value Stocks) are tame, stable and produce a steady stream of milk. And when the time is right, you can sell this Cash Cow for a huge sum of money.

In Value Investing, being able to identify a good Cash Cow is critical. And there is a checklist to ensure that this Cow is great and enduring. The next key is to buy it at the right price.

One thing i am passionate about is how to milk the cow for a passive stream of income and using what i call VIOs (Value Investing Options Strategy), i have been successfully creating Monthly Income Stream from selling Options of these Cash Cows.

Of course, as my cash grows, so does my acquisition of cash cows and the stream of income flows in as well. Using what Value investing methodology, based on a 4 steps A-B-C-D (in my other posts), i can milk the stock market instead of going in for a brutal fight!

I share this A-B-C-D method in our free workshop, so do join us so that you can milk your way to financial freedom and riches as well.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Every since i was young, it is almost a truth that in order to have higher returns, we need to take higher risk…

Even the textbooks teaches it. I am going to perform a myth buster right here.

My argument would be that in order to have higher returns, you need higher financial intelligence. And in fact, when you have higher financial intelligence, you lower your risk.

Let me give you an example:

I always say that when you buy a stock, you are buying a part of a business. Using Value Investing, I will choose a business that has been consistently making stable and growing profits. Ultimately, when you buy a business, you want it for profits, don’t you?

So say, i find ABC Stock which had been consistently having Earnings Per Share of $2.50 every year for the past 10 years.

In the real world, there are many stocks out there that can do even better… Stocks like WMT, NKE, WFC, etc has been making consistent and GROWING EPS for the past 20 years.

Now, back to our example of ABC stock with consistent EPS of $2.50.

Say, i check the Price of ABC and it is $25.

If i were to buy one ABC stock today, what is my risk and what is my returns?

Risk is $25 (based on worst worst case scenario, which is unlikely if i choose it based on Value Investing Criteria)

Returns is $2.50/$25 = 10%

Analysing ABC as a Value Investor, i personally will not buy ABC at $25, because i am only interested in a return of at least 15%.

And as we all know, the market goes up and it comes down, and interestingly, in the short run, the stock price does not reflect its earning abilities. So as a Value Investor, i set an email alarm for ABC stock and one day, i receive email notification that ABC stock’s price dropped to $16.50 per share.

What happened? Why did it drop to $16.50? Ah… the CEO is sick and admitted to the hospital. And this has got nothing to do with how much the business is able to earn (when you choose a business that fits all the Value Investing Criteria.) By the way, this happens all the time…

What is my risk and returns this time if i buy it at $16.50?

Risk is $16.50 which is lower than $25. So this is lower risk, does that mean my return will be lower?

Returns is $2.50/$16.50 = 15.15%

The risk is lower, yet the returns are higher!

And this type of opportunities happen all year round when you are trained. So get educated and know that when you have higher financial intelligence, you get lower risks and higher returns.

To your dreams,

Click HERE to book a Free Investing Workshop.

Sean Seah
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Philosophy of Great Investors II

“Be fearful when others are greedy. Be greedy when others are fearful.”Warren Buffett. Chairman, Berkshire Hathaway

“The basic question facing us is whether it’s possible for a superior investment manager to underperform….The assumption widely held is ’no.’ And yet if you look at the records, it’s not only possible, it’s inevitable.”

Robert Kirby. Founder, Capital Guardian Trust Company

Recognize That Short-Term Underperformance Is Inevitable

Almost all great investment managers go through periods of underperformance. Build this expectation into your hiring decisions and also remember it when contemplating a manager change.

“The function of economic forecasting is to make astrology look respectable.”

John Kenneth Galbraith. Economist and Author

Disregard Short-Term Forecasts and Predictions

Don’t make decisions based on variables that are impossible to predict or control over the short term. Instead, focus your energy toward creating a diversified portfolio, developing a proper time horizon and setting realistic return expectations

“You make most of your money in a bear market, you just don’t realize it at the time.”

Shelby Cullom Davis. Diplomat, Legendary Investor and Founder of the Davis Investment Discipline

Click HERE to book a Free Investing Workshop.

Sean Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

 

Philosophy of Great Investors

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”

Benjamin Graham. Father of Value Investing

Avoid Self-Destructive Investor Behavior

Chasing the hot-performing investment category or making major tweaks to your long-term investment plan can sabotage your ability to build wealth. Instead, work closely with your financial advisor to outline your long-term goals, develop a plan to achieve them and set the expectation that you will stick with that plan when faced with difficult periods for the market.

“History provides a crucial insight regarding market crises: They are inevitable, painful, and ultimately surmountable.”

Shelby M.C. Davis. Legendary Investor

Understand That Crises Are Inevitable

Crises are painful and difficult, but they are also an inevitable part of any long-term investor’s journey. Investors who bear this in mind may be less likely to react emotionally, more likely to stay the course, and be better positioned to benefit from the long-term growth potential of stocks.

“Despite inevitable periods of uncertainty, stocks have rewarded patient, long-term investors.”

Christopher C. Davis. Portfolio Manager, Davis Advisors

Understand While Painful, Crisis Creates Opportunity

Low prices can increase future returns. Investors who bear this in mind are more likely to endure hard times and be there to benefit from the subsequent periods of recovery.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”

Peter Lynch. Legendary Investor and Author

Don’t Attempt to Time the Market

Investors who understand that timing the market is a loser’s game will be less prone to reacting to short-term extremes in the market and more likely to adhere to their long-term investment plan.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com