Monday, February 11, 2008

My journey so far

The more I read about fundamental analysis, the more I realised that there is more I need to cover. I wonder how long it takes to truly master it. Perhaps when I reached that level, I will realise that the essence of FA is very simple. But the journey to reach that simplicity and mastery is anything but.

I was reading a wide variety of subjects that I think is useful for me in this journey. I read about Jack Welch's management in General Electric. I read about history - its crazy bullishness and the eventually crashed that followed, its prominent players that shaped investment history, great companies, bad companies. I read about dividends. I read about accountings and its limitations. I read about the functions of banks and even the life of a typical investment analyst to top it all. Portfolio allocation. Flow of capital. Capital structure. Emotions and bias. Blah blah blah.

I'm still eager to take in more, if only I have more time.

I suppose I'm at the literature research phase, where I'm supposed to read a wide variety of content relevant to the topic at hand, to understand what had been done and not done so as to come out with a system of my own. Till then, I will have to read more to cover my inadequacies in the long journey.

Given so much to cover with so short a time, there is simply no time to worry about daily fluctuations in the market. As such, I haven't read a chart for ages, nor stand obsessively over my watchlist like in the past. I haven't do anything since my yzj episode in Jan. This period must be the busiest yet the most quiet of my investing career.

Amazing journey...and one hell of a journey.

13 comments :

H said...

Perhaps you may want to see yourself as BA, business analysis instead of FA.

You are buying into a business afterall.

la papillion said...

Hi,

Hmm, that's a good suggestion. However to me, the name isn't as important as the content. I'm just using the word FA to describe all that is not TA :)

Business analyst...haha, i wonder if I properly enroll myself into a paid course, would I learn more or less than what I'm doing.

H said...

It makes a whole lot of difference -- think about it. :)


HH

musicwhiz said...

Yep LP,

Anyone who thinks of buying shares is buying a business, so should be termed Business Analyst.

Valuations are what matters; if you have a grasp of it, then you will avoid over-paying for any company.

Regards, Musicwhiz

Createwealth8888 said...

Look at their current Income Statement, and make sure they have good positive cash flow, and they are paying dividends regularly; otherwise, it is just speculating that the company will have $$$ in the future.

la papillion said...

Hi guys,

Thks for the comment. Each one is valued :)

To the extent that you believe, to the extent you become. I think I'll see myself as a BA instead of FA then :) Sometimes a name change can open up a whole new insight and remove some inherent bias, I do recognise that.

H said...

What is the difference between FA and BA then?

HH

la papillion said...

H,

Let me try.

BA is a bigger set that FA, that is to say BA includes FA, but not the other way. FA deals with numbers, but BA includes other areas besides numbers, like the management, the industry, competitors and so on.

Perhaps the main difference lies in the amount of qualitative work for BA, as opposed to more quantitative work for FA.

May I wrong?

H said...

Let's say Sheng Song boss asked you to buy over his chains of supermarket. How do you do a BA on it to see how much it is worth? HH

la papillion said...

HH,

I'd look at the following:

1. Financial statements - then proceed to crunch some numbers, in order to track their past earnings and margins in order to see if they are successful in the past and if they are going to be successful in the future. The trend have to be analysed for Sheng Siong on a year to year basis, for at least 5 years. More if I have more data.

2. Competitor analysis - i'll check on how other supermarkets (like NTUC, giants, cold storage) are doing and compare if sheng siong is the leader or the laggard. I think the main thing to check here are the ROE, revenue growth, COGS as a % to revenue, inventory turnover. My preconception is that for supermarket business, volume plays a huge part, so i'll be looking strongly at how fast the revenue grows and how they can maintain or improve their margins.

3. Competitive advantage - i'll be looking at brand name (it's like when i'm looking for niche products, i'll go cold storage). Is there others?

4. management - I'm very happy about sheng siong's way of treating their employees. If it is as reported, they really care about their workers. Boss is very down to earth, very hands on type who treats employees on case by case basis. I always hear shop n save employees complaining near the tuition centre :) If I can get my hands on their suppliers and employee, i'll talk to them, like how i talk to someone from fjben.

5. Proceed to do a DCF. I admit I'm not good at this at all, still learning. Supposed to do a projection of their earnings and subsequently arrive at their future cashflow, all discounted to the present to arrive at a fair value

6. Then I'll ask the boss how much he wants to sell me, with my mind anchored at the fair value I have derived. Hopefully the boss can give me a value way below this fair value, the lower the better.

H said...

Maybe you can add more when you think of/read up more.

Studying Walmart is a good reference. You missed out some very important points.


HH

la papillion said...

HH,

Haha, don't be stingy on your hints leh. Give me some hints on where to improve. So far, I know I'm weak at dividend, so I'm reading up on it.

Any further reads? Oh that security analysis is soo thick, i wish they have a smaller version where i can bring along in my bag to read outside my home :(

H said...

These questions are super big hints already.

You must focus on super good books. Those not worthy ones, just read, capture the essence. NEXT.

you can find them (those books).. if you search appropriate places.

Read.Reflect. Response. Review.

This, I learn from my bible study.

HH