Methodologies

This category contains 23 posts

The Low-Down on LIBOR

Most people are not clear what exactly LIBOR is. Here’s a quick primer in a FAQ-like format. Who Administers LIBOR? LIBOR (London InterBank Offered Rate) was previously administered by the British Bankers’ Association (website here), and was handed over to Intercontinental Exchange (ICE) Benchmark Administration (IBA) on January 31, 2014 (website here). How Is LIBOR … Continue reading

Book Review of Get Wise to Your Advisor by Steven D. Lockshin

The full title of this book is Get Wise to Your Advisor: How to Reach Your Investment Goals Without Getting Ripped Off by Steven D. Lockshin (2013). According to the bio in the book, Steve is the founder and CEO of Convergent Wealth Advisors and was Barron’s top-ranked advisor. I picked up the book because I … Continue reading

Book Review of Worry-Free Investing by Zvi Bodie and Michael Clowes

The full title of this book is Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals by Zvi Bodie and Michael J. Clowes (2003). Zvi Bodie is a very famous finance professor and co-author of a widely used textbook Investments. Michael Clowes is Editorial Director of Investment News and of Pensions and Investments. Normally I would skip … Continue reading

Book Review of The Permanent Portfolio by Craig Rowland and J. M. Lawson

The full title of this book is The Permanent Portfolio: Harry Browne’s Long-term Investment Strategy by Craig Rowland and J. M. Lawson (2012). This is a book about the Permanent Portfolio investment strategy suggested by Harry Browne, which is a simple asset allocation strategy that historically has provided steady returns over the long-term while having very low drawdowns. … Continue reading

Theoretical Valuation Methodologies (FCFF, FCFE, CCF, and APV)

4 major theoretical valuation methodologies: Discounting Free Cash Flow to the Firm (FCFF) at the Weighted Average Cost of Capital (WACC) Adjusts for the tax benefit of debt from the cash flow numerator (i.e. FCFF should be calculated as though the firm is all-equity financed) because it will be handled by a smaller WACC denominator (due to … Continue reading

Bill Nygren of Oarkmark Funds’ Investment Methodology

William C. Nygren of Oakmark Funds shared his investment methodology in a chapter of a book “Investing under Fire: Winning Strategies from the Masters for Bulls, Bears, and the Bewildered” by Alan R. Ackerman. A stock needs to meet 3 criteria before Oakmark will consider buying it The stock must sell at less than 60% … Continue reading

Excellent Post on Li Lu

There is an excellent post on Li Lu here. Great read. Some key takeaways: Really solid due diligence that is done for investments. He plows through court documents, visited the community of the managers, goes to their Church, their Synagogue, talk to the people that they know, talk to their friends and neighbours, find out … Continue reading

Book Review: The Guru Investor

Book: The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies, by John P. Reese with Jack M. Forehand Review: Good book. It summarizes the principles of famous investors into quantified mathematical criteria that can be used for screening. Of course the screening criteria are not a complete substitute but they are … Continue reading

Howard Ward’s Valuation Methodology (Gabelli Funds)

The points here are summarised from an interview with Howard Ward (Gabelli Funds) conducted by Kirk Kazanjian in his book Wizards of Wall Street. Without question, 1992 and 1993 both were difficult years for you [Aside: drug stocks hammered due to health-care spending concerns + threat of federal health-care and drug-price regulation when the Clintons … Continue reading

Frederick (Fritz) Reynold’s Valuation Methodology (Reynolds Funds)

The points here are summarised from an interview with Fritz Reynolds (Reynolds Funds) conducted by Kirk Kazanjian in his book Wizards of Wall Street. Look for companies with above-average growth characteristics, strong unit growth (>= 13%), are well managed, and enjoy good pricing power. Often that might be the number one or two company in … Continue reading

Bill Miller’s Valuation Methodology (Legg Mason)

The points here are summarised from an interview with Bill Miller (Legg Mason) conducted by Kirk Kazanjian in his book Wizards of Wall Street. How do you figure out what a company is worth? We use what we call a multifactor valuation methodology, i.e. we look at the value of the business every possible way … Continue reading

Valuation Methodology of John Price from www.conscious-investor.com

I stumbled upon an article by John Price published on GuruFocus.com, which led me to his website http://www.conscious-investor.com. He has put together a neat software that supposedly implements Buffett’s methods. While the software is not free, the website does come with a few videos that showcase the software. If you take a look at the … Continue reading

Valuation Methodology from Roger Montgomery of Clime Asset Management

I’m starting to read a series of articles written by Buffett-style fund manager Roger Montgomery of Clime Asset Management (www.clime.com.au) I’ll probably post some interesting/important takeaways as I read through the articles. Here’s one: Roger Montgomery wrote in one article that his approach is to base valuation estimates on 4 elements: Balance sheet equity Return … Continue reading

Interview with Larry Coats of Oak Value Fund

I just read this piece on BusinessWeek which had an interview with Larry Coats of Oak Value Fund. You can find the article here. I always love it when fund managers reveal their valuation methodology. Here’s Larry Coats’: What kind of discount do you look for when buying a stock? “We’re attempting to buy a … Continue reading

Interview with Ronald Canakaris of Montag & Caldwell

I was reading an excellent interview with Ronald Canakaris of Montag & Caldwell, in the Wizards of Wall Street book  by Kazanjian. Its pretty consistent with the process we have arrived with thus far. Here’s a quick summary of his investment methodology: Screen for companies with 10+% growth. Shows strong earning growth over the intermediate … Continue reading

DCF for Cyclical Companies

I used to think that one can “average out” or “smoothen”/”flatten” the earnings of a cyclical company across one full cycle so as to do the valuation. I realise now that that is actually not correct. The “smoothening” process can only help you get the earnings figure at a particular point in time in the … Continue reading

Martin Whitman’s “safe and cheap” approach

Another good article on Gurufocus. According to Marty Whitman, the “safe and cheap” investor looks for four things in an investment: High quality balance sheet; Competent and shareholder-oriented management; Understandable and honest disclosure documents; Priced at 50 to 60 cents on a dollar. Whitman is similar in many respects to Graham. Whitman concentrates more on … Continue reading

Graham’s net-net investment strategy

Just read an article on Gurufocus: http://www.gurufocus.com/news.php?id=877 that talks about Benjamin Graham's "net-net" investment strategy in 1979, and Joel Greenblatt's analysis of it back in 1981. Salient points: Graham's rough liquidation value (net-net) estimate: "Current Assets" (cash, accounts receivable, inventory, etc.) Less: "Current Liabilities" (short term debt, accounts payable, etc.) Less: "Long Term Liabilities" (long … Continue reading

Graham’s Criteria for the Defensive Investor

Just saw some articles from Stingy Investor (http://www.ndir.com/SI/articles/1105.shtml) talking about Graham's stock selection criteria for the defensive investor. Benjamin Graham's Criteria for the Defensive Investor ——————————————————- P/E Ratio less than 15. P/Book Ratio less than 1.5. Book Value over 0. Current Ratio over 2. Earnings growth of 33% over 10 years. Uninterrupted dividends over 20 … Continue reading

Buying on macro “trends”

Just read a Motley Fool article titled: 4 Critical Errors You Must Avoid http://www.fool.com/news/commentary/2005/commentary05122308.htm which reminded me of another Fool article titled: How to Double Your Money The lesson is the same. Basically, do not buy a company _just_ purely based on a peceived macroeconomic trend (aka hype). E.g. Nanotech is the next big thing, … Continue reading

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