Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Durable Competitive Advantage > Intelligent Investor Ch. 9-11 > Flashcards

Intelligent Investor Ch. 9-11 Flashcards

(83 cards)

Start Studying
0
Q

Dual purpose funds

A

Popular in the late 1980s have disappeared

Hopefully they will come back, because they put great stock
Picking on display

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Closed end mutual funds

A

The number of shares remains relatively constant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Graham: selecting mutual fund managers

A

Studies indicate that an investor can seek comparative
performance over a period of years in the past, at least 5 yrs.

As long as this there was not a strong upward movement in
The stock market, as fund managers could get unconventional
profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Large mutual fund performance

A

If managed soundly, you can only expect them to beat the s&p

By a small margin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When do mutual funds usually outperform the market

A

When they are in specialized fields and are closed to the public,
With self imposed limits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Herding

A

When all the mutual fund managers own the same companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Finding the best mutual funds

A 
1 the managers own most of the fund
2 low fees
3 different holdings than an index fund
4 they shut the door
5 they don't advertise
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Best time to sell a mutual fund 4 things

A

1 sharp and unexpected change in strategy (value fund loads up
On tech stocks in 1999)
2 increase in expenses
3 large and frequent tax bill from excess trading
4 suddenly erratic returns (conservative fund generates large loss,
Or even huge gain)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How long should you be prepared to stick with a mutual fund through a period of lean performance?

A

3 years, patience is the investor’s ally

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How is the investment of money in securities unique among business operations?

A

Almost always based on some advice received from others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Investment services that provide useful data and advice for security analysis?

A

Moody’s Investment Service and Standard & Poor’s

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Investment services are good when they have a reputation for…

A

Analyzing whether a stock appears over or undervalued at its

Current price as indicated by Longterm future earning power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Most CFA’s do not analyze businesses, instead they…

A

Engage in guesswork on future stock prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Where can individual investors find analyst research reports?

A

Zachs.com and multex.com

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is necessary when dealing with a CFA, to gain the most valuable advice?

A

Show the CFA that you are value oriented instead of quotation
oriented

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Securities Investor Protection Corporation (SIPC)

A

Investors are generally assured recovering their full account values
if their brokerage firm becomes insolvent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Underwrite (in investment banking)

A

To guarantee to the issuing corporation, or other issuer, that the
Security will be fully sold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Recommendations from reputable investment banking houses

A

Recommendations should be considered by the investor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Worthwhile investment subscription for financial analysis?

A

Association for Investment Management and Research: Financial Analysts Journal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What time frame does the security analyst deal with for a given security issue?

A

Deals with the past, present and future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does a security analyst report on? 7 things

A

1 describes the business (operating results + financial position)
2 sets forth strong and weak points
3 possibilities and risks
4 estimates it’s future earning power under various assumptions
5 compares company to competitors or same company at
Different times
6 expresses safety of issue if bond/preferred stock
7 describes attractiveness of purchase if common stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Standards of safety of a bond or preferred stock are measured by? 4 things

A

1 primarily past average earnings
2 capital structure
3 working capital
4 asset values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

The more dependent a valuation becomes on anticipations of the future and the less it is tied to the figure of demonstrated past performance…

A

The more vulnerable it becomes to possible miscalculation

and serious error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Growth stocks relying on high rates of future earnings growth

A

Are most prone to risks and error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Graham's experience with valuations with 44 years of Wall Street Experience
He's never seen dependable calculations made about common stock values or related investment policies that went beyond Simple arithmetic Usually elementary algebra, when calculus or higher algebra Is brought in this is speculation
25
The chief criterion used for safety/quality of corporate bonds
``` # of times total interest charges have been covered by available Earnings for years in the past ```
26
The chief criterion used for safety/quality of preferred stocks
Number of times bond interest and preferred dividends have | Been covered
27
What are the 2 means for measuring the minimum ratio of earnings to total interest charges?
1 Average earnings of past 7 years 2 poorest years earnings Either test is sufficient
28
3 other safety tests applied to bonds
1 size of enterprise 2 stock/equity ratio 3 property value
29
Stock/ equity ratio
Ratio of: market price of the common stock/total face Amount of debt
30
Senior to common stock
Preferred stock is senior because all dividends must be paid | To preferred before they are paid to common stock
31
Junior stock issues
Shares of common stock
32
What is the stock to equity ratio a measure of
Measure of protection or cushion afforded by the presence of Junior investment that must first bear the brunt of unfavorable Developments This factor includes the market's appraisal of future prospects Of the enterprise
33
In most cases what does safety of a security rely on?
Earning power
34
What happens to the company's asset values if earning power is deficient?
The assets lose most of their reputed value
35
In what 3 groups do asset values retain importance in a separate test of ample security for bonds and preferred stocks?
1 public utilities 2 real estate concerns 3 investment companies
36
Investment history shows that bonds and preferred stocks that have met stringent tests of safety, based on the past have in a majority of cases...
Have been able to face the vicissitudes of the future successfully
37
History shows that an investor should confine purchase of industrial bonds and preferred stocks to companies that
Are of major size and have shown the ability to withstand | depressions
38
Valuation of common stock
Found by estimating average earnings over a period of years In the future and then multiplying the estimate by an appropriate Capitalization factor
39
A great investment service that forecasts the future of earnings and dividends?
Value line
40
Considerations for the multiple of earnings paid for a company: general long term prospects
No one knows what will happen in the future but analysts and Investors have strong views that are reflected in PE rations When high PE ratios are dictated mainly by past performance They are as likely to be wrong as right
41
Good management will be evident in
1 past record 2 it will show in estimates for next 5 years 3 and in long term prospects
42
Considerations that enter into divergent PE multiples. 5
``` 1 general long term prospects 2 management 3 financial strength and capital structure 4 dividend record 5 current dividend rate ```
43
Financial strength and capital structure
A stock with a surplus of cash and nothing ahead of common Is a better purchase than another stock with large bank loans And senior securities
44
Leverage
Too little common stock in relation to bonds and preferred may Under favorable conditions make a huge speculative profit in Common
45
Dividend record
One of the most persuasive tests of high quality is an uninterrupted Record of dividend payments going back over many years Continuous dividend record over 20 years is a plus for the Defensive investor
46
Dividend payout ratio of the s&p in 2000
25.3%
47
Any scientific or reasonably dependable stock evaluation based on anticipated future results must take what into account?
Future interest rates
48
Industry analysis
Security analysts devote much attention to economic position of Industry and individual company in industry These factors are not always fully appreciated by the market, When this conclusion is drawn it affords sound basis for investment
49
What are three things an analyst can do to research?
1 field trips 2 interviews with research men 3intensive technological investigation
50
Two part appraisal process
1 work out past performance value (based only on past record) 2 extent value based solely on past performance should be Modified because new conditions expected in the future
51
Past performance record
Assumes that it's relative past performance will continue Unchanged in the future Relative growth rate over last 7 years will continue over next 7 Years
52
The intelligent analyst should confine himself to groups in which the future is reasonable predictable
Industries not affected by unforeseeable changes in interest rates Or future directions of commodity prices Industries include gaming, cosmetics, alcoholic beverages, Nursing homes, waste management
53
3 steps to procedure for 2 part appraisal process
1 set up formula to apply to all companies based on past Performance value 2 work up factors that affect the companies 3 determine what elements of company's performance is Likely to differ from past record
54
What 2 questions do you ultimately want to answer when looking over a company's 10-K
1 what makes this company grow? 2 where do and where will its profits come from?
55
Red flags to look for in the 10-K
1 company is a serial acquire, average of more than 2 major Acquisitions per year 2 OPM activities: excess debt or issuing new stock 3 a company relies on 1 or very few customers to generate Most of its revenues
56
Argument against serial acquirers
Bad if a company would rather buy stock of other businesses | Than invest in its own
57
What should an enterprising investor look over aside from 10-K's
1 years worth of 10-Q's
58
Where can an investor find information of acquisitions in the 10-K
Under "Management's Discussion and Analysis"
59
What is bad to see in a company's statement of cashflows? What does it signify.
Cash from operating activities is consistently negative, while Cash from financing activities is consistently positive 2) The company craves more cash than its businesses can Produce
60
Positives to look for in the 10-K
1 company has a wide moat/competitive advantage 2 the company grows earnings smoothly not erratically 3 company engages in useful R&D
61
How are high margins created
``` 1 strong brand identity 2 monopoly power 3 economies of scale (ability to supply large quantities cheaply) 4 trade secrets 5 resistance to substitution ```
62
Resistance to substitution
Most businesses have no alternative to electricity so utility Company's are unlikely to be supplanted any time soon
63
Evaluating the quality of management's conduct
Read past annual reports to see if the forecasts managers made We're fulfilled or fell short Managers should admit their failures instead of blaming the "economy", "uncertainty" or weak demand
64
Check whether chairman's letter...
Stay constant or fluctuate with the latest fads of Wall Street
65
Management and stock options
Stay away from company's that reprices or reissues or exchanges It's stock options to insiders If option's value are never allowed to go to 0, while their potential Profit is always infinite, how does this encourage good stewardship Or corporate assets?
66
Looking up options
Look at the mandatory footnote about stock options, you should Factor in potential flood of new shares from options when you estimate a company's future value
67
What form on the EDGAR database at sec.gov shows whether a firm's senior executive directors have been buying or selling shares?
Form 4
68
Graham on managers and stock price
Managers should keep the stock from going too low or too high
69
Earnings guidance
Better when company's refuse to give earnings guidance or | Give low estimates
70
What form should be you view on the EDGAR database to find out if a company fairly communicates with it's investors
8-K filings made by Expeditors International of Washington Posts superb question and answer dialogue with investors
71
When are a company's accounting practices not shareholder friendly?
1 non recurring charges keep recurring 2 extraordinary items crop up often 3 EBITDA and pro forma earnings are used to cloak actual losses
72
Most basic possible definition of a good business
It generates more cash than it consumes
73
Good managers and cash
Good managers keep finding ways of putting cash to productive Use
74
Companies that generate more cash than they consume and that have managers that keep finding ways to put that cash to use. These companies are...
Are certain to grow in value over the long run, no matter what the Stock market does
75
Evaluating financial strength
Start with the statement of cashflows and see whether cash From operations has grown steadily throughout the last 10 years Determine owner earnings
76
Owner earnings, equation
Owner earnings = net income + amortization + depreciation - normal capital expenditures - granted stock options - non recurring/extraordinary charges - income from company's pension fund
77
How does Christopher Davis of Davis Selected Advisors characterize owner earnings?
If you owned 100% of this business how much cash would you | Have in your pocket at the end of the year
78
What owner earnings per share growth over the past 10 years make a company a stable generator of cash with good prospects?
Growth of 6-7% per year
79
What should you look up about debt?
In footnotes whether the debt is fixed rate or variable (costly when Rates rise)
80
What's important to determine in a company's capital structure on the income statement?
The ratio of the company's earnings to its fixed charges
81
When can a firm justify not paying a dividend
If the firm consistently outperformed competition in good markets And bad
82
When should company's buy back their shares? | When should it not, and why is this done?
When they are cheap A company should not buy back shares when it's overpriced, But this is done so managers can cash in on stock options Destroying shareholder value

Durable Competitive Advantage (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions