Seminar 1 Flashcards
(13 cards)
Types of investing approaches
Long term: Fundamentals
Short term: Technicals, Fundamentals
Technical investing
Focus on price and volume changes, momentum not underlying fundamentals
Definition: long term fundamental investing
Investing with the expectation of holding for an indefinite period of time by an investor who has the capability to do so –
1) Intent: believes that holding LT delivers superior returns
2) Capability: willing and able to accept potentially sizeable losses, ST obligations without having to liquidate significant % of assets
3) Indefinite period of time: focus on LT factors in evaluating investment (ST has higher emphasis on liquidity)
Graham & Dodd’s theories
- invest when SP = IV x MOS
- IV = market cap x earnings power
- value investing: invest for stocks selling for less than IV, and whether value is adequately/sig higher or lower than market since exact IV value cannot be determined
- Price of average no growth stocks = 8x of earnings = EPS x (8 + 2g)
Williams’s theories
- IV = PV of all future dividends
Speculator v Investor
- Speculator: focus on timing, pricing fluctuations ; general public cannot make $ from speculation, only some
- Investor: focus on IV < FV, not paying too much for stocks
Investing principles
investing –> ownership interest in biz –> treat it like your own:
- biz in what you know and understand
- biz run by able and honest mgr
- biz with reliable and attractive risk/rewards
- biz with high level of personal conviction (instead of relying on others)
True investment has a ____, to _____.
True margin of safety, to withstand adverse developments, worse than average luck and miscalculations
MOS is ____ dependent on _____.
MOS is always dependent on price paid
Factors for a good business
- High BTE
- Reliable customers
- Low capital requirements
- Low risk of tech obsolescence
- High growth opportunities
Buffett investing strategies (2-prong)
1) Individual:
- High quality: profitable, stable, growing, high payouts
- Safe: low risk
- Mispriced: low P/B ratios
2) Portfolio
- Leveraging
- Stuck to good strategy for a long time
Misconceptions about valuation
1) Valuation is an objective search for true value
- all valuations are biased – question is in what direction and by how much (who pays you)
2) Good valuation provides a good estimation of value
- no precise valuation
- the less precise the valuation the higher the payoff
3) The more quantitative the model the better the model
- simplicity –> understanding
- simple models do better than complex ones
In efficient market, what is the value of the equity?
Market price
