PostHeaderIcon Stock Market Investing Reader Mail #1

Since the existence of this blog, I’ve received several requests to answer some personal questions about stock market investing. I told them that I would answer them in a blog post. The reason for this twofold, first I get something to write about in my blog and secondly, other readers who have similar questions may somehow be enlightened.

I apologize to my readers for taking a long time to answer their queries. So right now let me take the time to answer the first set of questions from one of our readers Debbie,  She writes:

Hi, I am currently reading the book you recommended, Rule#1 by Phil Town. I have a few questions though, hope you could enlighten me.

1.) I tried to compute the sticker price using the calculator found in ruleoneinvestor.com but am not so sure if the values I inputed are correct. Where can we look up for the values needed to compute it (Like the growth rate? EPS? P/E?) As for me, I just used the data provided by Citiseconline. How can I verify the data given?

2.) How do you choose the companies you invest in and how do you know that it is already an attractive price?

3.) How long do you usually hold on to your stocks? Do you sell it once it reaches around 15% or more?

Hope you could answer my queries. Thank you very much in advance.

Your website is very helpful for newbies like me. Keep up the good work!

Regards,

Debbie

Here is my response to her questions:

Dear Debbie,

I appreciate your questions and I hope I will be able to answer them to your satisfaction. I am glad that you followed my recommendation to read Rule#1. It’s one of the best “starter” or “newbie” books out there on value investing. I highly recommend it. I recommend however that you do not limit yourself to that book. There are other great books out there that will help you become a more refined value investor. Check out my recommended books section. Anyway here are the answers to your questions.

1.) With regards to your first question as to where you can look up for the values needed to input in the Rule #1 calculator such as EPS and P/E ratios there are several materials wherein you can check this out. First are the online materials. You can check out the Philippine Stock Exchange (PSE) Website in the stock information window about a company, the latest P/E ratio and interim EPS is readily available. This is obtained by entering the stock symbol of the company at the upper right corner of the PSE website. After you press “Go” you will then be taken to the “Stock information” window where this data is available.

If you want to get more detailed fundamental information important to us value investors such as the latest EPS (Earning Per Share), ROA (Rate of Return on Assets), ROE (Rate of return of Equity), BV (Book value per share) you can check out the quarterly “TOP 50” Market report. This report requires a bit of digging around the PSE website. To access this underneath the PSE website click on “Sitemap” (Next to “Contact us” on the left and “Disclaimer” on the right) then scroll down to go to “Market Reports.” Go to the “Quarterly 50.” Then choose the quarter and year. If a report is available it will be visible there. You can click on it. It is usually a .pdf file.

As value investors we usually require about 5 to 10 years of data. So if you are looking for past data, you might not find it in the PSE website. To obtain such data you will have to get some offline resources. Years ago, the PSE use to publish an annual “Corporate Handbook” which contains 6 years of corporate data at any given time on all listed companies. This is really a very important value investor’s resource. Regrettably the PSE has stopped publishing this. So to obtain any past data on a company’s fundamentals you have to go to a company’s website and extract the data. One option is also to go to the PSE Library and do your research there. Our stock market is still at its infancy that is why fundamental data on companies is somehow tedious to obtain. Unlike in the United States wherein there are several source of fundamental data.

Because of the lack of fundamental data or the tediousness of extracting fundamental data that dates back to 10 years ago for companies listed in the Philippine Stock Exchange, one future project I am planning is to make this data available to the public. Just continue to drop by this site from time to time.

2.) With regards to your second question on how do I choose the right companies and how do you know what is an attractive price, well that question is answered beautifully in the book that you are reading Rule #1. I refer to the book because Phil Town beautifully encapsulates value investing principles there and I just use most of the principles there to choose what companies to buy.

In the book Rule #1, Chapter 4 – “Identify a Moat,” Chapter 5 – “The Big 5 numbers” and Chapter 7 – “Bet on the Jockey” answers your question on which companies to buy. Chapter 6 – Calculate the big Five,” Chapter 8 – “Demand a margin of safety” and Chapter 9 – Calculate the sticker price” answers the question how do you know if it is an attractive price.

Without referring to the book, a way to answer your question shortly as to how to choose which companies to buy is according to Warren Buffett “Buy wonderful companies with durable competitive advantage at wonderful prices” Warren Buffett calls this as companies with a “Moat.” In Rule #1 Phil Town discussed that there are 5 different Moats, these are Brand, Secret, Toll, Switching and Price. For readers who want to go into details about this now, get a copy of the book Rule #1. Later on I will discuss this one by one as we go along in this blog. Finding Moats is much easier than answering the question on what is a fair price. A fair price is determined by a lot of factors. Again Rule#1 discusses this and I will discuss this extensively later on in my blog

I’m sure you want to make this more practical so let me name Philippine companies which I believe is a wonderful company with durable competitive advantage. These are, Jollibe (Brand Moat), PLDT (Toll and switching moat), most Ayala companies (Brand Moat), GMA 7 (Brand & Toll Moat), SM (Brand and Toll Moat), Metro Pacific Investments & Aboitiz Power Corporation (Both are Toll moats) among others. Take note that I am not saying you should go out there and buy these companies right away. These are just companies that I believe have durable competitive advantage. However as to whether you should buy those at a certain time would be determined if the price is fair.  For example, Jollibee is a really great company, but the price that is being offered right now for the company is just too expensive. So I wouldn’t buy it. Not at this time.

3.) With regards to your last question. As I general rule, I follow the Buffettenian principle of holding to a stock forever provided that it is a wonderful company with durable competitive advantage and obtained at a fair or a bargain price. About 70 % to 80% of the stocks in my portfolio is on a “hold forever” status. I only sell what I call as “core stocks” in two instances and these are in order of preference. First is when the economics of the business has changed. When a company starts to loose its competitive edge than it makes sense to sell. Secondly, I sell when a better opportunity presents itself that is a find another better buy than the one I am holding.

About 20 – 30 % of my portfolio is intended to take advantage of market opportunities. These are stocks held on from the medium term buy and sell wherein I just try to follow the Buffetenian adage of being fearful when every one else is greedy and greedy when everyone is fearful. For these stocks I buy and sell those anywhere within 6 months to a 2 year time frame depending on the situation. The gains I make from these, I use to buy my “core” stocks.

Hopefully I have satisfactorily answered your questions. If you have further questions don’t hesitate to email me. Hope you can profit much in your stock market investments so that you can buy Villas For Sale In Turkey.

Zigfred Diaz – D’ Intelligent Investor

Related Articles:





Hi ! We are the Polymath investors ! Thanks for visiting our blog where you can learn about investments the Polymath way. Never miss a post from this blog. Subscribe to our full feeds for free. Click here to subscribe to The Polymath Investor by Email


5 Responses to “Stock Market Investing Reader Mail #1”

  • regor dadivas says:

    Hello Zigfred,

    I am a Rule one investor and I’m so happy to find a fellow Rule # 1 investor. Is there any chance we chat over skype so that we exchange ideas. Hope to hear from you.

    Regor

  • Louis says:

    Wow great information bro.

    Can I add some regarding information sources. You can check out http://www.reuters.com/finance/stocks

    in the “enter stock symbol” field type the PSE stock symbol followed by “.ps” so for example you want ot checl TEL type TEL.ps

  • zigfred says:

    Louis: Thanks for sharing this one. I’ve checked it out, it’s really nice and I like it more than the PSE site.

  • zigfred says:

    Regor: Sure ! Add me up at yahoo when can chat from there. Send me your yahoo email.

  • zigfred says:

    Regor: Got your email address, but will not post it in my comment to protect your privacy.

Leave a Reply

WELCOME VISITORS !

Hello and welcome ! We are the bloggers behind The Polymath Investors. We've been into investing for a while. We hope that our investing ideas might be able to help you make wise investments decisions. Thanks for the visit ! Do feel free to look around.

Never miss a post ! Subscribe to our feeds, its free !

 Subscribe in a reader

Or, subscribe via email:



   

Categories
Social Networking


D’ Intelligent investor is one of the first few updated value investing blogs in Asia and probably the only updated value investing blog in the Philippines where you can learn stock market investing through intelligent investing that makes business sense. The stock market investing strategies are very different from what most stock market players advocate. The strategies featured here are mainly value investing principles more specifically inclined with what are perceived to be Warren Buffett’s style of investing. Other value investing strategies by great value investors such as Benjamin Graham, Peter Lynch, John Boggle among others are also featured.