Presentation Transcript

1. fundamentals of Value Investing

   10/19/2009
2. What is value investing? Definition: Investing in firm worth more than intrinsic value Raises the question: How do we know what a firm is worth?
3. Top Players WARREN BUFFET Berkshire Hathaway Founder of value investing Difference between you and Buffet: When you like a company, you buy some shares of the company When Buffet likes a company, he buys the whole thing Recent example: GE
4. Ask yourself this… Metric used in industry Airlines: Revenue / Seat Restaurants: Year / year earnings Clothing: Same store sales Healthcare: Pipeline Insurance: Premium earned
5. Understand the business What do they do? Buffet: “Simple, non-techno-mumbo-jumbo businesses.” Can you evaluate the business? What sector? What industry? Even within each industry, businesses function differently
6. Competition Who are the competitors? Yahoo! Google provide good information Also read annual reports, more detail on competitors and industry Do they offer a unique product or service nobody else offers?
7. Niche Market Do they operate in a market that is unique? Ex. Darling Intl – rendering and recycling Ex. BWINA – insurance/casualty underwritter Automatically gives the company the upper hand
8. consistency Earnings consistency Can they make sales and revenue every year? Look at: Return on Equity Return on Assets Operating Margin Gross Profit Margin
9. Ratios Price/Earnings Commonly known as P/E Ratio 2 things can change: Price & Earnings Calculating historic P/E Ratio “Trailing” – past 12 months Price/Book Also on a per share basis (price/share) / (book/share) Sometimes disregard intangible assets Market Cap = shares outstanding * price/share Powerful measure of the value of firm
10. Dividend Payout Dividend increase with more earnings Payout to shareholders for investing If dividend isn’t paid out, are they buying back shares? Increase value per share Ex. “Earnings per share” (for comparative purposes)
11. Debt Is the debt sustainable? Can they pay off the current portion of their debt? Current Ratio & Working Capital Capital Structure: What percentage of the firm is funded by debt and what percentage by equity
12. Management Scenario Are management buying back shares? Who knows more? Investor or top executives? Look under “insider transactions” under yahoo Potential increase in stock price Ride the boat Selling not necessarily negative Want cash on hand
13. Growth What innovations do they have for the future? Are they making headway in their economy R&D costs usually expensed Become intangible asset (patent) Ex. Apple – iPhone, constant upgrades
14. Analysts Avoid analysts at all costs They are generally wrong Be aware: their opinions do affect the stock Downgrade/upgrade/neutral reports Big firms have so much analyst coverage Ex. Apple: >9 “Star” analysts + more Rule of thumb: <5 analysts Why? Greater potential for growth
15. Research Do your own research <- its best for you Learn the market and the competition Read financial statements 10K – annual reports 10Q – quarterly reports (unaudited) 8Q - important information that can affect investing decisions Remember to read the footnotes as well Participate in conference calls (quite lenghty) Contact company directly
16. Things to remember Valuation is subjective Depends on the individual valuing the company Leave you with a quote: "All intelligent investing is value investing -- acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger