[GIG]

Here is another question for you guys. Do you have a way of pricing the stock? If yes, then how do you go about it?

For me I just get the earnings b4 tax per share then divide it with the current rate of long term corporate bonds. So far I haven't miss yet but this technique is just about 2 years old. I feel its too early to say that  the technique works.

[thriftyPinoy]

I can see you're pricing the stock based on a desired earnings yield, equating your required rate of return to the current rate of long-term bonds. Now this part of valuating stock is a bit tricky. I have to concede I don't have a magic formula for this at the present.

I'm a conservative investor trying to chase the best bargains, very skeptical of formulas. In trying to figure out if I'm getting a good bargain at a stock deal, however, I look first at what's certain about the business at the present. yes, its book value, or equity per share. My theory is, if you're able to purchase a business at this level (or better, below it), your rate of return approximates the ROE of the business. Assuming the business is an excellent one, you know what you have, and a decent sense of what you will have. It's the sort of feasibility approach any businessman should consider it gives a more realistic, business perspective on stock investing and sheds off emotion aside. When the company earns, you really get an exciting sense of share in those earnings, regardless what the market says about its value as seen in its price.

[bauer]

pricing the stock is a little bit tricky but this is what i do,

1. monitor my stock positions thru quarterly earnings reports
2. monitor the 'actions' of the top management
3. monitor the 'environment' where the company operates (pros and cons)
4. buy during dips (if items 1,2,3 are fine).  how do i know if it is a dip?  close to 1 year low.

basically, net earnings should not fall below 10% of most recent stock price.

[GIG]

To thrigtyPinoy,

I checked your CDC stock and its selling at approximately below 50% of book value. Now these stocks are rare nowadays plus a lot of this stock are either undergoing rehab, going to bankruptcy, in a lot of litigations or other problems that kind of ups the risk.  How do you go about researching on mitigating these risks? Not all of these could be found at the FS. Some of the stocks I find using BV are CEU and FEU. These stocks trade intermittently and are somewhat "boring stocks" as people don't really trade on them. I feel if an undervalued stock remains to be undervalued for a very long period of time say 5 years,then that stock might not be undervalued after all.
Posted on: Feb 04, 2010, 12:18 PM@bauer

"basically, net earnings should not fall below 10% of most recent stock price."


can you elaborate on this?

[thriftyPinoy]

@GIG: Good question. Nice investigative skills there; you must've figured I'm also holding CDC stocks after my purchase of LAND in our stock picking game, hehehe... But yes, I'm holding both CDC & LAND stocks--boring, illiquid stocks.

These are qualitative issues and involves a good deal of gut feel considerations. We all know that in addition to terrific financials should be management quality. How do I get a fast gut feel on this one? I check out who the directors and officers are, see their credentials as well as their connection to other companies or institution. More or less, you get a feel.

As for rehab and litigation issues, correct me if i'm wrong, i think these are included in the annual and quarterly reports submitted to SEC. I also think if a company is in rehab, it's the PSE's job to suspend their trading. Signs of bankruptcy will also manifest themselves in the financials, assuming management is truthful and honest in their reporting (that's why management should be quality in the first place).

A bit of spotlight on CDC. CDC primarily builds and sells condos, I feel the market for their business is sustainable enough and has very good growth potential. Trivia: Cityland Condos are commonly seen as those buildings with the "In God We Trust" sign. Inspecting its management would reveal two notable figures, afaik: Washington Sycip (founder of the Asian Institute of Management and the founder of Sycip Gorres Velayo and Company) and Peter S. Dee (Chinabank President & CEO).

Hey, isn't your VLL also selling below book?

[GIG]

@thriftyPinoy

As much as I would like to take credit for my "superb investigative skill" hehe! But really, I mistook your land stocks for CDC stocks. I was checking the monthly reports at the PSE website and first on the top losers list was CDC.

You are right that litigations are in the FS but Im not a lawyer and I feel I cannot make an intelligent assessment on the cases. I do not want to believe all that's said about cases at the FS as I feel 'Im only viewing it at "one side of the coin", if you now what I mean.

My vll play is 60% speculation and maybe 40% valuation hehe! I have less than 1% of my portfolio invested oin it.

[thriftyPinoy]

@GIG: i'm just being nice, hahaha! Anyhow, which monthly reports in the pse website are you referring to? Regarding evaluating litigation cases in the filed reports, that's the sad truth about reports being innately biased (only human). Nonetheless, skimming through the cases would give you brief, significant facts, and you'd be able to more or less gauge whether losing the case would have large adverse effects on the company (e.g. the proceedings may just be disputes involving relatively minor amounts of money); i know not of a better substitute unless you really have good access to management.

[GIG]

Hehehe! I should've figured that earlier. You were nice since you got me on that FEU FS analysis hehe!

[bauer]

gig,

a good stock to watch is rcb.  the 3rdQ report is about 3.5 per share profit against the current price of 16.75 (a return of 20% per annum based on its last stock price).  of course we have to wait for the final FS to be submitted early this year (on or before april 15).


Posted on: Feb 04, 2010, 07:11 PMalso i fully agree with you about your 'assessment' of the undervalued issue.  the local condition is different from the u.s. so buffett's strategy do not apply on this situation.  many lost opportunities in 5 years time before you actually concluded the undervalue stock position.

[littlehoney]

Hi guys can I join your thread? I'm new in investing, and I just started last feb. 2009...

Posted on: Feb 04, 2010, 08:42 PMand oh, I also want to be a value investor

A company I'd like to invest in would be colgate-palmolive.. unfortunately they're not listed in our pse

[thriftyPinoy]

[littlehoney]

I'm actually in MPI, URC, PNB ... trying hard to be a value investor heheheh
Posted on: Feb 05, 2010, 10:13 AMI forgot to mention, I'm in VLL too!!  

[bauer]

[thriftyPinoy]

@bauer & GIG: how long have you guys been applying value investing? How long is your usual holding period? Do you have a target sell price?

@littlehoney: care to share what you saw in those stocks?

[bauer]

I have been in stock trading for the past 12 years. Before that, i just placed it on TD, mutual fund, fixed-pay life insurance, property, bonds, and UITF.  whenever i review my UITF & mutual, i always found out that my own trades are doing better.  well, i guess, being a business too, the financial firms should earn as well.

when i buy, i always have a target sell price & a buy price (cost averaging during a downturn).  As an example, MWC.  When i first bought it, i thought of keeping it for 15 years.  then again, i change my mind and tried to sell it after making triple returns in 4 years.
but when i heard ayala recently bought out its british partner and increased their stake, i change my mind and i intend to keep it longer (at least for the next 2-3 years).