What
is investing?
Investing
Vs Gambling
Power
of Compounding
Why
you must invest?
Investing
gives you passive income; it works for 24/7
Work
to exchange for salary. When invest, you don’t have to work for ever
Inflation
eats up the value of your hard earned money
Life
expectancy is increasing, meaning you have work for long period
Types
of investments
Stocks,
Real Estate, Bonds, Commodities, Mutual Funds
What
is value investing?
Invest
in companies that have strong business fundamentals
Buy stocks that are undervalued and hold until the stocks hit intrinsic value
The
mindset of value investing
1.
Never make any investing
decision based on emotions
2.
Practise independent thinking
and know they are solely responsible for their own investing decisions
3.
Avoid investing based on
recommendations without doing research first
4.
Do not time the market
5.
Focus on making long term
consistent return and building lifetime wealth
6.
Always buy shares of great
companies below their intrinsic value
4
simple steps:
#1
Right business
Buying a stock, you are
part of owner of the company
Invest in company that
you understand
Evaluate the companies
within the circle of competence
Invest in companies with
strong and sustainable competitive advantage
Understand the
characteristics of the different companies
#2
Right management
Has excellent track
record achieving business goals and targets
Has the proper credentials and relevant
skill sets to manage the company successfully
Has future growth plans
that continue building long term value for shareholder
Is honest and
transparent with its shareholders
Is compensated based on
performance and results
Owns at least 10% of the
company
#3
Right numbers
1
|
Gross Profit Margin
|
> 15%
|
2
|
Net Profit Margin
|
> 8%
|
3
|
Return on Equity
|
> 15%
|
4
|
Current Ratio
|
> 1
|
5
|
Cash Ratio
|
>0.5
|
6
|
Net Gearing Ratio
|
Lower better
|
7
|
Dividend Yield
|
4% to 8%
|
8
|
Earning Per Share
|
Higher better
|
·
When looking at Financial
Statements and Ratios, compare them with industry averages.
·
Consistency is key.
·
Never use just one or a few
ratios
#4
Right price
Need
to calculate the intrinsic value of the company and compare that to its stock
price to determine if the stock is undervalued.
1
|
Price over Earnings Ratio
|
Lower better
|
2
|
Price over Earnings to Growth Ratio
|
< 0.5
|
3
|
Price over Book Ratio
|
< 0.5
|
Buy
stocks of great companies at prices 50% below their intrinsic value when market
hits a downturn. The market always go through cycles of boom and bust. Buy more
if price drop further provided you are certain of a company’s intrinsic value
and its long term business fundamentals.
When
to sell?
The
stock becomes grossly overvalued and is at risk of correcting downwards.
A
better, undervalued investment opportunity comes along.
Company’s
long term business fundamentals are compromised, affecting its intrinsic value.
Portfolio
Management
Keep
records of all your investment decisions. If you don’t keep track, you won’t
know how much you are making or losing. Focus on stocks that will give you the
best returns.
Monitor
a company’s quarterly reports and keep track of their fundamental performance
Ø Analyse their financial statements to check if the company is in
good financial health
Ø Look out for any positive or negative announcements concerning the
company
Ø Read and understand industry trends, as well as factors affecting
them
8 step
kick step action plan
1.
You must have at least 6
months’ worth of expenses in your saving account
2.
You must have insurance
3.
Design the lifestyle you want
and find out how much it costs.
4.
Always invest yourself first
5.
Always continually seek to
increase your cash flow
6.
Never borrow money to invest
7.
Start researching for great
companies to invest in
8.
Continue to compound your
investment returns and build your wealth
***All information are extracted from Value investing made easy book by Adam Wong. This is quite useful and the author has made it easy for readers to read and understand.
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