Buyback is an excellent tool to boost the compensation of insiders who have a lot of options. Usually it could be a tax advantage over paying dividends. The decision on how to use the extra cash should be how beneficial to the average stock holder.
Besides dividends and buybacks, corporation can use the extra cash to plow back to the business such as reducing debts, boosting research and development, acquiring companies...
If the company is in developing stage, it should plow it back to research and development. Matured companies like Microsoft give dividends as there is not much the company can improve in theory.
We buy the company's stock is not solely due to dividend, but the earning potential (i.e. expected E/P) and the market conditions.
Some companies gives good dividends to cover their problems. Check out C, AIG, BOA, Lehman Brothers, Stern... If they fool you twice, shame on you. They all gave good dividends. Check their performances and I rest my case.
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(c) TonyP4 2012. Written in 12/16/11. Last updated in 12/16/11.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Friday, December 16, 2011
Tuesday, December 13, 2011
Another screen - will test it out
Ben Graham later on in his life moved from specific stock picking to picking groups of stocks. In a 1975 seminar - not long before he died - he laid this out very well:
http://bit.ly/p3y19a
The last paragraph of this article makes a good point clear:
"It’s also important to remember that in this study, Graham was advising the purchase of a basket of around 30 stocks matching any one criteria of undervaluation, e.g. 2/3 of book. He even went so far as to say “You can’t lose when you do that.” His experience proved that buying a stock at such a criteria was a dependable indication of group undervaluation."
He recommended a basket of 30 stocks when using just one criteria to find an undervalued stock - low Price/Book as an example. I would assume (and it has worked in practical real life investing) that using more than one criteria would make the need for investing in 30 stocks at once less important.
I personally like to screen for:
1) low Price/Book
2) low Price/Sales
3) Price/Free Cash Flow under 15
4) Price/Operating Cash Flow under 5
----
I also look for a Price Earning Growth Ratio (PEG Ratio) of less than 1. It should be Number 2 or 3 in that list making 5 value finding ratios in that first set and a total of 8 rather than 7....
------
The next three criteria are used to eliminate too many choices usually although I have been known to use the Piotroski Score of 8 or 9 as a starting point rather than use the score as a tie-breaker...
5) Piotroski F-Score = to or better than 5. If they have an Altman Z-Score better than 3 at the same time - they are a standout company in their financials.
6) Dividend Payment over 1%
7) A Forward Intrinsic Value higher than today's price with a negative value being an instant washout no matter how good the stock looks otherwise....
This finds high quality stocks at a value price (Value outperforms Growth over time in any cap stock - company size does not matter) that will pay me to wait until the market finds them. Depending on how long they have paid that dividend and if it is a rising dividend and the percentage of that dividend - the stock could end up in either the Core Portfolio or the Exploration (Trading) Portfolio. The Core reinvests the dividends and is a long-term hold unless the stock fundamentals change (Stock price changes up or down make very little difference here.) and eliminate the stock from the Core.
The trading portfolio can be very short-term or much longer depending on the performance of the stock price itself. If it loses right away, it is gone right away. If it moves up - then I sell some at certain points until I have my starting cash out of the stock. My results doing this have given me 500% profits in a single year more than once and I very seldom ever have a year where I lose by the end of it. Profits from trading are split at the end of the year - one half going to add cash to the Core Portfolio and retaining half to increase trading cash. Free stock (stock with no starting investment left in them) may be kept in the trading portfolio for more than a year and may eventually qualify to go into the Core give time.
Between the two portfolios - I have not had a year that I have not beaten the S&P 500 benchmark in decades....Even when I am not doing well in the trading portfolio - the core supports me and is quite capable of beating the benchmark all by itself with no trading in the trading portfolio at all.
There are years when I have NO stocks in the Trading Portfolio - The Core just keeps right on keeping on - making effortless profits and growing larger every year from the effects of rising dividends that are reinvested and that marvelous compounding that comes from that reinvestment.
http://bit.ly/p3y19a
The last paragraph of this article makes a good point clear:
"It’s also important to remember that in this study, Graham was advising the purchase of a basket of around 30 stocks matching any one criteria of undervaluation, e.g. 2/3 of book. He even went so far as to say “You can’t lose when you do that.” His experience proved that buying a stock at such a criteria was a dependable indication of group undervaluation."
He recommended a basket of 30 stocks when using just one criteria to find an undervalued stock - low Price/Book as an example. I would assume (and it has worked in practical real life investing) that using more than one criteria would make the need for investing in 30 stocks at once less important.
I personally like to screen for:
1) low Price/Book
2) low Price/Sales
3) Price/Free Cash Flow under 15
4) Price/Operating Cash Flow under 5
----
I also look for a Price Earning Growth Ratio (PEG Ratio) of less than 1. It should be Number 2 or 3 in that list making 5 value finding ratios in that first set and a total of 8 rather than 7....
------
The next three criteria are used to eliminate too many choices usually although I have been known to use the Piotroski Score of 8 or 9 as a starting point rather than use the score as a tie-breaker...
5) Piotroski F-Score = to or better than 5. If they have an Altman Z-Score better than 3 at the same time - they are a standout company in their financials.
6) Dividend Payment over 1%
7) A Forward Intrinsic Value higher than today's price with a negative value being an instant washout no matter how good the stock looks otherwise....
This finds high quality stocks at a value price (Value outperforms Growth over time in any cap stock - company size does not matter) that will pay me to wait until the market finds them. Depending on how long they have paid that dividend and if it is a rising dividend and the percentage of that dividend - the stock could end up in either the Core Portfolio or the Exploration (Trading) Portfolio. The Core reinvests the dividends and is a long-term hold unless the stock fundamentals change (Stock price changes up or down make very little difference here.) and eliminate the stock from the Core.
The trading portfolio can be very short-term or much longer depending on the performance of the stock price itself. If it loses right away, it is gone right away. If it moves up - then I sell some at certain points until I have my starting cash out of the stock. My results doing this have given me 500% profits in a single year more than once and I very seldom ever have a year where I lose by the end of it. Profits from trading are split at the end of the year - one half going to add cash to the Core Portfolio and retaining half to increase trading cash. Free stock (stock with no starting investment left in them) may be kept in the trading portfolio for more than a year and may eventually qualify to go into the Core give time.
Between the two portfolios - I have not had a year that I have not beaten the S&P 500 benchmark in decades....Even when I am not doing well in the trading portfolio - the core supports me and is quite capable of beating the benchmark all by itself with no trading in the trading portfolio at all.
There are years when I have NO stocks in the Trading Portfolio - The Core just keeps right on keeping on - making effortless profits and growing larger every year from the effects of rising dividends that are reinvested and that marvelous compounding that comes from that reinvestment.
A suggested search - will try it out.
For this year, the following strategy has yielded over 50%:
Every fifteen weeks starting from the first full week of the year buy the two stocks that have done the best over the previous eight weeks. Close all positions on the closing day of the last week of the year.
This strategy applied to the basket of stocks that are currently in the SP500 does very well during 2001-2011 (only one year of 48% loss, but that followed a year of 100% gain), but obviously the result suffers from selection bias for the years prior to 2011.
The following are the trades for 2011 (the dates are the first days of the weeks at the close of which the trades were made).
THC 1/ 3/2011 TO 4/18/2011 -1.74%
TSO 1/ 3/2011 TO 4/18/2011 42.38%
GME 4/18/2011 TO 8/ 1/2011 -16.62%
COG 4/18/2011 TO 8/ 1/2011 22.40%
COG 8/ 1/2011 TO 11/14/2011 22.93%
VFC 8/ 1/2011 TO 11/14/2011 18.97%
FFIV 11/14/2011 TO 12/12/2011 5.81%
GR 11/14/2011 TO 12/12/2011 -0.18%
Every fifteen weeks starting from the first full week of the year buy the two stocks that have done the best over the previous eight weeks. Close all positions on the closing day of the last week of the year.
This strategy applied to the basket of stocks that are currently in the SP500 does very well during 2001-2011 (only one year of 48% loss, but that followed a year of 100% gain), but obviously the result suffers from selection bias for the years prior to 2011.
The following are the trades for 2011 (the dates are the first days of the weeks at the close of which the trades were made).
THC 1/ 3/2011 TO 4/18/2011 -1.74%
TSO 1/ 3/2011 TO 4/18/2011 42.38%
GME 4/18/2011 TO 8/ 1/2011 -16.62%
COG 4/18/2011 TO 8/ 1/2011 22.40%
COG 8/ 1/2011 TO 11/14/2011 22.93%
VFC 8/ 1/2011 TO 11/14/2011 18.97%
FFIV 11/14/2011 TO 12/12/2011 5.81%
GR 11/14/2011 TO 12/12/2011 -0.18%
Thursday, December 8, 2011
Pearl Harbor memorial day
Japanese suffering from the 2 atomic bombs is TOTALLY JUSTIFIED. Most died in dignity at least. Without the two bombs, US would invade Japan and many innocent folks would die.
The two atomic bombs should have dropped on the imperial palace whose master (now becomes the parasite of society) started the Asian invasion, and some smaller bombs should drop on the 'shrines' of war criminals, who invented the term 'comfort women', raped women and even killed babies.
It seems heartless to say the punishment from God on Japan should start 50 years earlier as most of these war criminals have passed away. Consider the millions of Asians were killed, raped by these war criminals, the head cutting competition on innocent Chinese and the river of flood, and you'll agree it is TOTALLY JUSTIFIED.
If you're still now convinced, watch the Nanjing documentary which is available from Netflix. We should not hate a nation because of the past history but we have to learn from history. I do not think the current generation of Japanese with their high education will repeat history. However, Chinese should learn how to defend themselves and also not to offend others.
The rewrite of Japanese text books on invasion and worship the 'shrines' of war criminals will fool no one but the fools who acted cowardly to cover their conscience and sins.
The two atomic bombs should have dropped on the imperial palace whose master (now becomes the parasite of society) started the Asian invasion, and some smaller bombs should drop on the 'shrines' of war criminals, who invented the term 'comfort women', raped women and even killed babies.
It seems heartless to say the punishment from God on Japan should start 50 years earlier as most of these war criminals have passed away. Consider the millions of Asians were killed, raped by these war criminals, the head cutting competition on innocent Chinese and the river of flood, and you'll agree it is TOTALLY JUSTIFIED.
If you're still now convinced, watch the Nanjing documentary which is available from Netflix. We should not hate a nation because of the past history but we have to learn from history. I do not think the current generation of Japanese with their high education will repeat history. However, Chinese should learn how to defend themselves and also not to offend others.
The rewrite of Japanese text books on invasion and worship the 'shrines' of war criminals will fool no one but the fools who acted cowardly to cover their conscience and sins.
Tuesday, December 6, 2011
Secular bull and bear market
* Secular Bull and Bear *
Even if you do not invest in the stock market, you need to understand it. The market is a forecast of our economy which in turn affects every aspect of our life. If the market is good, the economy is good and every one would have a job. Even the poor would benefit with more generous benefits from the government and more donations from individuals.
We have a secular bull and bear market as follows (the years are not exact but useful for illustration) as follows:
Secular bear market: 1960-1980
Secular bull market: 1980-2000
Secular bear market: 2000- now
In a secular bull market, every investor is a genius. Their stocks rise with the tide. With the profits from the market, they spend more on disposable consumer products and even give to the poor generously.
What causes the secular market condition that last for about 20 years? To me, the major common denominator is the war and it is my contribution to this theory if not already mentioned before. In 1960s, it is the Vietnam War and the effect after this war. Today it is the two wars in the Middle East.
After the war, our leaders do not forget the harmful effects. They cannot get re-elected with the war, so there will be no war for a long while. That’s my explanation of the secular bull market from 1980-2000. After 2000 our leaders forgot the wars and history repeated itself.
Wars are the primary cause of a secular market and bubbles are the triggers to recessions. In 2000, we had the internet bubble and we had the housing bubble in 2007 (derivatives is the pin that burst the bubble). With minor exceptions, all bubbles are caused by excessive valuation (housing value was too high due to the government easy money) and they will come back to the average value eventually. The only exception could be gold which does not really appreciate but the dollar depreciates.
If we concentrate our energy/wealth in economy rather than wars, we could fix the bubble easier before they’re burst and at least soft landing instead of hard landing.
I expect we’ll have a prolonged bull market three years after ending the two wars. By then, the housing problem will be solved by absorbing the inventory and the settling a solution on Euro crisis. Until the politicians forget the harmful effects on the war, the prolonged cycle will continue.
Prediction.
If the next secular bull market starts in 2015, we would shorten the cycle from 20 years to 15. For this reasoning, we may have to check again (on the possibility of war similar to Vietnam and these two Middle East wars) at the 10th year or so of the next bull market to see whether it would be 15 or 20 years.
There are market cycles within the secular market. I change the predicted duration from 4 to 5 years for similar reasoning.
Click on Strategies on Secular Markets.
-------
(c) TonyP4 2012. Written in 12/06/11. Last updated in 1/18/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Even if you do not invest in the stock market, you need to understand it. The market is a forecast of our economy which in turn affects every aspect of our life. If the market is good, the economy is good and every one would have a job. Even the poor would benefit with more generous benefits from the government and more donations from individuals.
We have a secular bull and bear market as follows (the years are not exact but useful for illustration) as follows:
Secular bear market: 1960-1980
Secular bull market: 1980-2000
Secular bear market: 2000- now
In a secular bull market, every investor is a genius. Their stocks rise with the tide. With the profits from the market, they spend more on disposable consumer products and even give to the poor generously.
What causes the secular market condition that last for about 20 years? To me, the major common denominator is the war and it is my contribution to this theory if not already mentioned before. In 1960s, it is the Vietnam War and the effect after this war. Today it is the two wars in the Middle East.
After the war, our leaders do not forget the harmful effects. They cannot get re-elected with the war, so there will be no war for a long while. That’s my explanation of the secular bull market from 1980-2000. After 2000 our leaders forgot the wars and history repeated itself.
Wars are the primary cause of a secular market and bubbles are the triggers to recessions. In 2000, we had the internet bubble and we had the housing bubble in 2007 (derivatives is the pin that burst the bubble). With minor exceptions, all bubbles are caused by excessive valuation (housing value was too high due to the government easy money) and they will come back to the average value eventually. The only exception could be gold which does not really appreciate but the dollar depreciates.
If we concentrate our energy/wealth in economy rather than wars, we could fix the bubble easier before they’re burst and at least soft landing instead of hard landing.
I expect we’ll have a prolonged bull market three years after ending the two wars. By then, the housing problem will be solved by absorbing the inventory and the settling a solution on Euro crisis. Until the politicians forget the harmful effects on the war, the prolonged cycle will continue.
Prediction.
If the next secular bull market starts in 2015, we would shorten the cycle from 20 years to 15. For this reasoning, we may have to check again (on the possibility of war similar to Vietnam and these two Middle East wars) at the 10th year or so of the next bull market to see whether it would be 15 or 20 years.
There are market cycles within the secular market. I change the predicted duration from 4 to 5 years for similar reasoning.
Click on Strategies on Secular Markets.
-------
(c) TonyP4 2012. Written in 12/06/11. Last updated in 1/18/12.
Disclaimer:
Do not gamble your money you cannot afford to lose. Past performance is a guideline and does not guarantee future performance.
All my posts are for informational purposes only. I'm not a professional investment counselor. Seek one before you make any investment decision.
Sunday, December 4, 2011
Dear recent college graduates,
Many of you do not have a job for over 2 years. Your generation of some EU countries have 50% or so unemployment. Do not be frustrated and we're seeing the light from the tunnel.
I had similar experience. After graduation I had no job. It was only 1 month (lucky me compared to today's graduates) but it seemed to me more than a year of desperation. The worst is that I ran out of money and my student visa had expired. I was so jealous of my room mates going to work, and they may be jealous of me for sleeping all day long. Some harsh words would hurt a lot but I pretended to be sleeping and crying inside. I was ashamed of not sharing my part of the rent.
It turns out to be a good experience. For example, I have not wasted a dollar since then. At that time, with that whole dollar I can kill 3 hours by watching double features. Too much free time drove me crazy.
It is a similar lesson I learned from my co-worker who lived through the depression. He finished his plate completely without leaving a speck of food.
If you like to protest for income disparity, bankers not going to jail for their crimes, plutocracy... by occupying your local city hall, it is fine to let some steam out, but you need to obey the law. Life is full of injustice. The best to resolve them is to prepare yourself so you will be in a position to make a difference.
You should also know most rich folks obtain their wealth by working hard (with many starting with nothing) and taking chances. Gates and Buffett even give back all their wealth to charities.
The economic problem gives us a temporary setback. Hopefully, we will look back and treat them as good lessons that we cannot learn from schools except by experiencing it. It is life's ups and downs. Without the downs, life would be no meaning and we do not appreciate and treasure the ups.
We should not let our destiny control our life, and the strong ones (I am not among them) can change their destinies. Bad experiences in life always make us a stronger man/woman.
I had similar experience. After graduation I had no job. It was only 1 month (lucky me compared to today's graduates) but it seemed to me more than a year of desperation. The worst is that I ran out of money and my student visa had expired. I was so jealous of my room mates going to work, and they may be jealous of me for sleeping all day long. Some harsh words would hurt a lot but I pretended to be sleeping and crying inside. I was ashamed of not sharing my part of the rent.
It turns out to be a good experience. For example, I have not wasted a dollar since then. At that time, with that whole dollar I can kill 3 hours by watching double features. Too much free time drove me crazy.
It is a similar lesson I learned from my co-worker who lived through the depression. He finished his plate completely without leaving a speck of food.
If you like to protest for income disparity, bankers not going to jail for their crimes, plutocracy... by occupying your local city hall, it is fine to let some steam out, but you need to obey the law. Life is full of injustice. The best to resolve them is to prepare yourself so you will be in a position to make a difference.
You should also know most rich folks obtain their wealth by working hard (with many starting with nothing) and taking chances. Gates and Buffett even give back all their wealth to charities.
The economic problem gives us a temporary setback. Hopefully, we will look back and treat them as good lessons that we cannot learn from schools except by experiencing it. It is life's ups and downs. Without the downs, life would be no meaning and we do not appreciate and treasure the ups.
We should not let our destiny control our life, and the strong ones (I am not among them) can change their destinies. Bad experiences in life always make us a stronger man/woman.
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