Sound Investment

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16 Mar 2013 17:19 #13573 by Rock
Replied by Rock on topic Sound Investment
Hi Greenrookie & Garl,

Greenrookie, I agree that solid business are those with consistent FCF and profit resilence in the face of crisis. But blue chips may have solid business but their business maybe affected by business cycle.
It’s true company valuation is not static & have a price, that is why we should look for safe entry & exit price margin. At what price to buy & sell depends on individual risk appetize.
I also supported Greenrookie view that we should be looking after risks then returns.
How should we manage our risks? Below are some of the them, anyone feel free to contribute please.

1) Profit Margin - Keeping track of profit margin changes.
2) Business Competition – Either company gaining market shares or losing market shares.
3) Delay – Project delay, material delay, goods delay etc.
4) Cost – Product costs, administration costs, marketing costs, labour costs, etc.
5) Problems – political, social, environmental, etc
6) Change Of Government.
7) Increase In Interest Rate.
8) Company Mismanagement Or Accounting Problems.

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16 Mar 2013 18:15 - 16 Mar 2013 19:44 #13574 by greenrookie
Replied by greenrookie on topic Sound Investment
Look at debt level, some sectors like property developers, it's common to have debt, but know the industry norm for debt level.

For manufacturing or distribution or retail, chk inventories and receivables turnover rate, cash cycles etc.

Check outlook of sector, if possible, the state of health of their customers and suppliers. Track expiration/ renewal of key contracts

Check for sudden resignation of key personnels, frequent fund raising.

Magagement statements: over bullish outlooks that dun pan out frequently, hiding problems, etc. management selling large amt of shares.

Lastly, understand as most as possible you can about the business you are buying, I am not a businessman, I dun claim to understand what businesman are thinking, but if some things doesn't make sense to me, I give it a miss. Better be safe than sorry
Last edit: 16 Mar 2013 19:44 by greenrookie.
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21 Mar 2013 14:15 #13593 by greenrookie
Replied by greenrookie on topic Sound Investment
With almost every companies with property assets trying to spin them into Reits, it would pay to be careful not to be caught on this REIT frenzy.

First, I support Reits as a asset class. But do note the following:

1) yield is getting really depressed, will it be enough to compensate your risk?

2) note the gearing level. Rule of thumb 15% buffer from the debt cap, 60% for rated reits, 30 or 35% in remembered which for unrated ones like lippo mall. The buffer will allow growth thro aquisition and safety net for interest hike.

3) note the quality o assets, both the recent maple tree china and religare trust have lawsuit pending.

4) concentration risk, the lesser the assets, the greater the concentration risk and lower economy of scale.

5) note alternative products that can give u almost the same yield with half the risk.

6h buying REIT primarily for growth is risky business. Pay particular attention to those with asses overseas


There is detailed discussion at value buddies too.
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26 Mar 2013 23:11 #13620 by Rock
Replied by Rock on topic Sound Investment
Below lists on "Risk Management Check Lists" with addition input from Greenrookie:


1) PROFIT MARGIN: Keeping track of profit margin changes.

2) BUSINES COMPETITION: Either company gaining market shares or losing market shares.

3) DELAY Project delay, material delay, goods delay etc.

4) COST – Product costs, administration costs, marketing costs, labour costs, etc.

5) PROBLEMS: political, social, environmental, etc

6) POLITICAL: Change Of Government.

7) INTEREST RATE: Changes In Interest Rate.

8) MANAGEMENT: Company Mismanagement Or Accounting Problems.

9) DEBT: Look at debt level, some sectors like property developers, it's common to have debt, but know the industry norm for debt level.

10) IN VENTORIES: For manufacturing or distribution or retail, check inventories and receivables turnover rate, cash cycles etc.

11) OUTLOOK OF SECTOR: If possible, the state of health of their customers and suppliers. Track expiration/ renewal of key contracts

12) RESIGNATION & FUND RAISING: Check for sudden resignation of personnels, frequent fund raising.

13) MANAGEMENT STATEMENTS: Over bullish outlooks that dun pan out frequently, hiding problems, etc. management selling large amt of shares.

15) Lastly, understand as much as possible you can about the business you are buying. If some things doesn't make sense give it a miss. Better be safe than sorry.

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03 Apr 2013 19:53 #13657 by Rock
Replied by Rock on topic Sound Investment
Learning to manage risk is one thing but remember the greatest weakness is our-self - GREED & FEAR. We need to able to overcome Greed & fear.

The truth is we don’t have to take big risks to make money. Greed will cause us to take big risks, at time blind risk.

Fear will cause us to lost focus when there is great opportunity, during market correction or during market crisis. For those who know the story of Joseph, it was during crisis that he helps Egypt becames very rich.

What we need is wisdom, patience, self-control & patience to overcome greed & fear in addition to understand the company business, company value, company growth potential etc and been able to manage risks.


God Bless.

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03 Apr 2013 19:56 #13658 by Rock
Replied by Rock on topic Sound Investment
Learning to manage risk is one thing but remember the greatest weakness is our-self. We need to able to overcome GREED & FEAR.

The truth is we don’t have to take big risks to make money. Greed will cause us to take big risks, at time blind risk.

Fear will cause us to lost focus & miss out great opportunity during market correction or during market crisis. For those who know the story of Joseph, it was during crisis that he helps Egypt becomes very rich.

What we need is wisdom, patience & self-control to overcome greed & fear in addition to understand the company business, company value, company growth potential etc and been able to manage risks. Scoop up the steady earners. If they're pricy, simply wait till they reach attractive level. Never chase stocks

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