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Picking up on the real value of a business (Part 1)

By: The 360 Investing Guys

This article is (C)opyright The 360 Investing Guys (http://www.360investingsite.com).  Any re-production of this article requires the express written consent of the 360 Investing Guys.  Please contact us at 360investingguys@gmail.com to request permission.

Picking up on “How Can I get ahead in life? Become an intelligent investor!“, this article, the first in a series, dives into exploring the real value of a business.  All intelligent investors understand the value proposition in the business they decide to invest their hard earned money in.  This differs from speculators and day traders as not all speculators and day traders are looking for value, instead they are looking at trends, momentum, and other technical indicators, or many times they are simply listening to the guy at the water cooler who made a $1,000 yesterday on a penny stock play.  For the average investor,  speculation usually results in losing their money.  Think about it, if it was that easy to make $1,000 yesterday on that penny stock play, why isn’t everyone in the world getting rich off this?  Here’s a better question… If the guy at the water cooler told you he’s making $1,000 regularly or almost every day, why is he working with you at the office?  There is over 200 trading days in a year, at a $1,000 per day that’s over $200,000 per year!  Clearly, speculation is an up and down game and in general the average investor loses more than they gain by speculating on stocks.

OK enough scaring you!  Let’s start to think outside of the box at ways to look at Read the rest of this entry »

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How Can I get ahead in life? Become an Intelligent Investor!

This article is (C)opyright The 360 Investing Guys (http://www.360investingsite.com).  Any re-production of this article requires the express written consent of the 360 Investing Guys.  Please contact us at 360investingguys@gmail.com to request permission.

Probably the wisest person i ever met once told me that all else being equal there is only two real ways to get ahead in life:

1) Either become a tax expert, or

2) Become an intelligent investor.

I went ahead and got a degree in accounting.  I’m no expert in tax, but I know enough to know that saving money on taxes means you are saving cold hard cash that would otherwise be paid to Uncle Sam (or Uncle John A. McDonald for all you Canadians).   So come tax time, I pay serious attention to my taxes and always make sure I am up to date on the latest tax rules.

Let’s say you are right out of college or university and you get hired at a firm with another 25-30 new recruits.  The chances are that all the people in your recruiting class are making the same small salary to start and are all in the same boat… you need to work hard and work your way up the food chain until you become more senior and hopefully make the higher salary you deserve.  All else being equal,  saving money on your annual taxes or investing your money wisely are the two ways you can truly get ahead financially.  Yes, hard work will get you so far, but I’m going to assume that there is lots of people working hard out there and trying just as hard as you to get that promotion!  That being said, keep working hard!

So…how does one become an Intelligent Investor? Read the rest of this entry »

Introduction to Financial Ratios

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This article is an introduction to financial ratios used in stock analysis. While certainly not an exhaustive list, this article should provide a foundation for you to expand your vocabulary as you learn to invest for yourself.

This is important. Important because unless you have a university degree in finance or economics, this might be where many new investors get lost. How do you calculate price-to-sales? Which accounts do I include or exclude in EBITDA? Are there any accounting adjustments I should worry about??

Fortunately, all this work has already been done for you. BUT, if you are a geek like me and want to know how the numbers work, I recommend using Investopedia.com for more details. But for this article, it’s enough to know which ratios are important to look for and obtain a basic understanding of what they mean.

There are scores of financial ratios in stock analysis, however, here are three of the top financial ratios Read the rest of this entry »

Psychology of a Value Investor: When To Buy and When To Sell

The subtitle to this article should really be: “How To Be A Value Investor,” or “What It Takes To Be A Value Investor,” without having to read an entire book on the subject.

But first, we should briefly define a few terms because you will notice that ALL of these decisions center around ONE relationship: The current market price of a stock vis-à-vis its intrinsic value.

What is intrinsic value? Intrinsic Value is actual or ‘true’ value of a stock (or a company). What does this mean? Intrinsic value is the price, or price range, that an investor will place on a stock or company after performing fundamental analysis.

What is fundamental analysis? Fundamental analysis is the process that investors go through to determine a stock or company’s intrinsic value, in order to make the decisions were able to describe below. This analysis will include examining the big picture economic and industry conditions, to company specific financial and qualitative factors.

The objective of uncovering a stock or company’s intrinsic value is to make one of the following decisions:

Hold or Consider Buying:

When the market price of a stock equals the intrinsic value of a business, the value investor may consider buying it.

Buy and Potentially “Load Up The Truck”:

When the market price of a stock is less than the intrinsic value of a business, the value investor may get excited about buying it, as it may be a true buying opportunity.

Sell or Not Buy:

When the price of the stocks soars well beyond the value of the company, the value investor sells, or simply avoids it altogether.

In other words:
Underpriced = Buy or Hold
Overpriced = Sell or Do Not Buy

Markets fluctuate, go boom and bust, or simply follow the business cycle with natural ups and downs. Even the top companies in their industries can see significant drops on the price of their shares. Conversely, when the market is in the bubble stage, the tide will raise the market price of all stocks regardless of their value.

There is an old trading adage to describe this trading psychology:

“You’re buyin’ when they’re cryin’, and sellin’ when they’re yellin’”

Contrarian investing

Value investors are not crowd followers. They are a different breed. Value investors stay away from the popular and exciting – the hot new IPOs, penny stocks, etc. – because by definition, popular stocks are not bargains!

Nowhere was this idea researched so thoroughly and recently, than in Jeremy Seigel’s latest book, “The Future for Investors,” which I highly recommend you read.

Value investing is an approach to investing, an investing discipline, a thought process; it is not a specific formula or set of technologies applied to investing. It is art and science. It is patience and discipline.

I know this is a LOT to think about, but let me leave you with one more thought, a quote I just read this last week that I’d like to share with you:

“As prices rise, prospective future returns fall” – John P. Hussman, Ph.D

To Your Investing Success,

Kevin
The 360 Investing Guys

Introduction to Online Research for Stocks

This article is an introduction to some of the FREE resources to perform your OWN due diligence, generate investment ideas, or if you’re like me, learning how all this investment stuff works!

But before we get ahead of ourselves, ideally you should watch the video we made on this topic, as I will actually walk through some examples, click on the sites, and you can watch over my shoulder as I take you by the hand.

Conversely, the information in this article and accompanying video should be watched with our other videos, because a lot of the investing topics we cover assume you know exactly where to find the information to perform your own analysis, or that you already know how to use online tools.

So are so many FREE resources online, it’s difficult to know where to start!

Where to Find Financial Statements for US Filers

First of all, understand that if a stock is trading on an exchange, i.e., it is publicly traded, they are required by law to file annual and quarterly financial statements.

For public companies listed on an American exchange, here’s how you find them: Do a Google search for “SEC,” click on the “Search for Company Filings” in the Google search results, followed by “Company or fund name…” and then enter either the company’s name, or the ticker symbol.

Once you find the company you are looking for, here is one more thing to note when dealing with US filers. 10K refers to their annual audited financial statements, whereas 10Q refers to their unaudited quarterly financial statements. I prefer to use the annual statements, as there is more disclosure, and the statements have actually been audited by the company’s auditors.

Where to Find Financial Statements for Canadian Filers

For companies listed on a Canadian exchange, you can find these documents on www.sedar.com. Just click on ‘Company Profiles’ and then search for them alphabetically.

When you’re scrolling through the list of public filings by the company, notice that in addition to the company’s annual and quarterly financial statements, there are also other links here, most importantly, to news releases by the company. These can also likely be accessed on their website, but this is another rich source of information about a company and its activities between each quarter.

Too much reading? Well, there IS a simpler way to view the exact same information, without reading a textbook full of note disclosures, provided by our friends over at Yahoo! & Google Finance.

Finance.Google.com

I really like Google Finance. It’s relatively new compared to the web, but it’s very intuitive to use and you save and access your information at any time while you’re logged into your Gmail account.

Finding Tickers in Google Finance

When you’re first learning about investing, finding and remembering the proper tickers for companies can be a frustrating experience.

So here’s a quick tip on Google Finance that will help you. Don’t know the ticker for your favorite company?  with this: Just start typing in the name of the company in the field at the top of the screen, and multiple options will appear to choose from. Scroll to the desired ticker and click.

Note: If you are looking up tickers for stocks listed on a Canadian exchange, based on my experience, you’ll get better results if you go to finance.google.ca

Google Finance Stock Screener

Here’s one feature that I really like: Check out the sliders on the criteria settings! First, notice the distribution of each criterion. You can grab any one of these sliders, shift it to the left or right, and the numbers automatically update, as do the search results.

Click on ‘Add Criteria’ and you can customize the criteria you are looking. Collapse these options. Update your search criteria, type the numbers in directly if you find that easier. If the number of results you receive is too many, try tightening up your ranges based on your investment criteria, until you get a manageable enough list that you can perform meaningful research.

You can also click on one of these headings to sort by those ratios you are most interested in. Say, for example, that now that you’ve identified all the minimum requirements for your investments, but all you were really looking for is dividend income, then click on the dividend yield column to go high to low for this one characteristic.

Portfolios in Google Finance

Now let’s say we really like this particular stock. Just click on the link at the top “Watch This Stock” it Google will take you to a separate page where you can create and organize your stock portfolio or portfolios. I recommend organizing your tickers by either investment type or industry, for example, one portfolio for penny stocks, another for large-cap, dividend stocks, another for international, etc.

These portfolios then appear on the main page of Google Finance. Just click on the tab labeled “Portfolios”, make sure you are signed into your Gmail account, and all your portfolios will appear.

One more thing I use on Google Finance: Related companies for comparative purposes. Scroll down below the chart, and there appears a list of companies and their tickers that are related to the one you are currently viewing. Not rocket science certainly, but when you are interested in a certain industry, for example, gold producers, this list will expose to other possibilities that may interest you just as much, perhaps even more.

Limitations

One thing you should be aware of, if that the stock screener on Google Finance currently only filters stocks on the American exchanges. So for any research on stocks listed on other exchanges, we recommend using Yahoo! Finance.

But for US listed stocks, this tool is pretty cool, offers a lot of flexibility and visuals as you perform your own research without having to sift through a company’s annual financial statements and calculate these stats on your own.

So that’s an incredibly BRIEF overview of Google Finance. I encourage you to try out a few of the features and play around with the stock screener. You never know what hidden treasures you might undercover!

Finance.yahoo.com

There are LOTS of features on Yahoo! Finance, and way too much to cover in this article, so we’ll just focus on a few features.

First of all, like Google, if you’re not sure the EXACT name of the company, or don’t know it’s ticker symbol, Yahoo! Finance has you covered twice:

Enter the company name on the field just left of the “Get Quotes” button on the top right corner of the Yahoo! Finance home page.

After you click on this button, Yahoo! will either take you directly to the company’s information, or give you a list to choose from. Once you have found the company you are looking for, here are a few features on the left hand side:

Summary Page

This page captures high level information about a company’s current stock price, including dividends, the 52 week range, i.e., the 52-week high and 52-week low, previous closing price, opening trade price for the day.

The bid and ask prices are not TOO useful, because this data will be delayed by a minimum of 15 to 20 minutes.

Charts – Interactive

In Yahoo!’s chart, you can adjust the sliders for volume, price, and even extend or shorten the time horizon from 1 day, to 5 days, or even 1 year or more.

News & Info

Click on this tab for all the latest news, articles, and even blogs and message boards!

Financials

Remember the EDGAR and SEDAR sites? Well, this information can be found here without having to sift through pages of statements. If you decide to perform your own due diligence, these tabs should provide all the information you need to do it yourself!

Key Stats

Even if you don’t know how to read financials, or calculate the ratios, this section GIVES you all the information already calculated for you.

Competitors

In another article, we discussed the importance of comparing one company to another within industries as one method for evaluating whether a ratio for a company indicated an opportunity or not.

And here you go – BAM! Just scroll down the page and this is already calculated for you.

Investing is NOT Just Financial Statements

A company is a business, and every business has people. Financials are based on historical information, and the statements are up to 90 days old or more by the time you read them. Furthermore, there are also seen a public relations tools, and much of the language used is meant for promotion.

So here’s an important rule: When performing your due diligence on a company, be sure to read other commentaries, reports, and articles.

In addition to Edgar and Sedar, the latest news should be posted on the company’s website, although keep in mind that their view and opinions about the company’s future will obviously be biased and more marketing based.

Other sources include forums, message boards, and blogs dedicated to particular companies.

Other Online Research Tools: Your Online Brokerage Account

Lastly, do not forget that each online brokerage should have their own research and investment tools that are specific to their platform. Be sure to log into your account and explore all these options, and contact their customer service if you have any questions.

Conclusion

So, there are obviously a TON of free sources on the web, but this should be enough to get you started. If you have any questions or find some great online sources you’d like to share, please feel free to let us and our readers know in the ‘comments’ section.

To Your Investing Success,

Kevin & Ali
The 360 Investing Guys