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Most liked posts in thread: How long does it take you to study an individual business?

  1. ROE

    ROE

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    knowledge is accumulated over time and how much stuff you read and how good are you at processing those information, it not a precise science that you have to put in this number of hours.

    it is something that hard to fast track if you start young and start reading financial books, paper, news
    chance are you picked up a lot of knowledge from a lot of business and over time it like a compounding thing, once you get to that stage it doesn't necessary mean you have to studies some business for 1000 hours or 100 hours to be able to invest in them

    It just comes naturally and from that knowledge, you can come up with your own set of rules and strategy.

    I been reading for many years I know which business I don't want to be in and which one I want to be in and with what criteria and it from there it pretty straight forward once you accumulated that compounding knowledge.

    Anything to do with Argi like plantation is a no go zone for me
    No airlines, No Mining, unless it trading at excessively cheap where they can cut cost, flock off an asset that can drive price higher, once that objective is done I am out, but as a long term hold and buy I never do for these type of business.

    I prefer Amcor, smartgroup, Pact group, ansell, credit corp, greencross, brambles etc.. business for long term holding

    Then there regulation and market dynamics you got to keep an eye on the business you have holding and act accordingly etc..

    I start out as buy and hold but my knowledge is decent enough now for me to branch out with shorting and options play and opportunity trading.

    Buy and hold still a large part of it for dividend but I expect the other strategies will play a significant part going forward as well.

    Trading, shorting has been a bonanza for me this year

    The other part is risk management, it important as well, I never let one stock do damage to more than 1 year worth of my dividend and that around 30-40K
    worse case for me is I lose one year worth of dividend :) and I have plenty of capital to come back in no time

    Obviously this number will grow over time as the portfolio get bigger each year but the proportion still stays the same.

    My tips subscribe to AFR and read them every day :) after a few years your knowledge would be pretty good on most business, regulations and bad management
     
    Last edited: May 12, 2017
    Faramir, Klogg and galumay like this.
  2. Klogg

    Klogg

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    I would suggest that if you only have a small amount of capital (i.e. dealing with retail products only, so less than $2m for arguments sake), then there's really only one part to it - finding out the business' intrinsic value. Once you have a feel for it and you notice the price is well below that value, you perform the transaction, nothing to it really.

    1,000 hours seems extreme, but perhaps in some complex situations it may not be enough. For example, you want to understand:
    - Company management
    - The history of the company (at least 5 years worth)
    - The balance sheet, any conditional or off-balance sheet liabilities, a good feel for their assets (e.g are they listed at purchase price or market value), etc
    - Their operational model, what proportion of costs are fixed vs variable, gross profit margins
    - The background behind any licensing/intellectual property
    - Industry mechanics
    - Industry standards, margins (e.g. who's the lowest cost player)
    - Regulation or lack thereof
    - Exchange rates/currency risk (e.g. if a U.S. company has AUD revenues, what is the impact if the AUDUSD yield spread narrows?)

    Sometimes when you're dealing with companies that are cheap enough, you don't necessarily need to know all of this. For example, if you could buy a company at a significant discount to asset value and these assets were listed at under market value, then you could argue that future growth is less important, as you potentially get it for free.

    An example that comes to mind is UOS. Debt free, swimming in cash, trading at 2/3 * NTA and about 6 times earnings (although last year had some property revaluation within it). I still need to understand currency risk, management history (and age in this case), any balance sheet liabilities and potentially look at their major subsidiaries. But I don't need a lot of detail around who the lowest cost player is, because the NTA backing is large enough to provide minimal downside in my investment.

    On average, I probably spend about 40hours looking at a particular company, mostly in thought about the "what if" scenarios. If I find a situation I can't answer, I'll get as much information as I can to do so, then think again.

    Perhaps I'm not spending enough time evaluating the company... I can't answer that. But 1,000 hours does seem extreme.
     
    Rypieee and peter2 like this.
  3. craft

    craft

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    Yes you do!
     
    Value Hunter and Klogg like this.
  4. craft

    craft

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    What is "value" investing anyway - so many different interpretations that you can't say anything general about it really. I would be ready to start an investment accumulation in a few minutes of understanding, when I see the right thing. The longer your first assumptions play out, the longer you get to stay the more you will get to know. The more you know the greater opportunities in the future.
     
    VSntchr and Faramir like this.
  5. galumay

    galumay learner

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    Thats why you are a trader and not an investor, its a perfect example of matching your temperament to your strategy. Of course it tales more than that, given that 90%+ of traders lose their shirts over time, to be one of the less than 10% - which you obviously are - must be a function of lots of hard work and finding edges that others cannot perceive.
     
    Value Hunter and Quant like this.
  6. Klogg

    Klogg

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    https://www.tilsonfunds.com/superinvestors.html
     
    peter2 likes this.
  7. galumay

    galumay learner

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    I certainly wouldnt spend that amount of time studying a business before taking a stake of ownership! Hell I probably wouldn't spend that much time before I started a company!! I wonder if what the person meant was that it takes up to 1000 hours of studying before you are really ready to be an investor?

    Even then its an abitary number, some will learn a lot from 100 hours of study and some will learn very little from 10,000 hours!

    I think that for any successful strategy of investing you need to do a lot of reading and learning to become confident and proficient, I think so many people have a personality unsuited to investing, they are really gamblers looking for instant gratification. Also I think the disciplines to study are much broader than people understand generally. Aside from learning the basics of finance so you can read and understand financial reports, I have also read a lot of human psychology, the building blocks of science, physics, chemistry, biology, geology.., mathematics - particularly statistics and probability but also algebra, I also read all the standard investing texts, from Graham, thru Buffett, Munger, Lynch, Dreman, Marks, Speziale, etc etc.

    I read a lot of blogs about investing and thinking and improving ones mental processes, there is some amazing stuff out there and I think devoting significant time each day to reading is one of the most powerful things you can do.
     
    Klogg likes this.
  8. Boggo

    Boggo

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    Intrinsic Value by definition...
    "The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors."

    I had a go at some of these calculations years ago but gave up.
    I found that no two individuals could arrive at the same value, that the data was dynamic and dependant on the day to day associated market environment and that the broker/economist type published data values were based on out of date and usually up to six month old inputs.

    The second area of concern is why an entity would trade below its intrinsic value. Wouldn't that imply that the majority see a different intrinsic value (assuming a totally fundamental influence).
    Quite often it seems to be the case that it wasn't trading below its perceived intrinsic value, more a case of the delay between the published values that were used and the current actual values.
    VOC was a recent example of this and further back I remember TGA being another example.

    I am not saying it is wrong as guide or that intrinsic value is a term more suited to in the money options but in a volatile or erratic market there seems to be more cases where the current market value is a more reliable measure of reality that a perceived intrinsic value.

    Anyway, just my observations and thoughts when I see or hear that term being used as a reason to buy.
     
    tech/a likes this.
  9. galumay

    galumay learner

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    There is no doubt Ducat 916 raises one of the most important aspects to successful investing - you need patience, and its a sort of patience most people dont actually have even if they think they do. Coupled with that an investor needs nerves of steel - to paraphrase Keynes, the market can remain irrational and inefficient much longer than most people have the patience to wait. That means the investor needs to be able to watch paper losses and not panic.

    The same nerves and patience are required on the other side of the ledger - to not sell out of businesses too soon.

    For much of the time there is no discernible difference between being right, too soon, and being wrong.

    Ultimatley it wont matter how many hours you spend studying a business, if you dont have the temperament for value investing you wont be profitable.
     
    Faramir likes this.
  10. Boggo

    Boggo

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    Well done galumay, it was from the 11th Nov 2016 chairman's briefing to shareholders of QIN.

    A good example of the fiction that can (and does) mislead.
    Very interesting reading the reports and financials etc while comparing positions on the chart, especially the annual report to Dec 2016 that was issued on the 27th Feb 2017 and where the price was at that point.
    QIN D 120517.jpg
     
    galumay likes this.
  11. Quant

    Quant

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    " The News is in the Price "
     
    Boggo likes this.
  12. tech/a

    tech/a No Ordinary Duck

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    Are there any papers showing evidence that your
    Ideas are in fact profitable.

    All the fundamental follow my trades shown on ASF don't appear to be that profitable.

    From what I see the majority of Managed funds struggle to out perform their index.
    They have floors of analysts attempting to find what your after.

    It's not about being right
    It's about being profitable
     
  13. RandomInvestor

    RandomInvestor

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    What ideas? You are referring to "my ideas" I didn't say any, not sure what you mean.
     
  14. tech/a

    tech/a No Ordinary Duck

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    Your two components of successful value investing