Research: What is the most effective approach?

[Bhujo]

Hello all,
Yet another 'green horn' enters the forum. First, I would like to thank all the contributors to this forum, you are all a credit to the 'plain-english' speaking world. Your imput is greatly appreciated.

As someone who has yet to buy a single share, I understand how critical it is not to stumble in the beginning. Thus, I see that the difference between a 'gamble', and a 'calculated risk' is knowledge acquired through research. Here in lies my dilemma.

What are they key points I should be looking out for?

I've noticed the term 'intrinsic value' of a company used a few times now, and if used to calculate the real value of a share, will let you know if you're getting a bargain. I cannot seem to figure out how to get this figure.

Company asset value minus debt divided by no. of shares + P/E ratio average = Share worth? (+multiple other factors)

Am I on the right track? If so, where can I get these figures??? Or, is it something else I'm missing all together?

Any guidance will be appreciated. Thanks very much.

 

[So_Cynical]

Hello all,
Yet another 'green horn' enters the forum. First, I would like to thank all the contributors to this forum, you are all a credit to the 'plain-english' speaking world. Your imput is greatly appreciated.

As someone who has yet to buy a single share, I understand how critical it is not to stumble in the beginning. Thus, I see that the difference between a 'gamble', and a 'calculated risk' is knowledge acquired through research. Here in lies my dilemma.

What are they key points I should be looking out for?

You should be looking out for predictable share price movements...once your judgement has been proven right a few times its easy to start throwing money around with a high level of confidence...how you arrive at the point in time where you have that high level of confidence is a journey only you can take.

 

[danbradster]

Company asset value minus debt divided by no. of shares + P/E ratio average = Share worth? (+multiple other factors)

Yes, you may consider NTA per share and PE, but definitely separately.

I use both of them regularly, a low PE suggests value if you believe the company to be strong/safe/growing. Low PE often comes with high dividend yield. Prime example: RFG - a share that I consider quite safe but it still has a 6.2% fully franked yield with expectation of future growth too. The PE is low too.

You are more likely to use NTA for a company like a REIT (real estate investment trust), since if it's trading at a discount to its hard assets then you may be getting a bargain, assuming the company is sufficiently profitable and there won't be write-downs of the assets in the future.

 

[Bhujo]

So Cynical,
Thank you for replying. In regards to 'predicatable price movement', it seems that media hype alone can boost the price of the share, so do you believe simply staying up-to-date in the news, and guessing the reaction of 'Mr Market' is a sufficient strategy?
I'm guessing (and please correct me if I'm wrong), that alot of people in the share market are either using borrowed money, so they're always looking for up trends. Or, they're simply getting paid too much and making uninformed, or just poor decisions.

One strategy that I'm starting to formulate is to buy low price but good liquidity (eg. WEC), and just wait for others to pick it up further down the track, I don't want to reach the peaks, just more than the initial stake.
Everyone I speak to about the share market is telling me "no no no" but for me it all looks yes yes yes. It looks filled with short and long term opportunities, would you agree???

 

[So_Cynical]

Everyone I speak to about the share market is telling me "no no no" but for me it all looks yes yes yes. It looks filled with short and long term opportunities, would you agree???

Agree

There are many ways to profit from "the market" find a strategy that works for you and follow it, what ever that may be....and by all means don't take the general public friends, the media and family to seriously.

Finding your comfort zones and being able to take a good look at yourself and see what you got wrong/right and why that came about is a big part of being successful in this endeavour.

 

[Bhujo]

Danbradster, thanks for your reply.
You say you use NTA regularly, where do you get this from?

I had a brief look at RFG and I understand what you mean.

Can I ask you your opinion about the ASX website? I find it very informative, but something tells me there's something better out there....

 

[Bhujo]

So Cynical,
Yeah I hear you mate.

I'd like to ask you, in regards to Coal and related industries, they took a big hit due to the floods in Queensland this year. I'm guessing they're only going to try to make up for it next year (weather permitting). I'm thinking my first stake will be in this vicinity. Is this sound reasoning?

 

[danbradster]

Danbradster, thanks for your reply.
You say you use NTA regularly, where do you get this from?

I had a brief look at RFG and I understand what you mean.

Can I ask you your opinion about the ASX website? I find it very informative, but something tells me there's something better out there....

NTA you will usually find in their annual report or possibly a quarterly. It's either in the summaries from the directors or in the balance sheet. In the balance sheet you do: Total Assets - Intangible Assets - Total Liabilities = NTA. Divide by the shares on issue and compare this figure to the SP.

For example, CQO is a REIT trading below its NTA value, but not by too much... I think the discount to NTA is a low 10%.

NTA becomes particularly profound when the companies is intending to sell off assets (at market value). This process moves the SP closer to the NTA value, since the assets will be moved from a probably under performing asset (the SP is trading below NTA) to cash (cash should trade at close to full value).

So CQO for example, I bought at $2.50 since they were trading maybe 35% below NTA and they announced an orderly windup of their US assets. They claimed they would be able to sell at their previous asset valuations (at market value). Some selling has occurred and now they have moved up to $3.60 after just a few months. I think the SP movement is because of this action, but I could be wrong.

So Cynical,
Yeah I hear you mate.

I'd like to ask you, in regards to Coal and related industries, they took a big hit due to the floods in Queensland this year. I'm guessing they're only going to try to make up for it next year (weather permitting). I'm thinking my first stake will be in this vicinity. Is this sound reasoning?

If the SP of coal companies fell significantly because of temporary problems, while the long term outlook stayed constant, then it's a BUY to me.

 

[Bhujo]

Thanks dan, I appreciate your explanation. ...very clear.

 

[IFocus]

So CQO for example, I bought at $2.50 since they were trading maybe 35% below NTA and they announced an orderly windup of their US assets. They claimed they would be able to sell at their previous asset valuations (at market value). Some selling has occurred and now they have moved up to $3.60 after just a few months. I think the SP movement is because of this action, but I could be wrong.

Impressive Dan the trend since is as good as it gets hope you have many more

.

 

[danbradster]

Impressive Dan the trend since is as good as it gets hope you have many more.

That's even one that I recommended to my mum. One of few shares that has held up in the past month. When I check again, it was a buy in November for $2.60, but still good.

I didn't put too much money into it since I thought it would take a year to reach $3.50, but it happened in just months. I have too many options where to put my money, I feel strongly about too many companies, and then tax stops me from moving my money around too much.

Some of my favourites right now are ALB, KCN, OGC, PBP (when they have good news), PLA, and RFG. RFG is the only one I would recommend to my mother, but possibly OGC... Definitely DYOR!