tag:blogger.com,1999:blog-2991101600248617596.post6077344439196473966..comments2023-11-14T02:15:06.159-06:00Comments on Financial Alchemist: Book Review:Getting Started in Value Investing by Charles MizrahiTurley Mullerhttp://www.blogger.com/profile/01407515956935491747noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2991101600248617596.post-78728276988315454792007-12-10T02:36:00.000-06:002007-12-10T02:36:00.000-06:00Mizrahis book maybe indeed a good one but I prefer...Mizrahis book maybe indeed a good one but I prefer the master of all followers, Benjamin Graham and his Bible on investing. "The Intelligent Investor"<BR/><BR/>It is a must.<BR/><BR/>Cheers, DarrenShare Investorhttps://www.blogger.com/profile/02150520236094812434noreply@blogger.comtag:blogger.com,1999:blog-2991101600248617596.post-35938619355869716772007-11-20T16:31:00.000-06:002007-11-20T16:31:00.000-06:00John, Thanks for sharing the Graham quote. I don't...John, <BR/><BR/>Thanks for sharing the Graham quote. <BR/><BR/>I don't know that I completely agree with graham on momentum. Yes, there are instances where his prescription is appropriate, but there are instances where I think one should buy strength and se;; weakness. <BR/><BR/>Stocks that are going up tend to continue to go, and stocks that are falling usually continue to fall. Classical physicists referred to phenomenon as "Inertia" which underpins Newton's first Law of Motion. Essentially, it's what we know as momentum- requires more force to reverse direction of a moving object than it does to sustain it.<BR/><BR/>In the short run, generally stocks trend in a constant direction. <BR/><BR/>I also think one should never buy a stock on the way down nor sell on the way up. "Let your winners run and never catch a falling knife"<BR/><BR/>Trying to call tops and bottoms is a crap shoot, ie pure gamble. Yet, I would like to see a stock rebound with the technicals firming up and some sort of external catalyst before I jump in. <BR/><BR/>Giving up a few points from buying after price bottoms and returns upwards, is much more favorable than giving up a ton of points from buying a stock in freefall yet to find support.<BR/><BR/>I believe if there is a major downward revision in expectations, it's likely to result in a value trap. <BR/><BR/>I think what you look for, at least, what I try to do is find stocks unfairly punished by shifts in expectations which actually doesn't affect that specific company. That way, it's not a guessing game if the expectations are too pessimistic and the reaction in the share price is overdone. If that company doesn't have any exposure to whatever factor the market is worried about, then- there is no need to worry about it.<BR/><BR/>CHK Energy last year was nearly 100% hedged on nat gas, locking in close to $10. NG had fallen from the teens down to $5-8 range causing investors to jump out of nat-gas stocks. Plummeting gas prices hit most all producers EPS, yet CHK was only slightly effected, and has beaten estimates the past 20 qtrs by avg of 15%.<BR/><BR/>It's interesting, CHK was trading @ $30 and below when it was fully hedged and growing earnings.<BR/> <BR/>Recently the share price topped $40, and currently trading just below that. However, CHK is not nearly as hedged as they were a couple years ago. Futures curve has flattened out and CHK NG selling price has decline resulting in earnings to fall. Yet the stock price is higher. Intriguing how the Market works. <BR/><BR/>I remember Cramer recommending CHK about two years ago or so, saying that he is predicting NG prices to bottom and then rebound sharply, thus he said buy CHK because it's a pure play on NG and they stand to benefit from rising NG prices. <BR/><BR/>Uh, No, not at that time, they would have lost money on the hedge. Cramer was wrong about CHK and wrong about direction of NG. I think CHK ended up having over a billion $ hedge gain. <BR/><BR/>http://financial-alchemist.blogspot.com/2007/07/chesapeake-energy-follow-smart-money.html<BR/><BR/>CHK is an example how the market sometimes focuses on less relative issues for a specific stock due to generalizing across the whole industry. <BR/><BR/>Another Example is when CVS sold off after WAG's EPS miss,fearing an industry-wide problem, but actually WAG had mis-budgeting and spent to much on overhead costs. MGMT screw-up, and CVS subsequently recovered and has continues to move higher.<BR/><BR/>http://financial-alchemist.blogspot.com/2007/10/walgreen-company-wag-reasonably-valued.html<BR/><BR/>Now, buying in on WAG sell-off thinking it was overdone, would not have yielded much profit thus far. This stock appears to have found a range just off its lows. I assume the market is still unsure about WAG's future. My point is that WAG deserved skepticism, while CVS really didn't, and making a bet that the Market on WAG was much more risky than CVS.Turley Mullerhttps://www.blogger.com/profile/01407515956935491747noreply@blogger.comtag:blogger.com,1999:blog-2991101600248617596.post-46482368457197934792007-11-20T14:28:00.000-06:002007-11-20T14:28:00.000-06:00About not chasing momemtum Graham had this to say,...About not chasing momemtum Graham had this to say, <BR/><BR/>“Never buy a stock immediately after a substantial rise or sell one immediately attar a substantial drop.”<BR/><BR/>The wisdom of what he says has more merit on the upside, personally, I advocate cutting bait and running when there is a huge downside shift in expectations. <BR/><BR/>Selling on a sudden downshift in expectations is consistent with Grahams primciple that "The mkt is a pendulum that forever swings between unsustainable optimism and unjustified pessimism"john bougearelhttps://www.blogger.com/profile/16599891472147461756noreply@blogger.comtag:blogger.com,1999:blog-2991101600248617596.post-36275419314700777142007-11-20T10:27:00.000-06:002007-11-20T10:27:00.000-06:00I agree with the fact that companies are often che...I agree with the fact that companies are often cheap for a reason and a low P/B doesn't indicate value.<BR/><BR/>The book is not about buying stocks with low P/B multiples are necessarily low P/E's either. It's not a value approach in that sense. Rather not a "deep" value approach, but rather buying the strongest companies when the market is pessimistic. Think about the returns from buying on the day after 9/11 when the market reopened. <BR/><BR/>The recommends buying large-cap stocks that have a long historical record that is consistent and predictable. You look for companies with high profitability and asset investment efficiency.(ROA). Then evaluate the competitive position and determine if the firm has a moat to protect its margins and growth, Essentially buying the blue-chip names at times when they are out of favor. And buy stocks you would hold for at least 5 years preferable 10-20. <BR/><BR/>It's a simple approach, but the book can teach one how to invest successfully. Granted, the returns won't be huge, but they will be decent. <BR/><BR/>Personally, I use many approaches, and growth and momentum is a great strategy.<BR/><BR/>But I think the author's point is not to chase momentum, because unless one is a very knowledgeable investor as well as involved daily, they will probably end up doing more harm than good. Stick to what you know and don't make mistakes by investing in things you don't understand. And have patience. It's a good read.Turley Mullerhttps://www.blogger.com/profile/01407515956935491747noreply@blogger.comtag:blogger.com,1999:blog-2991101600248617596.post-36765370802942055182007-11-20T09:41:00.000-06:002007-11-20T09:41:00.000-06:00That was a good Buffett quote, Buffett was referri...That was a good Buffett quote, Buffett was referring to the momentum and growth investors to buy higher highs when he mentioned that in Grahams book the Intelligent Investor.<BR/><BR/>Unfortunately, it is fallacious to claim a book on value investing will teach investors all they need to know to invest successfully, That is just plain wrongheaded and ignorant. <BR/><BR/>There are still considerable risks to value investing value investors do not always discuss. First, there is always a reason a company trades near book value or less, something has distressed it. <BR/><BR/>Many of these companies are highly stressed, in fact and only end up being a value trap for investors. Only a few of these distressed companies merit investment consideration.john bougearelhttps://www.blogger.com/profile/16599891472147461756noreply@blogger.com