Finance Learning - Show Me The Money Volume I - part 2

11. Correlation is Key To Reducing Risks
Correlations have risen. Correlations higher during crisis.

12. Peter Lynch's Secret : Hard Work, Research
Mr Lynch : 'To make money, you must find something that nobody else knows, or do something that others won't do because they have rigid mindsets.'
Mr Lynch is the legendery Fidelity Magelian Fund manager.

His techniques : Lots of research. Besides his basic talent, Lynch's edge was simply his enormous dedication. He visited 40 to 50 companies a month. During lunch, he was always talking to a company. And he read the numerous reports that landed on his desk every day.

He emphasised the value of personal knowledge, which can be as simple as noticing that a company provides a superior product or service.

Lynch's second advantage was his flexibility. He was not confined to any particular sector, any particular investment style or any particular geographical location. Bought into funeral homes, motels, auto parts suppliers, insurnace companies, airlines.

Asking the competition
One of Lynch's preferred devices is to ask the companies he was interviewing about their rivals. The other steel companies he interviewed prasied Nucor. Lynch looked into it and bought the stock.

Insider buying
Lynch carefully watched when corporate insiders bought their own stocks. An insider, he noted, might sell his company's stocks for many reasons. But they have only one reason to buy : to make money.

Growth
For lynch, growth is a cardinal virtue in a company, and growth stocks are the largest single category in his portfolio.

hitting it big - while the key objective o the investor should be to avoid a major loss, the occassional huge winner will offset a number of small losses.

One of the worst traps is to buy exciting companies that do not have earnings. These are the 'sizzle, not the steak'.

13. The Big Question Behind NTA
When bugying stocks at a discount to NTA, it's important to assess what the firm's NTA consists of, that it's not over-stated, and that there are no contingent claims on the assets.

A company's NTA is its total assets minus intangible assets adn total liabilities. Technically, it's what would be left over for shareholders if the firm were to sell all its tangible assets at the prices recorded in its books and repay all its debts.

see NatSteel example.
see ipco example.

The intangible assets
The worth of a rofitable firm with a strong business model is not just the historical value of its assets.
One has to factor in the value it is able to generate as a going conern. Much of this value comes from intangible assets.

To recap, if you want to buy shares that trade below their NTA, be sure to assess what the NTA consists of and that it is not over-stated. Also, ascertain that there are no conintgent claims on the assets. Usually, counters that trade below their NTA are loss-makers or have unexciting prospects. Buy such stocks only if you think there is a possibility of a restructuring exercise that will realise the true NTA value.


14. Discounts to NTA : Not Quite A Sure-Win
56% of SGX companies are trading below their NTA, But this need not mean you get more value if you buy them.


26. Chartered Rights: The Facts And Myths

27. Some Stock Trading tips, But Only As A Guide
28. Does It Pay To Stick To Analysts' Call
29. How The Game Of Hot Stock Tips Is Played
30. Forget 2002, Live Life A Tad More In 2003