Actually , my decision process is just all about my book reading's digest, my decision process is simply as 3 steps:
what to buy / when to buy / how to buy
1.What to buy ?
Here're some financial figures I 'd like to compare with in times I considering what company to buy .....
a.Net Cash / Debt Level
It shows me how strong of a company to weather a crisis or financial storm.
b.Free Cash Level
It shows me how profitable is a company and how capable of a company to pay out dividends or capital to expend its future business.
c.Management's Efficiency
I learned from the book 「Five Rules for successful stock investment」a simple formula as this :
ROE = Net Earnings / ShareHolers Equity
= <Turnover / Total Asset> x <Total Asset / Equity> x <Net Earnings / Turnover>
It's such a simple formula but very useful in interpreting a company's efficiency.....
<Turnover / Total Asset>
It shows how good a management to control the capital investment so as well to get the maximum output.
<Total Asset / Equity>
It shows me the financial leverage level of a company , reasonable leverage can boost the business but sometimes results in more vulnerable to cope with a crisis. The more debt a company carries the higher the Asset amount and higher the leverage level, I believe company with long term debt more than 2yrs earning is too risky.
<Net Earnings / Turnover>
It shows the profit margin of the business a company is doing, more or less showing the competitive edge the company's product or serviceis selling in the market.
d.Avoiding Management Disaster
After finished reading the book 「Common stock Uncommon profit」,I've learned that management quality is quite a critical factor for a profitable company.
<Management's remunernation>
Management receiving above average remuneration shall always deliver above average performance , otherwise it is only a private party where intelligent investors shall stay away.
<Main Shareholder vs Top Management>
A company is more accountable to have not the main share holder as the CEO or Chairman in a company , main share holder as CEO always results as the company's sole blunders maker.
2.When to Buy ? how to buy ?
It is no question every investor want to buy at cheap and sell at peak. But how to buy at cheap? I think there is no definite answer.
However, there're a few market benchmarks I can refer so as getting closer to a cheaper price.
- Stock P/E & Market general P/E
I refer to the company's historical low and peak P/E for 3-5 yrs, wait and start to buy in at 5 yrs's lowest P/E level.
- Dividend Yield
I also refer to the historical low and peak Yield % for 3-5 yrs, wait and start to buy in at 5 yrs's highest yield level.
- 10 Yrs US bond yield & market interest rate
I always refer to the US 10 yrs bond rate as an macro indicator which direction is the market capital flowing.
So when the market is blooming , the bond rate is increasing as the return from common stock market is more attractive than the bond yield.
And vice versa , when the market crash is intensifying , the capital retreat to US bond and decreasing the bond yield.
So, 10 yrs US bond yield historical low is around 3%-3.5% , which I think is very close to the bottom of crash.
- Market Sentiments
A very popular motto from Buffett : Bad news is the investor's best friend.
So in a market crash , bad news always enlarge the amplitude of price diving , which I believe is the best time to buy.
But of course , it's time costing , it could take quite awhile until the value of company get realised in the next bully market .
- Average costing
In some post-crash occasion , the market entering into a prolonged and highly choppy period which is hardly to set best price to buy in, I prefer to use average costing .
So start from the level I think is low enough , split into portions, buy in at every 10%-15% drop until capital run dried.
So, these're the ways I choose what company & when to buy in, which is quietly reflecting when my portfolio is building up.
It may not return good results but it merits improving my knowledge to interpret a company in a more deeply and systemic way , sharing each other investing experience is fun as well as live-enhancing.
Enjoy & thanks again
Wilson
what to buy / when to buy / how to buy
1.What to buy ?
Here're some financial figures I 'd like to compare with in times I considering what company to buy .....
a.Net Cash / Debt Level
It shows me how strong of a company to weather a crisis or financial storm.
b.Free Cash Level
It shows me how profitable is a company and how capable of a company to pay out dividends or capital to expend its future business.
c.Management's Efficiency
I learned from the book 「Five Rules for successful stock investment」a simple formula as this :
ROE = Net Earnings / ShareHolers Equity
= <Turnover / Total Asset> x <Total Asset / Equity> x <Net Earnings / Turnover>
It's such a simple formula but very useful in interpreting a company's efficiency.....
<Turnover / Total Asset>
It shows how good a management to control the capital investment so as well to get the maximum output.
<Total Asset / Equity>
It shows me the financial leverage level of a company , reasonable leverage can boost the business but sometimes results in more vulnerable to cope with a crisis. The more debt a company carries the higher the Asset amount and higher the leverage level, I believe company with long term debt more than 2yrs earning is too risky.
<Net Earnings / Turnover>
It shows the profit margin of the business a company is doing, more or less showing the competitive edge the company's product or serviceis selling in the market.
d.Avoiding Management Disaster
After finished reading the book 「Common stock Uncommon profit」,I've learned that management quality is quite a critical factor for a profitable company.
<Management's remunernation>
Management receiving above average remuneration shall always deliver above average performance , otherwise it is only a private party where intelligent investors shall stay away.
<Main Shareholder vs Top Management>
A company is more accountable to have not the main share holder as the CEO or Chairman in a company , main share holder as CEO always results as the company's sole blunders maker.
2.When to Buy ? how to buy ?
It is no question every investor want to buy at cheap and sell at peak. But how to buy at cheap? I think there is no definite answer.
However, there're a few market benchmarks I can refer so as getting closer to a cheaper price.
- Stock P/E & Market general P/E
I refer to the company's historical low and peak P/E for 3-5 yrs, wait and start to buy in at 5 yrs's lowest P/E level.
- Dividend Yield
I also refer to the historical low and peak Yield % for 3-5 yrs, wait and start to buy in at 5 yrs's highest yield level.
- 10 Yrs US bond yield & market interest rate
I always refer to the US 10 yrs bond rate as an macro indicator which direction is the market capital flowing.
So when the market is blooming , the bond rate is increasing as the return from common stock market is more attractive than the bond yield.
And vice versa , when the market crash is intensifying , the capital retreat to US bond and decreasing the bond yield.
So, 10 yrs US bond yield historical low is around 3%-3.5% , which I think is very close to the bottom of crash.
- Market Sentiments
A very popular motto from Buffett : Bad news is the investor's best friend.
So in a market crash , bad news always enlarge the amplitude of price diving , which I believe is the best time to buy.
But of course , it's time costing , it could take quite awhile until the value of company get realised in the next bully market .
- Average costing
In some post-crash occasion , the market entering into a prolonged and highly choppy period which is hardly to set best price to buy in, I prefer to use average costing .
So start from the level I think is low enough , split into portions, buy in at every 10%-15% drop until capital run dried.
So, these're the ways I choose what company & when to buy in, which is quietly reflecting when my portfolio is building up.
It may not return good results but it merits improving my knowledge to interpret a company in a more deeply and systemic way , sharing each other investing experience is fun as well as live-enhancing.
Enjoy & thanks again
Wilson
