Stock study techniques ... thanks Mike

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Peculiar_Investor
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Stock study techniques ... thanks Mike

Post by Peculiar_Investor »

I've hinted and probably posted some mentions of this framework that has served me well. The story starts way back when (look at the timestamp) ...
yielder wrote: 26 Feb 2005 08:54
A good recent example is ROC.
In follow up to my comments on ROC, this might be helpful. I made a lot of statements about ROC. They were based on a spreadsheet-based quantitative analysis that I apply to all stocks that I own/want to own. I also do a qualitative analysis if the stock passes the quant analysis.

This spreadsheet is a direct steal from the concepts advanced by the NAIC and the CSA. This is the framework within which I buy stocks. Some less than obvious, perhaps, aspects of the spreadsheet. It needs at least five years worth of data to crunch so I don't look at new issues and rarely at stocks with less than five years of history unless the prospectus has pro-forma data that I feel comfortable using. The formulas used include a CAR add-in which doesn't like negative growth rates so stocks with that characteristic usually get excluded.

This spreadsheet or the NAIC/CSA commercial tools impose give me a framework that forces me to be disciplined and consistent with my cherry-picking.

Mike
I've used this framework for many years since I first learned it from yielder (Mike). It was probably one of the main reasons I started visiting this site. If I hunted around through some old computer backups I might still have the underlying spreadsheets that he provided. Unfortunately many of yielder's links are long dead. But the technique and other toolsets live on.

NAIC has become BetterInvesting - Non-profit Investment Education. BetterInvesting subsidiary ICLUBcentral's Toolkit 6 is the leading product for advanced fundamental stock study. For those interested, on the linked page you can download a free demo of the software. I've been using Toolkit 6 and ICLUBcentral's data sources for a many years, the annual cost is well worth the value that I receive.

So why dredge up this fascinating history? I thought it might provide some background on a framework that can be used to analyze stocks and have some discussion about fundamental analysis of a number of stocks that are being discussed on FWF.

Going forward it is my intention to post a number of Stock Studies that I've completed with the rationale for my estimate choices as a basis for further discussion for those who might be interested in this framework.

This specific topic could be used to discuss the mechanics, flaws, etc. of the framework.
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Re: Stock study techniques ... thanks Mike

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Analytics are useful but so much of the market is emotion driven or driven by mergers or lawsuits.
I do not crunch numbers,I look at trends,Bitcoin could be a home run, do not understand it,Nestles is Swiss and sells food, that I understand.
Interest Rates are the rocket fuel driving an overheated market, number crunching will not help when the rates climb and profits decline.
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Re: Stock study techniques ... thanks Mike

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Vaper wrote: 22 Nov 2017 12:17 Analytics are useful but so much of the market is emotion driven or driven by mergers or lawsuits.
I do not crunch numbers,I look at trends,Bitcoin could be a home run, do not understand it,Nestles is Swiss and sells food, that I understand.
Interest Rates are the rocket fuel driving an overheated market, number crunching will not help when the rates climb and profits decline.
I beg to differ. I've been doing this about 30 years and having a framework to analyze companies has served me very well over a number of business and market cycles. I'm buying parts of businesses and holding them for long periods, i.e. investing. As I recently posted in another topic, I'm a follower of the foundation provided by Ben Graham who began his classic book, The Intelligent Investor, in Chapter 1 with
Ben Graham wrote:An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
My username isn't Peculiar_Speculator. :lol:
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Re: Stock study techniques ... thanks Mike

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Peculiar_Investor wrote: 22 Nov 2017 19:29
I beg to differ. I've been doing this about 30 years and having a framework to analyze companies has served me very well over a number of business and market cycles. I'm buying parts of businesses and holding them for long periods, i.e. investing. As I recently posted in another topic, I'm a follower of the foundation provided by Ben Graham who began his classic book, The Intelligent Investor, in Chapter 1 with
Ben Graham wrote:An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.
My username isn't Peculiar_Speculator. :lol:
What is your overall portfolio return over x time periods in relation to the market?
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Re: Stock study techniques ... thanks Mike

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Vaper wrote: 22 Nov 2017 12:17... I do not crunch numbers,I look at trends,Bitcoin could be a home run, do not understand it...
I'm not familiar with this company, which exchange(s) are their shares listed on?
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Re: Stock study techniques ... thanks Mike

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Vaper wrote: 22 Nov 2017 12:17 Analytics are useful but so much of the market is emotion driven or driven by mergers or lawsuits.
I do not crunch numbers,I look at trends,Bitcoin could be a home run, do not understand it,Nestles is Swiss and sells food, that I understand.
Interest Rates are the rocket fuel driving an overheated market, number crunching will not help when the rates climb and profits decline.
Over the short term you might be right over the long term numbers count.
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Re: Stock study techniques ... thanks Mike

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I probably learned the most from yielder & scomac early on. Gummy too (still use about 8 of his spreadsheets monthly)
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Re: Stock study techniques ... thanks Mike

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brad911 wrote: 22 Nov 2017 20:53I probably learned the most from yielder & scomac early on. Gummy too (still use about 8 of his spreadsheets monthly)
:thumbsup:
A Gummy spreadsheet also runs the Predictions Contest. He is having a good life, mostly using his talents to document various trips in pictures.
For the fun of it...Keith
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Re: Stock study techniques ... thanks Mike

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nisser wrote: 22 Nov 2017 20:10 What is your overall portfolio return over x time periods in relation to the market?
Fair question because if you don't measure results how do you verify that the technique/framework is providing value and meeting its objective.

I must admit I've only done sporadic calculations of returns vs. benchmark based on our asset allocation. I'm thinking that this might be a worthwhile topic of separate discussion, but I'll take a shot at answering the question.

For awhile (I've got the 1999-2010 records) I did annual comparisons but found them somewhat lacking as I've also found longer term (3 yr or 5 yr) compounded annual returns probably better measure results. My results show that I was indeed beating my benchmark, although not every year, which is what I'd expect.

I was pulling my reports from Quicken, but there were legacy issues in my Quicken investments setup related to CAD and USD investments that were making the data and reports hard to maintain. Since 2001 I've kept a simple tally in my main investing workbook of the annual and rolling 3 year compounded returns and I'm comfortable with our returns vs. our benchmark.

I've since dabbled with longinvest's Investment Performance Spreadsheet, but I haven't taken the time/effort to re-enter 30 or so years of data to gain a comprehensive result. Since I only review results with my spouse periodically, there hasn't been a need for detailed, rigourous data reporting.

Another part of the challenge has been that our investment policy statement has driven a reduction in equity allocation over the years. Approximately every five years we reduce equities by 5% and move the allocation into fixed income. I'll freely admit that I haven't taken the time to learn the mechanics of how to reflect the changing asset allocation into the calculation of benchmark results.

At the end of the day, markets exist because not all investors value things in the same manner. For every buyer who believes their investment will appreciate in value and provide a positive total return, there must be a corresponding seller who is exiting the position. Since FWF is about investor education, I felt it would be worthwhile to share the framework of my technique as a reference to other stock specific postings I plan to make when analyzing individual stocks.

This approach is partially driven by what I see in the "What did you buy" and "What did you sell" topics where some/many members post what they did without providing much detail on why they made the transaction. As I periodically posted, what you did provides some information, but why you did it is far more educational to others and the raison d'être for FWF IMHO.
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Re: Stock study techniques ... thanks Mike

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I used to focus on ROE . The problem with this measure is companies who use debt to obtain high ROE. Valeant is a good example. ROC eliminates most of this of type of companies. High ROC companies reveal management which are excellent at deploying capital. I know Buffett is renowned as a value investor. Truth is he modified his approach once he partnered with Charlie Munger. If it was your own private business wouldn't a ROC of 18% year over year be superior to one with a ROC of 5%? In fact Buffett prefers companies who can gain a high return of capital over those companies who pay dividends or buy back shares. With the latter it is a sign that management is unable to find solid growth by redeploying excess capital.
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Re: Stock study techniques ... thanks Mike

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Peculiar_Investor wrote: 23 Nov 2017 08:49 This approach is partially driven by what I see in the "What did you buy" and "What did you sell" topics where some/many members post what they did without providing much detail on why they made the transaction. As I periodically posted, what you did provides some information, but why you did it is far more educational to others and the raison d'être for FWF IMHO.
:thumbsup: I really only pay attention to the posts that post 'the thought process' behind the buy or sell, and while I don't jump on similar actions, the reasons 'why' challenge my own thinking on a particular asset or methodology or strategy.
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Re: Stock study techniques ... thanks Mike

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Peculiar_Investor wrote: 23 Nov 2017 08:49I'll freely admit that I haven't taken the time to learn the mechanics of how to reflect the changing asset allocation into the calculation of benchmark results.
Just benchmark the equities. Most people don't care about the cash and bonds.
Since FWF is about investor education, I felt it would be worthwhile to share the framework of my technique as a reference to other stock specific postings I plan to make when analyzing individual stocks.
People will pay more attention to you if you post your returns. But only if your returns are 10 or 20% better than the benchmark most years. :wink:
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Re: Stock study techniques ... thanks Mike

Post by Peculiar_Investor »

Quoting from another topic to prevent topic drift,
unskinnybop99 wrote: 17 Dec 2021 14:06 Which valuation metrics do you use? How do you determine if a stock is a solid buy/sell?
From the first post,
Peculiar_Investor wrote: 21 Nov 2017 10:19 I've hinted and probably posted some mentions of this framework that has served me well.
I will leave it as exercise to the reader to go back through the topic to see the valuation techniques and metrics that I have been using.

I continue to use them for existing holdings only because I'm very much in the process of Starting over because When it comes to investing, there are four free lunches which everyone should take advantage of.
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