I just analyzed Q2 data, and the model stands. Its a good company, so buyable, and it is underpriced, so buy. There is, however, 1 red flag with OTEX: massive deferred tax showing up in Q1 and Q2. I dont think it is a problem for now, but I will keep you updated.
This stock went down like a bunny rabbit after posting Q4 and full 2016 results. I just redid the numbers in my excel, and its not a good company anymore. Something went wrong in Q4! Notably, owner’s earnings are going down. Hence, we dont care about the price: its a bad company now, and get rid of it.
Its been a week or more since I have posted something, and that is because I was travelling to Senegal, which is a fabulous country by the way.
Since then, several of my stocks have posted Q4 earnings. All went up like a bunny rabbit, except Magna (MGA), so I need to check and update my excel calculations and post them here. If either they turned into a bad company, or they stayed a good company but the price target is down, I need to sell. But then, I am a bit lazy. There is nothing wrong with being lazy in investing, by the way, its one of Buffet’s mantra. “Sit on your butt and do nothing once you find a good stock“. I will update you boys and girls soon.
Anyway, I thought I will post here my top 5 books for the calculated value investor. I cant post my top 10, as honestly there is a lot of BS out there and I only would recommend these five.
This is a MUST READ. Its written in plain English, and helps you through the calculations – based on owner’s earnings and discounted cash flow. Its really the best book out there I think. The last part of the book deals with arbitrations, and that part should be skipped. But overall, a great great read, to the point and no nonsense.
This book, as thick as a bible, is basically the only authorized biography of Warren Buffett. Its dense, its detailed, and it reads like a train. The book will allow you to peek into the mindset of Warren. Did you know that when he was a young kid, he collected thrown away stubs of failed horses at horse racing events; ever so often a horse win was disqualified and he held the winning stubs? Warren’s hobby is literally collecting money – this book shows you how he did it. A truly mesmerizing read.
I liked reading this book, as it gave me several ideas. The minus is that it is borderline evangelistic and patronizing, and obviously full of BS. The first chapter, how he went rafting with a bunch of investors as a rafting instructor and almost died, and started investing with 1,000 bucks that became 1 million bucks in a couple of years….please dude. But the book is right on many points and teaches some valuable tricks, using quantitative examples. It also teaches you ‘intelligent’ momentum investing; probably true but I have since long abandoned it. Still, a worthy read.
Peter Lynch was managing director of the Fidelity Magellan Fund, the nation’s largest and most profitable stock mutual fund. Ever. And he wrote this book. Its honest, fun, a very easy read and wont teach you any formulas or tricks. What it does teach you is how you ‘can beat the street’ – he has done it and proven it, for decades! Its a fun read and uplifting. He keeps going on about 10-baggers. Great idea, but a lot of luck involved if you ask me. In any case, he knows when he sees a good stock, and sticks to it, unlike the market.
Number 5 in my must reads. This book is considered THE standard and first work ever to describe the concept of value investing, and is written by the prof that taught Warren Buffett. I will be honest; its highly valuable but a bit (a lot) outdated. Read it, study it, re-read it, and hopefully you get something out of it.
I got Johnson & Johnson (JNJ) in my portfolio for a long time. First, is it a good company? Yes it is! Unlike some of the other gems in my portfolio, this stock has a bit too much debt. Based on 2016 Q3 data, the stock is undervalued, but not overly so. JNJ released 2016 Q4 data some weeks back, but google is to lazy to update their financial page. Me too;) As soon as I have the 206 Q4 numbers, I can update. But for now:
Many people tell you to diversify your portfolio. I think you should have about 10 stocks that you are confident with following my method. Think about it: each of the 10 stocks is a good business AND cheap, and you buy it with a margin of safety, so that is extra protection. If 1, 2, 3 or even 4 of these stocks suddenly misbehaves (like in my case: GILD), its OK. The changes of it misbehaving are low, as with a margin of safety of 30-70%, you already buy it at a much cheaper price than it should be.
Overdiversification is just plain stupid. Lets take the example of EFTs. Why on Earth would you buy an EFT? You buy 100s, if not 1000s of stocks with it, both good, bad and plain ugly ones. Even more insane is buying EFTs that track a certain sector, say like ‘solar energy’. “He solar energy is going to boom in the next decades, so lets invest!” A solar energy EFT comprises all kinds of solar companies, from the bad to the good to the ugly. Just look for that 1 good company, and check the stock price. No need to buy them all and dilute your returns!
What bothers me the most is gold. “Yeah, lets buy gold, because if the stock prices go down, the gold will go up, and I am covered!” My point is, why buy stocks then in the first place, as you enter a zero-sum game by buying gold.
Bonds, I have to say is something different. I have bonds. They are very different from stocks, and unrelated to stocks (OK, they are a bit but lets not get technical). With bonds, you basically by debt. No risk (unless you bu junk bonds, which is plain stupid), and a fixed return.
MGA is a company I have in my pocket for quite some time. Its undervalued, growing. Mr Market thinks otherwise. No worries, I can wait. I if course every quarter update my prediction about price and see if the company is still good, which it is. Anyway, (1) is it a good company? YES -> HENCE, BUY! (2) At what price?
Apple. The biggest company in the world. Loathed, overpriced, reviled, admired…so what to take home? Dont look at the stories, look at the numbers. Its a cash machine, period. A great company with no debt. OK, it has debt, but that is because all of its cash is in Europe and it need to take out loans in the US to keep functioning. So the debt is not real debt – it sits on billions of cash. Anyway, its a great company, so ‘buy-able’. Now we got that out of the way, when to buy and when to sell?