iValueInvesting https://ivalueinvesting.com Find the Best Stocks in the World Fri, 22 Dec 2017 11:50:54 +0000 en-US hourly 1 Announcing My Book Project https://ivalueinvesting.com/announcing-my-book-project/ https://ivalueinvesting.com/announcing-my-book-project/#respond Fri, 22 Dec 2017 06:55:38 +0000 https://ivalueinvesting.com/?p=32008 Announcing My Book Project

When you tell people you write a blog, it’s often only a matter of time before they ask, “Would you ever write a book?” Everyone’s got a book in them, supposedly. But there’s a big difference between thinking that you’d love to write a book someday, and actually writing one.

I’ve toyed with a few book ideas in the past, but each time I couldn’t decide on a niche that hadn’t already been covered. I only want to write a book if I’m offering some value to my readers. I decided that I would do it as soon as I found the right niche content to write about.

Part of the reason I started blogging is because of a Ron Kaufman seminar I attended. First he asked us to hold our hand up if we ever dreamed of writing a book. Almost everyone in the audience raised their hand. Then he asked us to keep our hand up if we:

  1. Have ever written an article, guide or report (a few hands came down)
  2. Have a regular writing habit (lots of hands came down)
  3. Have already written the first chapter of our book (most hands were down by now)
  4. Have published our first book and have started a second book (only 1 hand in hundreds stayed up, and it was Ron’s)

With this simple exercise he highlighted the difference between:

  • The number of people who dream of writing a book, and
  • The number of people who actually do something about it

His advice that day was to find a way to write regularly, and if you keep it up you’ll eventually publish a book. This is one of the reasons why I started a blog. Apart from enjoying writing in general, I wanted the practice.

I’m happy to announce that I’ve found the niche content I’d like to write a book about. I’ve found some books by great investors in non-English languages, and I’d like to write a book in English about their strategy. There are many fascinating and successful investors in other countries. But often they are only written or talked about in their own language in their own country. I’d like to change this, and bring the knowledge to people who prefer to read in English.

I’m starting with German investors. In the future I’d like to cover successful investors and strategies from other countries, but Germany is the most logical starting point for me.

I’m aiming to have my first book published by the end of 2018, detailing the strategies of successful German fund managers. So stay posted for more news about this over the coming year.

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How to Refresh Your Writing https://ivalueinvesting.com/how-to-refresh-your-writing/ https://ivalueinvesting.com/how-to-refresh-your-writing/#respond Mon, 16 Oct 2017 11:07:31 +0000 https://ivalueinvesting.com/?p=31644 How to Refresh Your Writing

I try to share what I learn, when I think others will find it useful. After deciding to completely refresh this blog, I had to first learn how someone changes their approach to writing and publishing in general. After many fruitless searches on Google, I found the best results after instead searching ‘how to refresh your writing.’ Here’s what I’ve learned…

 

Start with the place you write

It’s hard to do good work in a place that is working against you. A few simple changes can make a big difference. For example:

  • Sit near a window for natural daylight. If it doesn’t open, find another way to get fresh air into your space.
  • Soft background music can help stimulate imagination and creativity.
  • Some other tips are on The Write Life.

 

Change it up

  • If your routine feels stale, try going to different places or writing about a different topic.

 

Improve your reading quality

  • If you’ve filled your head with low-quality articles from tabloids and social media, it’s hard to then think and write in a higher-quality way. Cut that stuff from your reading list.
  • Choose a regular input that helps you to create a better output. A haiku or poem per day, or reading more of the classics regularly, helps you to think better and then write better. You need those examples of good writing, not examples of bad writing.

 

Use checks for pointers and improvements

  • It’s great if you have a writing coach, tutor, or class. If not, try an online service or app like the Hemingway App to check your style and suggest improvements.

 

Commit to ongoing improvement

  • I’ve written in other posts about writing skills books (here). Find a learning method that works for you. It doesn’t matter if it’s books, videos, online courses, classes, or whatever. Use whatever suits your learning style and try to always improve.

 

***

In addition to the general writing on this blog, I also need to think about the overall content and direction. Starting from now, I will revisit every post I wrote before 2017 and decide if it’s still relevant. I’ll then either re-write it or delete it.

It doesn’t always have to be about investing, but it’s good to keep it at least 80% business related. Let me know in the comments or on social media if there’s something you’d like to see covered.

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My Investment Foundations Certificate Experience https://ivalueinvesting.com/investment-foundations-certificate/ https://ivalueinvesting.com/investment-foundations-certificate/#respond Sun, 25 Jun 2017 13:02:08 +0000 https://ivalueinvesting.com/?p=28434 I love lifelong learning and I always want to keep learning something new, for as long as I live.

One of the downsides of being an ambitious learner, is sometimes biting off more than you can chew. This happened to me when I signed up for the full CFA program. I was working a full-time job and working part-time on iValueInvesting as a small business start-up. But I thought I could also make the time for studying for the CFA Charter, while still having a social life and enjoying some hobbies. I was wrong. It all turned out to be too much and I couldn’t balance everything. Something had to give, and I decided that the CFA charter could wait.

But I knew I wanted to keep learning in some way. So at the end of last year I signed up for the CFA Investment Foundations Certificate. This is effectively an introduction to the CFA syllabus. It still covers the program, but without the full depth of the charter and Level 1-3 exams. There is an exam for the certificate, but it’s a simpler one lasting 2 hours.

Here’s the current syllabus:

  1. Industry overview
  2. Ethics and regulation
  3. Inputs and tools
  4. Investment instruments
  5. Industry structure
  6. Serving client needs
  7. Industry controls

As I studied, I realized that this was exactly what I needed. I’ve been focusing so much on stocks that I’ve neglected learning about the investment services industry as a whole. This course makes you think about the entire industry, everyone in it, and how it’s all connected.

The exam is multiple-choice. You don’t need to perform any complex calculations. This was a huge relief for me, as I did a BSc in Finance at University and I’ve often felt tired of math.

In conclusion, I’m 100% happy that I studied for this, completed the exam and got the certificate. I can heartily recommend it to anyone considering it. I don’t get payment of any kind from the CFA Institute for saying that, so it’s a free recommendation. If you were thinking about an investing course and looking for one, this is the one I recommend.

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The Great Brexit Hoax https://ivalueinvesting.com/great-brexit-hoax/ https://ivalueinvesting.com/great-brexit-hoax/#respond Sun, 23 Apr 2017 12:14:37 +0000 https://ivalueinvesting.com/?p=28414 The Great Brexit Hoax

After the 2008-2009 financial crisis, some people in the UK thought that it couldn’t get that bad again. They were wrong. London is learning the hard way that tough times can return sooner than anyone thought. I mean that sympathetically, as I lived in London for 4 years and still have friends there. More and more, it’s becoming obvious that the promises of the Leave Campaign were part of a tragic Brexit hoax.

When the UK voted to leave the EU, which I wrote about last year, a new downward momentum kicked in which London is feeling the brunt of. The UK as a whole is still doing ok, but it hasn’t actually left the EU yet.

The Leave Campaign said it would be the beginning of a new era of prosperity and glory. That was a pile of crap. Almost everything they said was a lie. For example, the voters are still waiting for the £350 Million extra per week for the National Health Service that they were promised.

With the UK economy in general, whatever happens first in London tends to happen to the rest of the UK later. London is a kind of economic front-runner for the UK in that way. So taking a closer look at London should tell us what will happen to the rest of the country later. Let’s look first at the property situation.

London and UK Property / Brexit Hoax

Average London property prices are around the same level as 2009, according to Bloomberg and the Royal Institution of Chartered Surveyors. This means that many people who bought a property when prices were at an all-time low, are actually no better off now. They’ve been paying a mortgage for about 8 years, but can only sell the house for about what they paid for it.

Ouch!

The jobs front doesn’t look any better. It’s only a matter of time before several thousands of financial services jobs move abroad. But where to? There isn’t any one city which could handle a mass migration of finance jobs, so probably those jobs will be split up among:

  • Amsterdam
  • Dublin
  • Frankfurt
  • Luxembourg
  • Madrid
  • Paris

I don’t mean to be a Negative Nelly here, so let’s look at the bright side too. I stand by what I wrote last year and for the outlook for 2017, when I said that there would be opportunities too. Some individual British companies can still do well and can still be a good stock investment. The new lows in property prices could be an opportunity as well.

Not all the UK needs to suffer because of the Brexit hoax. Northern Ireland’s economy is tightly integrated with the Republic of Ireland’s economy. The Irish Republic is the most pro-EU country in Europe, and it will definitely continue to be a member. As long the rest of Ireland is doing ok, Northern Ireland can do ok too.

And as an expat who’s worked around the world, I encourage UK job-seekers to consider looking for job openings in other countries. I know from my own experience how much it can broaden your mind when you live and work abroad. It changes your entire outlook on life and the world.

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The Balanced Optimist’s Guide to 2017 https://ivalueinvesting.com/balanced-optimists-guide-2017/ https://ivalueinvesting.com/balanced-optimists-guide-2017/#respond Thu, 29 Dec 2016 07:19:26 +0000 https://ivalueinvesting.com/?p=3727 The Balanced Optimist’s Guide to 2017

What exactly is a balanced optimist? It’s someone who tends to be optimistic, but knows that bad things can happen and prepares for it. This is me, and this is my balanced optimists guide to 2017 and onwards.

Every year, Bloomberg publishes a Pessimist’s Guide to the coming year. When you look at it in retrospect (2015 here and 2016 here), you see that a few of the pessimist predictions came true. For example, Britain leaving the EU. But most of the pessimistic predictions didn’t come through. It’s the same every year. Things are never as bad as expected. The end of the world never comes.

Here are some examples of long-term trends in the world:

This is what we can expect to continue into the future. There’s a lot to be optimistic about. But let’s be balanced and realistic too. 2017 and onwards won’t be all good. Taking the Pessimist’s 2017 View into consideration, at least a couple of these things will probably happen, or some variation of them:

  • Russia will try to continue, and extend, it’s strategy of having frozen conflicts on Russian borders, as a way of controlling those borders.
  • The Brexit process will go badly, and the UK economy as a whole will suffer.
  • North Korea will have more military tests. Trump will need China’s help with North Korea, and his anti-China stance will be reversed.

As investors, this most likely means the following:

  • Russia is still a highly risky place to invest in, and probably will remain so for some time.
  • The UK as a whole is not as attractive as it used to be. But some individual companies can still do ok.
  • China is still important and will continue to be important to the world and to global economies. It still has great potential as an investment.

The advancement of human civilization is like a stock chart. There is a long series of ups and downs, but overall more up than down. The S&P Global 1200 index is a good symbol of this. Here is the most recent 5 years:

S&P Global 1200

For the world as a whole, 2016 was a rough year. But the overall trend is up. This is what we can expect over time, no matter what the news says.

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GuruFocus 21 Questions Interview https://ivalueinvesting.com/gurufocus-21-questions-interview/ https://ivalueinvesting.com/gurufocus-21-questions-interview/#respond Tue, 22 Nov 2016 13:16:24 +0000 https://ivalueinvesting.com/?p=3473 I was recently interviewed by PJ Pahygiannis for the GuruFocus 21 Questions format. You can see the original text at this link. I’m re-posting here for our own blog followers.

***

1. How and why did you get started investing? What is your background?

Some of my mentors from my younger life were investors, so I wanted to know more about it. I was attracted to the idea of passive income so I started trying to learn as much about investing as I could. I was using the Dublin City public library a lot, and I set myself the goal of reading every investing book that the library had on the shelves. That was how I discovered ‘The Intelligent Investor’ by Benjamin Graham. It was one of the books that I found while trying to complete this goal.

2. Describe your investing strategy and portfolio organization. Where do you get your investing ideas?

I focus on value for money, getting a decent company at a good price. I tend to go for companies where I already know about their product or service, or where I’d at least be happy to use their product or service myself. I use a screener to help me find new companies that I’m not already familiar with.

I do believe in geographical and industrial diversification. I don’t hold only stocks from a single country or industry, because if that country or industry has severe problems, then my entire portfolio would have severe problems. So I always want to have stocks from a few different countries and industries in my portfolio. But not necessarily countries that are close together, because their economies are often tightly integrated (e.g., Ireland and the U.K.).

Right now I hold American and European stocks, and I’m looking for interesting choices in Asia.

3. What drew you to that specific strategy?

My experience working in different countries and industries. I saw how any country in the world can have problems, and whole industries have their ups and downs. Apart from my native Ireland, I’ve also worked in Japan, Dubai, England and now Germany. I’ve also worked in different sectors during that time so I know that there’s good and bad in any area of the economy that can be invested in.

4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? Which investors do you follow today?

Apart from ‘The Intelligent Investor’ by Ben Graham, I also like ‘John Neff on Investing’ and ‘The Dhandho Investor’ by Mohnish Pabrai. I don’t follow any single investor extremely closely, not even Warren Buffett. That’s because I know that they have particular goals and reasons why they make certain moves, which may be very different from my own goals and reasons. I try to learn from the most successful investors, but I don’t try to copy them. The risk with that is that you end up copying their mistakes as well.

Right now I’m following The Investors Podcast by Preston Pysh and Stig Brodersen, and I’m finding it really valuable and educational.

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

I don’t have a set time line. I hold it as long as it’s growing. I’ll usually get a feeling shortly after buying a stock whether I’ve done the right or wrong thing. I’m quick to sell if I develop any bad feeling about it, but I’m happy to hold it indefinitely if I keep feeling good about it. Right now I have stocks which I’ve held for several years, and I’m happy to find stocks I can hold that long.

6. How has your investing approach changed over the years?

I started with purely financial information and ratios. I still look closely at those, but now I also try to get a gut feeling for a company. I started out thinking pure rationality was the key, but now I believe that an element of emotional intelligence is also important.

7. Name some of the things that you do or believe that other investors do not.

My focus on international diversification is probably much stronger than many other investors. I’m surprised how many people only invest in their own country. That’s understandable if that person is American or from another major economy. But it makes no sense for someone who’s from a small country. Also I believe that studying languages and cultures (which are intertwined) helps you to understand the world better. Right now, I’m studying German, Spanish, Russian and Japanese. I’m the only investor I know who wants to become a polyglot. There are probably others out there, but I don’t know them.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies?

From an investing point of view, I deliberately try to avoid holding any company up as a good example. I know that any company can turn bad if the wrong management is there. The same goes for brands and CEOs. I think as a society we have the tendency to put people and brands up on a pedestal, but that’s unhealthy. We must always retain our skepticism and take a balanced view.

A major factor for me in judging a “well-run company” is how good they are at keeping control of costs. That’s the one thing that all businesses have in common; their costs can spiral out of control if they don’t stay diligent.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?

I’ve just built my own screener as part of the package I’m offering at ivalueinvesting.com. I’m still building out the other areas, but the screener is finished now.

Checking the news every so often can help me to find opportunities. When there is some negative news about a company, and people are talking about “worst-case scenario,” that’s when I know there might be an excellent opportunity for value investors like me.

Also, I subscribe to newsletters from other investors. Some of them are happy to share ideas for free, and I’m happy to hear them. In the future I’ll try to find a good forum for sharing ideas.

10. Name some of the traits that a company must have for you to invest in it, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.

Everything is relative to price. Whether the company pays a dividend or not doesn’t affect my decision. I currently hold both dividend-paying and non-dividend-paying companies.

I look for mis-pricing first. Temporary unpopularity is a good sign of opportunity. If a company has a good history but is currently going through a rough period, there’s an opportunity to get in at a lower price and enjoy the returns when the company does better again.

I don’t always look for the same things (apart from an attractive price). I deliberately try to experiment and try different angles. I consider this experimentation part of my investing education.

A bad investment is any company that’s at a historical high. There’s a much greater chance of it going down than up. I don’t really believe in such a thing as an “ideal company” so I can’t comment on that.

11. What kind of checklist do you use when investing? Do you have a specific approach, structure, process that you use?

I’m still working on developing my own checklist. I’ll always try to get a basic understanding of the company first before deciding if it’s worth delving in. If the price is attractive, I’ll take a look at the compound annual growth rate (CAGR) for a few items. If that looks interesting, then I’ll go to the balance sheet, then the income statement, then the cash flow statement.

I’m not into technical analysis, but I will look at a basic price chart for at least a few years to see what the price history is like. I’m looking for a historical low here.

I’ll also do a news search to see what’s going on with that company, and the country and industry that it’s in.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

I’ve tried out different sources of information, but having my own ideas is what led me to build the tools I’m developing on ivalueinvesting.com. I’ve subscribed to a professional data feed and I’m using that as the basis for the screener and other areas I’m adding. I look at the financials first, then I start to look for qualitative things like talking to people who use their products or services. I’m not a huge believer in talking to management unless they are also owners. I’d rather talk to owners of the stock than the people who are trained to speak publicly in a certain way about the company.

13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock?

Valuation seems more like an art than a science to me. I’ve tested out different valuation methods, but I don’t see that any single method is superior or better than all other methods. In particular, it’s very hard to value banks and other financial services firms.

In the end I usually come back to the price-earnings (P/E) and PEG ratios. Although I’m mostly a value investor, I do look at growth so the PEG ratio is a useful addition there. I guess I’d roughly say I’m about 80% value and 20% growth investor. Valuation only covers the current situation, not the potential growth, so some qualitative information needs to be added to the valuation (at least for me).

14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?

There are always bargains in nearly every market. There’s a certain German bank which is at a historical low at the moment. I’m looking for that point of maximum pessimism before I buy in.

I don’t have a favorite sector, but I avoid the airline industry. I’m also very careful about the automotive sector. I’ve bought stock in a car manufacturer before, but the whole automotive sector is vulnerable to recessions. It’s the opposite of recession-proof, so I’m very careful about investing there.

Discount sellers tend to do well in recessions so I’m happy to invest in these types of companies, if the price is good.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

I don’t see the market as a whole being overvalued. But there are many overvalued technology companies. My concern would be a future tech bubble. Apart from that, there’s always the risk of contagion if a bank needs to be bailed out. Nobody wants a run on a bank.

16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

I’m reading ‘The Most Important Thing’ by Howard Marks now. I’ve just gotten ‘The Emotionally Intelligent Investor’ by Ravee Mehta delivered by Amazon so I’m looking forward to that.

Out of all the books I’ve read put together, the most important lesson is that there isn’t one single “right way” to approach any of this. Each person needs to find their own path in investing, based on their own needs and experiences. Rules, checklists and principles are good, but they have to be your own.

One thing I’ve meant to do for awhile is to create a playlist on YouTube where I review investing books. I’ve done the introduction, but I haven’t recorded the reviews yet, but I’ll try to get those online before the end of the year.

17. Any advice to new value investors? What should they know and what habits should they develop before they start?

Learn as much as possible. Be humble about your level of knowledge (the more you learn, the more you realize how much you don’t know). And be  patient. Out of all the attributes, patience is probably one of the most helpful.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?

I really like The Investors Podcast by Preston Pysh and Stig Brodersen.

As far as tools go, well, I want to avoid sounding like I’m marketing myself too much here, but I am building my own tools based on my own ideas. I was originally testing and developing data tools for my own use, but I thought others might be interested in them. That’s why I decided to offer them on my website. They’re not fully available to the public just yet, but people can sign up to be notified when they are.

If people like the tools I built for my own personal investing, great.

I don’t piggyback or coattail other investors, based on what I said earlier about everyone having different goals and needs. Also, because you risk piggybacking their mistakes too. If I follow my own path, I’ll still make mistakes, but at least they’re my own mistakes.

19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments? What did you learn and how do you avoid those mistakes today?

My main mistake was not starting sooner. I wanted to test my judgment before I used real money, so I had a virtual portfolio when I first started. However, when my picks did well, I realized that I’d missed out on the gains. Although there was no real money involved, in my mind I had actually lost money because I’d missed out on the opportunity.

I made one bad judgment investing in an automotive company awhile back. I had a bad gut feeling immediately after I bought the shares, but I let the financial analysis I’d done override that. This was how I learned to always listen to my gut feeling immediately after the purchase. If I’d sold those shares straight away, I’d have been better off. I’d only have paid the commission. I ended up paying the commission to sell later anyway, but after the stock had gone down and I’d lost money on it.

Apart from that, I can’t really name three worst investments, as I’ve generally done OK.

20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

By not listening to the news or common opinion. If people are freaking out, and the news commentators are trying to create drama, I switch it off. Instead I come back to the financial analysis and remember to be calm and patient. We’re all only human, of course, so it’s easier said than done.

But I find it immensely helpful to get away somewhere, even if it’s just a walk in the woods or a day trip to a new place. Any kind of exercise is wonderful for clearing the mind and getting rid of stress. Recently I’ve also been learning about meditation. I’ve tried it on and off, but I’d like to be more consistent.

21. If you’d like to share, how have the last five to 10 years been for you investingwise?

Good. I’m better off financially for it. I’m happy that I got into stock investing and bought my first shares. It was a big jump from the index trackers and money market funds which I’d used before that, but I’m really happy with my decision.

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WordCamp Bucharest 2016 https://ivalueinvesting.com/wordcamp-bucharest-2016/ https://ivalueinvesting.com/wordcamp-bucharest-2016/#respond Sun, 23 Oct 2016 15:48:51 +0000 https://ivalueinvesting.com/?p=3067 While attending WordCamp Bucharest I took time to enjoy some tourist attractions in the city. The communist/capitalist contrast was fascinating, and I took this photo as an example of it. The building in the background is the former Communist headquarters. In the foreground is the base for the city marathon, which happened to be on while I was there.

Major capitalist corporations sponsored the marathon for the advertising. And I was there as a ‘western’ visitor, attending a web development meetup for my business. I have to wonder what the original communist leaders would think if they could see how things had turned out in the long-run. They’d probably turn in their graves.

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Some highlights from the camp are:

How I Met Your WordPress by Ivana Ćirković. She tells her story of how she started as a blogger and loved WordPress so much that she made it her career. This is similar to my own story. I discovered WordPress when I wanted to start a simple blog about investing. Today I’ve turned it into a small online start-up and I’m happy to make it a big part of my career going forward.

Turning a SaaS into a WordPress Plugin by Alexandra Draghici. If you have form-building needs, but it must be integrated in your website, there’s a new up-and-comer in the game. Have a look at Captain Form and see if it’ll solve your needs.

Speedcraft, or Making Sites Fast by Pedro Dobrescu. He gave lots of tips which I’ll want to apply to this site. I’d love to give everyone who visits this site a fast browsing experience, and will keep working on it to make it as good as possible. According to PingDom, iValueInvesting is faster than 92% of all websites tested, so we’re already decent.

Easy WordPress Optimization by Alexandru Linca. This was helpful and he recommended some tools which I’ve started using. I’ll monitor this site with these and always try to improve the user experience.

Change Your Theme But Keep Your Business by Milan Ivanovic. This highlighted some of the difficulties in changing or rebuilding a site which is already online, and has active users who need it to keep working while you’re changing it. Definitely a technical challenge and it takes real skill to do it well.

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This was my first time attending a local WordCamp. Until now I’ve only gone to the All-Europe versions, which change city every year (see my posts about Seville/Spain here and Sofia/Bulgaria here). I found this smaller one to be friendlier in a way that a larger conference can’t be. I’m sure I’ll keep going to them, but after this really positive experience in Bucharest, I might stick with the smaller ones from now on. I’m already looking for one to attend in 2017. I’m sure you’ll see a post about it on this blog next year!

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How to Use a Stock Screener https://ivalueinvesting.com/how-to-use-a-stock-screener/ https://ivalueinvesting.com/how-to-use-a-stock-screener/#respond Sun, 31 Jul 2016 19:48:12 +0000 https://ivalueinvesting.com/?p=2719 There are thousands of companies on the public markets. So the natural starting point for stock investors is usually a stock screener.

It boils down to finding companies that meet whatever criteria you are looking for. Although using a screener is easy, it poses two risks to the unwary investor:

  1. Including companies which aren’t what they appear to be
  2. Excluding companies by mistake

Here are some popular screening factors, their risks, and solutions…

Country and Sector

This is a normal starting point. But it can also trip you up. Before narrowing down the data with these options, ask yourself why are you using them? Say for example that you think the South Korean economy has great potential. So you choose Korea as a filter in a screener and it gives you a list of companies registered in Korea.

This leads to the 2 risks mentioned because:

  1. A company registered in one country isn’t necessarily getting most of its business from that country. It might only be registered there because of tax considerations. Or maybe it was founded there but now gets its business from somewhere else.
  2. A company might be registered in a different country, but getting its business from the country you’re interested in. In this example, it might be registered in Japan but generating 80% of sales from Korea.

Either way, you are not necessarily looking at companies which are benefiting from the economy you are interested in.

This can also be a problem when screening by sector. A company isn’t always listed with the sector classification that you’d expect.

Solution: Consider searching through ‘groups’ of countries and sectors. Or use other criteria first, and then come back to country and sector when you’re down to a handful of choices.

Financial Statements

Looking for current financial statements is popular with fundamental investors. Some technical analysts consider these too.

The downside is that this method doesn’t account for the possibility of re-statements. Sometimes, firms big and small need to issue an adjustment to historic statements. Even Berkshire Hathaway has had to do this. The way the two risks apply in this case is:

  1. Including companies now, which won’t meet the criteria after the adjustment has been published
  2. Excluding companies which would’ve met the criteria, if you’d run the search after the adjustment

Also, many screeners will only apply the criteria to the most recent year. The company may have met your criteria for a few years before that, and maybe for the coming years. But you risk ignoring it because its most recent performance didn’t meet exactly what you’re looking for.

Solution: Instead of just looking at the most recent performance, review at least 5 years of data. Be prepared to give a 2nd look at companies which you’ve previously disqualified.

Forecasts

I’m not a fan of forecasting. Sometimes it is necessary though, so that a company can try to plan ahead. If you screen on forecasts, you risk:

  1. Including companies which have misleadingly optimistic forecasts
  2. Excluding companies with pessimistic forecasts (maybe they’re just being cautious)

Solution: Search for the companies historic forecasts and see how they’ve turned out. Do they have a history of not delivering on rosy promises? Or do they always talk down their future earnings and still do well anyway?

Price Metrics

This is an interesting area. The price is updated daily, with the occasional delay to an extra day or two. So you know you’re dealing with the most up-to-date data. Although normally used by technical analysts, fundamental analysts sometimes look at price charts. The question becomes, “How fair is the price? Is it high or low, relative to the intrinsic value of the company?”

I won’t try to cover valuation in a single blog post. But when it comes to screeners it’s good to always remember how far popular sentiment can push a stock.

Solution: Check recent news coverage about the company and sector. If there is a lot of negative press, public pessimism might be punishing the stock price unfairly. If there is a lot of positive press, public optimism might be raising the stock price unjustifiably.

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Taking into consideration the limitations, a screener is still a great place to start. It narrows down the thousands of investment-grade stocks in the world to a number small enough to manage. With 5 to 10 companies to look at (instead of 5,000 to 10,000), you can spend your valuable time examining only the kinds of stocks you want.

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How to Take Advantage of Brexit https://ivalueinvesting.com/take-advantage-brexit/ https://ivalueinvesting.com/take-advantage-brexit/#respond Sun, 26 Jun 2016 13:20:31 +0000 https://ivalueinvesting.com/?p=2622 Brexit is not the end of Britain or Europe. Neither is disintegrating. Not now, and not in the future. A lot of what is being reported in the media right now, cannot be relied upon. Remember that all news is biased. In the long-run, both Britain and Europe will still be strong and prosperous parts of the world. The short-run will be more difficult. That provides opportunities for rational investors to take advantage of.

When we look at financial history, we see the same thing. People react to political uncertainty with panic and irrational action. We already see the results of this in the fall of the British markets and the tumbling pound. This is bad news for people who were heavily invested in British companies beforehand. But it’s good news for people looking for new investment opportunities.

This overreaction means that British companies are now much cheaper. Because of this, large powerhouses can now look to acquire entire companies. In fact, individual investors can get double benefits. This is because they can:

  1. Invest in an undervalued company now and reap the benefits later, when the markets calm down. Then…
  2. Get even more benefits when a large non-British company swoops in for an acquisition.

There are opportunities for local British investors. But foreign investors are in an even better position. This is because of the fall in the pound. Anyone who uses another currency can now buy much more with their Euro, Dollar, Yen (or whatever else), than they could have before.

It’s also worth taking a look at property angle in this case. Although there hasn’t been an immediate reaction in the UK property market, we could start to see a decline over the coming months. This means that property-related stocks could become interesting to fundamental value and growth investors.

Only time will tell how this all turns out. But we have seen enough financial history to know that being the calm in the storm is the most profitable way to act.

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Leveling Up Our Website Security https://ivalueinvesting.com/leveling-up-our-website-security/ https://ivalueinvesting.com/leveling-up-our-website-security/#respond Mon, 15 Feb 2016 20:29:56 +0000 https://ivalueinvesting.com/?p=1933 Following up on an important post about our website security, we’ve now chosen an SSL Certificate provider, Comodo. This will make our website even more secure, and will help to protect our website members. Shortly we’ll write about why we’re developing this site into a membership platform, but adding SSL is an important preparation for that.

What is SSL?

SSL (Secure Sockets Layer) encrypts communication between a person using a site and the web server. It protects against electronic eavesdroppers.

When is SSL important?

Anytime you are transmitting personal data over the internet, SSL is a useful security layer. Although there isn’t much risk to the website, there is risk to the individual using the website. Someone who eavesdrops on you using public wifi (e.g. coffee shop or hotel), can see what you type into non-SSL sites, so the risk depends on what kind of information you are sharing.

The most obvious risk is someone getting your username and password for an online membership or account. How risky this is depends on what information you store in that profile or account.

What kind of data needs protection?

It depends on your own privacy needs, but passwords are an obvious example. Especially important is credit card or banking data. If a website uses an external payment gateway, in-built SSL isn’t necessary, but it’s still helpful to protect passwords and other personal details.

Is it really necessary?

Although it isn’t strictly required for websites that aren’t processing credit cards directly, this extra security helps the users have more peace of mind. It shows them that the administrators are doing what they can to give the users a safe and pleasant online experience.

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Soon we’ll share a longer post about the membership platform we’re building. We have more preparation to do first, and we’re aiming to provide a truly excellent membership experience. In the meantime, please forgive any interruptions to your experience in using our site, while the technical parts are being built out.

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