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Printable version |
From: | "G Stolwyk" <stolwyk@wave.co.nz> |
Date: | Mon, 2 Jul 2001 00:26:26 +1200 |
Readers,
Please refer to the Disclaimer at the beginning of
my post of June 28, 2001, time 22.24 hours: " LEARNING TO INVEST....(1) ".
The second article was written on June 30, 2001, 21.05 hrs.Today's final article will refer
to content of these two previous ones.
Cont:
( A major reason is that the " long term holding
strategy " prevents me from placing
investments into international markets at a reasonable
speed ).
Peter Maiden recommends: " Against the Gods "
by Peter L. Bernstein, 394 pages, ISBN 0471295639. Below $
51.
This book discusses the transformation of primeval
superstition into the powerful tools of risk control employed today.
The book mentions that the overall
volatility ( risk ) associated with investments in a number of
countries can often be lower than that of the
participating country with
the lowest volatility!
6. Selection of
stocks. Weighting of cash allocation to each stock.
6.1 Selection of
stocks.
Please refer to " WORK. AT THE COAL FACE -
Investment results (7) of June 22, 21.06 hrs.
Items 1 and 2 refer to NZ and Australian
stocks. Diversification was good. Selection of two debt collecting
stocks in a large and booming market was in hindsight, marginally
justified.
All these stocks had been trading for a
number of years with the
excepton of CLH and LACO: The first
stock was listed @ $ A 1.37 on the first day of
trading ( Oct. 2000 ), while
LACO opened @ $ A 1.20
on Jan. 2000.
We bought
CLH @ $ 1.73 on Nov. 18, 2000 and it now
sells for $ 5.27. We bought LACO for $
2.38 on Nov. 4, 2000 and it rose to $ 4.60. Due to a less active
economy and a cash issue, the price retreated but is now steady @
$ 3.00.
These two stocks were deemed to be some of the
strongest in Australia and conformed to the requirements set out in item ( 4 ) of my
previous post!
Some of the reasons, these stocks
were selected and the outcomes of :
BCH: Exellent Board and
management; high market share and a defensive stock. Priced by the
International market: High P/E.
SKC: Excellent Board and
management; high market share and a high div. yield coupled with a
very low share price. Performer!
WAM: Good Board and management,
a good market share and strategic location of land fills. Has expanded into
other areas but has since encountered more competition. I think that the closure
of competing landfills starting in 2002, will produce benefits.
AIA: Excellent Board and
management; strategic and monopolist position, a
property company with prospective tenants waiting to be
selected. Rising land values and rents! Additional profits from Airport
activities. A solid performer!
AFF: Was thought of as a recovery
stock and due for a strong rerating. Did not perform and is not
recommended.
TAB: Excellent Board and
management; a growth stock and a cash cow. The NSW government has since
passed adverse legislation and the completion of a large contract being
done for this government has been delayed. Sofar, a promising overseas venture
has only started but no news since. If it were successful then the shares could
rise by 30%. Would now prefer other stocks.
QBE: Top Board and
management; at the start of a new insurance cycle, rapid but measured expansion
in England, US. I am rating this stock higher than what the price
suggests.
CLH: Excellent Board and very
experienced management; a very nimble company working in the defensive debt
sector. Pricewise, would select this stock rather than BCH.
First annual announcement in August.
LACO: An option
stock, was heavily underpriced. The company LAC is a
duopoly. At present it has about $A 300 mill. cash waiting on results
of rail tenders. The economy has affected activities at the ports but it has a
powerfull position. I think that at some stage, Toll Holdings could be
interested in this stock as it would give them a seamless operation to the
ports.
Summary: I consider a
high quality Board and management, their status as an operator and
prospects first! Only then, the accounts will be looked
into!
Transparent accounts, good cashftows as well as the
number of shares on issue are among items of interest. I tend to
select Mid-cap companies but a heavily undervalued large one
won't go amiss either!
6.2 Weighting of cash allocation
to each
stock.
Normally, an investor cannot afford to buy
these nine stocks in a short time while also having investments
in other currencies.
As the investment grows, more stocks are
selected and the spreading of risk intensifies. I would at least have
some investments in Australia and overseas in
the meantime, and try to initially select only the top three
stocks in NZ.( It will be difficult to find more high quality stocks!
).
Say, I had $ NZ 50,000 and arising from item ( 5 ), 40%
or $ NZ 20,000 or say $ A 16,000 is allocated to
Australia.
I have
rated # the above mentioned stocks as follows:
TAB * *, QBE* * *, CLH* * *, LACO* * * *. Total *:
12.
TAB gets 2/12
of $ A 16000= $ 2667; QBE: $ 4000; CLH
gets $4000; LACO: 5333. The shares will be
bought on that basis. An investor may decide to allocate $ 3000 to
TAB and reduce the allocation to LACO by
that amount.
# Rating stocks is a subjective exercise and
requires some skill. One could assign a rating to the more
important criteria e.g. a high undervaluation, monopoly status,
expected high growth levels and then use these ratings to obtain an
overall rating for that particular stock.( No need to assign a rating to a Board
and management as only excellent Boards and managements will be
invested in ).
Notes: The Focus Investing
Group ( FIG ) subjects each stock to certain
tests. My subjective weighting of cash allocations is based on the
probability of greater ( Growth + Div ) returns, when
comparing companies and making these investments within a short
time frame.
Readers know that I recommended LACO
from day 1 and therefore had the right to accord * *
* * to this stock. I also supported CLH
and that deserved * * *. It so happens that in
hindsight, CLH should have had * * * *and
LACO needed * * * only. But we can't predict
the future!
Warning: Allocation of cash based on rating
of stocks can be a dangerous exercise and too much cash in any stock will
increase the risk. Even experienced investors have lost large sums due to
unexpected or sudden events !!!!
7. Other.
Investors may allocate a
certain amount of cash to a stock and, based
on excellent honest reports, decide to increase the
rating of a stock and hence increase their
investment.
Others may use the " START "
system as outlined in item ( 3
)- of my June 28 post: if the system
allows, more companies or trusts in different countries can be invested in
at the same time on an installment basis, and risks may be reduced;
the investor should always have such a system costed before
proceeding!
Gerry
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