Sunday, 26 October 2014

Top Five Best Investment Books...

This list of top five investment books may not be listed in the order you may want to start your  reading, but I would start off with the Riches Man in Babylon.

Tap Dancing to Work - Carol Loomis

Common Stocks and Uncommon Profits - Phillip Fisher

The Most Important Thing - Howard Marks

The Richest Man in Babylon - George Clason

The Intelligent Investor - Ben Graham                                 

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Sunday, 19 October 2014

Top four investment decisions that lead to gifts that keep on giving...

There is a lesson or two that investors can learn from the ant world. The ant and human being are the only two creatures on earth that raise a farm and move around with that farm. There is a symbiotic, or should I say, a reciprocating relationship between the ants and the mealy bug. Mealy bugs produce honey dew from its rear that provides sustenance for the ant to supplement its other food supply. The honey dew is akin to the dividend payment of a company that it distributes over the life of its existence. In a similar way, the mealy bug produces honey dew over the life of its existence, but it is better able to do so successfully with the aid of the ant community.

The ant community provides the protective moat that defends the mealy bug in exchange for the honey dew produced by the mealy bug and also protect it from its natural predator the ladybeettle. The ant community enjoys the benefits derived from the mealy bug and so they protect the mealy bug at all cost. The mealy bug is capital to the ant community and the loss of this capital will mean no honey dew to supplement the ant food supply.
 Ant Farming Mealy Bug videos:

 As an investor, loss of capital can cause serious damage to your portfolio holding. Your investment strategy must have some protective defense mechanism to cope with and prevent this loss of capital in the same way as the ant to their mealy bug.

 A margin of safety is a good protective defense mechanism to mitigate downside fluctuation. In addition to the margin of safety, a gradual concentration of an asset acquisition when buying is desirable, since market volatility and price fluctuation will deliver the benefit of acquiring more of the said asset at lower prices. The lower price paid will result in reduction in per unit cost hence bringing down the average cost per unit on the total investment. Price fluctuation is a feature of all markets and a lower cost will always have some impact on return on capital. The need to protect capital cannot be overstated. Rich people do two things well i.e. make wealth and keep it. It is as simple as that.. I cannot recall ever seeing a 1 800 LOSS OF CAPITAL hotline anywhere. It may take a long time for you to recover from permanent loss of capital should you need counsel since there is no hotline waiting with someone on the other end for you to cry to.

So let us get to the top 
four (4) gifts;
1.    Buy Dividend Paying Asset 
2.    Buy Asset with Solid Economic Defense (MOAT)
3.    Buy Asset Class with Symbiotic/Reciprocal Relationship (Economic lattice) and
4.    Buy Asset you Fully Understand
The key in any investment strategy is to survive market conditions and prevent permanent loss of capital and so asset price and selection must have some framework or check list that allows for a rational buying decision. Allocating capital requires great care and a check list of "things to do" can be helpful to prevent permanent loss of capital.

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Tuesday, 7 October 2014

Value Investing as a strategy

About three months ago I wanted to share and teach a friend of mine the principle behind value investing. I took him through the entire process from:

1.     Identifying the company listed on the stock exchange
2.     Ensuring that I had the funds in my brokerage account 
3.     Placing a limit order (restricting the price from going above my bid offer)
  1. Waiting patiently for the trade to execute

I was not worried about paying a few extra cents and so I placed the offer for the stock at $1.36. Within short order the trade was executed. I was confident and comfortable with the purchase knowing that the stock was close to its 52 weeks low and near an all time low price.

I know the value of the stock was worth more than the price I paid based on the book value (about $1.45 billion to the amount of shares outstanding approximately 1 billion shares). In this case, I would be buying at price to book of ($1.36/$1.45 = .94). In this case I am buying $1 bill for .94 cents by my analysis.

Unlike Warren Buffett, in this case, I did not buy $1 for 50 cents, but I am working my way up to his standard. This would be like a fat elephant opportunity only that this elephant is fast moving.

Less than three months after my company acquisition, the stock was last traded at $1.62 when last I checked. That would make me a 19% return on my investment so far. But I am not selling just yet. Getting the stock is only part of the strategy.

I know that this company pays a healthy dividends annually, so I am waiting to get my share of the profit after they have done all the heavy lifting. I tell you what; this company could easily become a gift that keeps on

This brings me to the next point of the intrinsic value. I am expecting to receive dividend payments from this company of an average of .15 cents per year going into the future. So far this year they have paid .8 cents already and we are in October and I am expecting another dividend payment before the year is out. At .15 cents dividend per year I would be getting an 11% return on the investment by not doing anything. 

Lets say I keep this for awhile, how long would I have to wait before I get my money back while still holding my shares?

Is that a simple strategy or what?

Would you like to take look at the company for yourself?

General Accident Insurance Company of Jamaica

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Thursday, 2 October 2014

Top six investor's success skills

Are you a lucky or skillful investor?

Investing can be both luck and skills if you are to be a successful investor. But you must have some attributes that enable you to find that lucky spot that will allow you to exercise that skill. These attributes are:

Ability to exercise Patience - wait on the investment opportunity and gradually invest into the investment over a time period. This is akin to loading a shot gun and waiting, as you sit, for slow moving elephant passing by to make a few shots at it, going after the kill.

Ability to Recognize the right Price - when the price of the invest-able asset is right, move in for the kill and load up for a good meal.

Ability to Concentrate Capital Deployment - with a high degree of certainty on the intrinsic value of the investment and a good margin of safety on the investment class/asset intensifying your capital deployment should be preferred as oppose to diversification. Don't diversify your capital deployment merely for the sake of diversification. Doing so may satisfy diversification at the expense of making good return on capital deployed.

Research, Research, Research - spend your time investigating and researching an investment worth doing well. If an investment is not an excellent investment opportunity don't waste your time researching it. 

Ability to Identify Scale-able Investment Opportunity - An excellent investment opportunity is one that scales well into the future. It should have progressive scale in sales/revenue, scale in market share, and scale in demand.

Ability to Recognize a Defensible Barrier of Entry Business - a worthwhile investment is one with a solid market protection nestled around it and is more suited for a long term holding. That moat around a business with good market protection must be such that no amount of capital will threaten its economic existence unless acquired by another business at a premium price from you. 

At the end of the day if you exercise these attributes and practice them your luck and skills will matter. but not all that much.

Have a look at Warren Buffett's success formula:

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