Last week, on the weekly stock market updates for Week 10 (link),  I mentioned something about ALTR (Altera), if you recalled.

Here's the chart which I posted.

Yesterday, the range was still within the pennant pattern. (link)

Tonight, I was starring in front of my monitor for the entire 1st hour, and this is what I see ...

ALTR did indeed broke out from the Flag (triangle), and did managed to stay considerably strong above it for the entire 1st hour of trading.

I know I'm being itchy.

I know I'm being naughty.

This isn't the normal stuff that is within my realm of expertise, that I usually trade.

But, I just couldn't pass this up.

Maybe because of the fact that I have been sleeping, eating, dreaming, shitting, and peeing on ALTR for the past few years, that makes me having the urge of wanting to see this god damn thing breaking thru that marafaking $25 roof that has been there for the past 10 years !!!

And therefore, in order to prevent my urge from evolving into something else ..... bad ......  I decided to bit the bullet !

We shall see how this flag shall perform for the next couple of weeks to come.

Stay tune ......

Muarghhahahaahahahahah

^_^

===============================

tag : option, stock, market, trading, call, put, altr, pennant, flag

Stryker (Financial Metrics)

Industry : Medical Appliances And Equipment (link)

Business :
Stryker Corporation (the Company or Stryker) is one of the world’s leading medical technology companies with the most broadly based range of products in orthopaedics and a significant presence in other medical specialties. Stryker works with respected medical professionals to help people lead more active and more satisfying lives. The Company’s products include implants used in joint replacement, trauma, spinal and craniomaxillofacial surgeries; surgical equipment and surgical navigation systems, endoscopic and communications systems; patient handling and emergency medical equipment as well as other medical device products used in a variety of medical specialties. Stryker was incorporated in Michigan in 1946 as the successor company to a business founded in 1941 by Dr. Homer H. Stryker, a leading orthopaedic surgeon and the inventor of several orthopaedic products. The Company segregates its operations into two reportable business segments: Orthopaedic Implants and MedSurg Equipment. The Orthopaedic Implants segment sells orthopaedic reconstructive (hip and knee), trauma and spinal implant systems and other related products. The MedSurg Equipment segment sells surgical equipment and surgical navigation systems; endoscopic and communications systems; as well as patient handling and emergency medical equipment.

Economic Moat :

Installing most of these implantable devices into human bodies requires a vast amount of time/effort to be learned. It's a way of locking customers to their own brand once the customers (hospitals/physicians/surgeons) are used to one brand, because switching to another brand will be a painful process, and very costly in terms of time and sometimes money wise.

Growth :

Profitability :

• Free cash flow & Revenue has been growing steadily.
• Same goes to Net Income.
• Margins metrics & Financial Metrics are improving.
  

Financial Health :

Competitors :

Stryker has one main , strong competitor, Zimmer (ZMH), which has almost entire of it's product line overlapping with each other.

There are few other companies which falls within the same business field.
A few of those that are worth mentioning are listed below:-

• Zimmer (ZMH)
• St Jude (STJ)
• MedTronic (MDT)
• Becton Dickinson(BDX) (though not really a direct competitor, it does fall into the Medical Instruments Supplier industry too. Worth a check)

Summary :

• Very clean and straight forward financial statements.
• Nothing unusual or extraordinary in it.
• Love it !!
  

Intrinsic Value :

From the growth of the sales, I am estimating a consistent growth rate of 11%.

• Using the Discounted EPS method(link), here's the intrinsic value that we reached(link):-

• Using the Discounted Free Cash Flow Method(link), here's what we got(link):-

Interestingly, both method comes to an almost similar conclusion, which is, an intrinsic value of around $45 for Stryker.

• 7 Steps To Long Term Stock Investing Strategy
• My Long Term Investing Summary/Watchlist

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tag : fundamental, analysis, stock, market, investment, value, discounted, cash, flow, intrinsic, enterprise

Just watched Alice In Wonderland (link) last night.

Quite a nice and relaxing movie, I would say. Do watch it if you have the time. :)

Back to business.

SPY made a new high for the year yesterday.

In fact, SPY has been on 20 up days out of the past 25 days.

Which actually has brought the market to quite an extreme overbought region (not shown here).

The previous high made in early January, around $115.25 would be seen as it's immediate support.

If a retest to that level holds, and SPY bounce back, then there won't be any overhead resistance, and it looks like it's gonna be a very bright future for us for the next coming few weeks.

But if $115 level breaks, then the next support to look for would be at the $113 level, and things might get ping-pong around between the $113-$115 level.

 A broader view on the GOLD index.

Seems like the larger trend line (the blue trend line startsince Oct) has turned from support to resistance.

Looks to me like an inverted Head and Shoulder pattern (link) has emerged.

The green dotted dash line is the neck line of the inverted head and shoulder.

Seems like, Gold will be range bounded in the next few trading sessions, seeing price toggling between the neck line($1140) and its major support($1075).

Oil is seeing the same fate as in the SPY.

It's sitting right at it's previous top right now, hovering around the $82.50 level.

Do you see a Triple Top pattern (link)? Looks like one to me though.

If it comes back down, the $70 level will be the MAJOR support for oil.

Let's take a look at USD.

A few weeks ago, we talked about the $4 targetted price move from the Flag or Pennant pattern (link).

And ever since USD reached its targeted move around $80, it has been showing signs of range bounding between $79.50 and $81.50.

These levels has had a history sign of erratic indecisive price movement in Jun last year too.

Sooner or later, it has to break away from this range bound.

All we need to do is to monitor which direction is the breakout move, and trade with it. 

Talking about Flag and Pennants, this chart (ALTR) does seems like it's showing the same thing too.

Altera shows that it has found a base at around $21, ran straight up to $25.

And has been forming a tight, small flag (price congestion) at around $25.

If it breaks above this flag, and move higher, a price target of $29 looks pretty possible to me.

Hmmmm ................. This thing looks pretty tasty to me.

Fellow Alterians, what do you think? 

Sector : Medical Appliances & Equipment

Description :

• Health Care is one sector which is a necessity to every human being.
• People can live without iPhone, people can live without Coke,
  but in order stay healthy to enjoy those things, everyone needs
  medical attention.
• Here're few of the categories:-

Economic Moat :

Growth & Profitability :

Financial Health:

• Due to the fact that companies here have great pricing power, they too have high profit margins, mostly around mid teens or more (>15%).
• And because of that, most companies should have a decent amount of free cash flow pouring in every year.
• Which makes them somewhat a very good cash cow machine.
• And as such, there shouldn't be too much of a debt burden seen in companies here.
• but sometimes,taking debts are unavoidable in everyday business.
• So long as the debts are manageable, it should be fine.

Companies :
A few companies that are worth mentioning are listed below:-

• Zimmer (ZMH)
• Stryker (SYK)
• MedTronic (MDT)
• Becton Dickinson(BDX) (though not really a direct competitor, it does fall into the Medical Instruments Supplier industry too. Worth a check)
• St. Jude Medical (STJ)

• 7 Steps To Long Term Stock Investing Strategy
• My Long Term Investing Summary/Watchlist

========================

tag : fundamental, analysis, stock, market, investment, value

MedTronic (Financial Metrics)

Industry : Medical Appliances & Equipment

Business :
Medtronic, Inc. (MDT) is a global player in medical technology. The Company operates in seven segments that manufacture and sell device-based medical therapies:

• Cardiac Rhythm Disease Management,
  
• Spinal,
  
• CardioVascular,
  
• Neuromodulation,
  
• Diabetes, Surgical Technologies
  
• Physio-Control.

Through these seven segments, the Company develops, manufactures and markets its medical devices in more than 120 countries. Its primary products include those for cardiac rhythm disorders, cardiovascular disease, neurological disorders, spinal conditions and musculoskeletal trauma, urological and digestive disorders, diabetes, and ear, nose and throat conditions. The primary markets for products are the United States, Western Europe and Japan.

Economic Moat :

Installing most of these implantable devices into human bodies requires a vast amount of time/effort to be learned. It's a way of locking customers to their own brand once the customers (hospitals/physicians/surgeons) are used to one brand, because switching to another brand will be a painful process, and very costly in terms of time and sometimes money wise.

Growth :

Profitability :

• Free cash flow & Revenue has been growing steadily.
• But not the case with Net Income & Net profit margin.
• R&D spending has been consistent
• But SG&A expenses growth has been out pacing the Revenue.

Financial Health :

Competitors :
There are companies which falls within the same business field.
A few of those that are worth mentioning are listed below:-

• Zimmer (ZMH)
• Stryker (SYK)
• MedTronic (MDT)
• Becton Dickinson(BDX) (though not really a direct competitor, it does fall into the Medical Instruments Supplier industry too. Worth a check)

Summary :

• These are the Other Expenses in year 2009, which sums up to around $1.6Billion !!!! (Almost 73% of Net Income !)
• 
• 4 charges we made against MDT, (3 from J&J and the other one, i forgot already)
• Sales has not been growing Fast enough (9% for the past 5 years), compared to it's expenses growth in (12% for the past 5 years!)
• Company is currently spending on restructuring.
• but, there's so much a company can do in cost cutting. Themost important thing here is to focus on improving into top line (Revenue growth).
• I'm not very comfortable with the deteriorating numbers shown right now.
• Will still keep this company in my watchlist for future if it's condition improves.

Intrinsic Value :

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 tag : fundamental, analysis, stock, market, investment, value

I has been in the Aikido class for about 6 months now. 

Even since I've some serious knee injury (dislocation), I've stopped my Taekwando classes.

I personally find Aikido is the one most suitable for me, as it's concept of not fighting against strength, follow the flow of energy, and most of it's skills, which doesn't uses legs so much.

As my knowledge in Aikido grows, so does my curiosity.

And yesterday, I was feeding my curiosity with a whole bunch of videos from this awesome dude, call Master Wong.

I personally find it pretty awesome, and what a wonderful site that I practically spent almost the entire day going thru all his videos in youtube.

And here, I particularly has chosen those few videos that I personally has specific interest in. (if you are interested in the Entire list, here's the full list)

咏春拳修炼秘笈口诀

Basic Energy/Punch Drill

Basic Energy/Punch Drill  (variation)

Ok.

I guess that's enough for today. 

I really need time to practice these moves.

Until then, I'll post on the next sets of moves that I'll be practicing.  :)

• 咏春拳 on Baidu

==============================

tag: wing chun, martial art, self defence, health, 

Everyone sees it.

The SPY has broken up a very important resistance price level (111-112).

Noticed that,  every time price reaches the critical price level at $111-$112 junction, a lot of doji formed over that area.

Remember the meaning of Doji? 

It means indecision, which quite make sense, because everyone isn't pretty sure where will be the next direction be.

Will it bounce off from the resistance? Or break out straight away?

In this case (last week), it broke out from the 1st day.

Followed by a 3 days of indecision.

But the final blow came on Friday(yesterday), which truly sees that the bulls have gain control.

We will be seeing some sunlight(bullishness) in the following sessions. :)

Crude oil inching above slowly.

It looks like a bull flag to me at the congestion around 78-80.

If it manages to break above the overhead resistance at 84, a price target at $88 will be the level that we will be pay attention to.

Gold has broken out from it's downtrend resistance.

It retested it's support within a week, and rebounded back up successfully.

Seems like a new uptrend is on it's way.

The Dollar (USD) seems to be continuingon it's way up.

but seems like it has been facing with touch resistance at around the $81.30 price level.

The 1st one came from a long black candle, where price gapped up at $81.30, and then immediately fall back downwards.

A week after that, a few long up tail candles follow suit. Price touched the $81.30 level, and immediately shy from there.

$81.30 will be the important level for us to keep and eye on whether USD will be able to continue making progress upwards.

ALTR is facing a HUGE challenge right now.

$25 has been it's ULTIMATE challenge ever since the stock goes down below that level.

Since early last year, ALTR has been making breat progress, forming 2 ascending wedge.

Am I seeing correctly? We seems to already have a small sorta breakout from the ascending wedge.

Seem like the momentum is strong here.

Hopefully with the help from the bullishness of the overall market, this will help ALTR to get thru this long curse that hasn't been broken.

As most of the fundamentalist prefer using the Discounted Cash Flow in their Company valuation, I personally uses this particular method, which I call it, the Discounted EPS method.

Valuating a company's value is not an exact science.

As a person which is not from a financial background, I personally find the Discounted EPS method makes more sense to me, and thus, I just stick to this way.

Basically, the brief idea of the whole method is listed below:-

Easy to understand, right?

It really makes more sense to me.

To me, the money that I pay for the company (Buying price) is directly related to how much return rate I'm willing to accept.

If I'm willing to accept a lower rate of return, then the price of the stock can be anything higher.

But, if I want to earn a higher rate of return, then the company's stock price has to be at a very low price in order for me to achieve that.

Make sense?

Step 1 - Step 4 actually forecast where will the stock price be trading 10 years from now.

While Step 5 & Step 6 determines what price you should be buying this stock, assuming that you want to achieve the rate of return that you've determined, and that the stock will actually trade as your forecasted price after 10 years.

We do not really care what's the value of the company.

What matters most to us, is how much rate of return that we will be getting!

Let's go through a real case study, by using the same company as we've used for the DCF method, Apollo Group.

1. Estimated the future EPS growth rate.

Here's the Earnings Per Share for Apollo Group for the past 10 years.

Let's calculate the past 10 years annual compounded growth rate for APOL's EPS.

Using the compound calculator, we get that the annual compound growth rate for APOL's EPS is a whoooping 26% !

2. Calculate the estimated EPS in year 10 from now.

By using the same Compound calculator to calculate the future EPS, we get that the future year 10 estimated EPS for APOL will be at around $42.

3. Decide an average PE value.

A look into the average PE for APOL for the past 10 years ...



... and we can say that, the average PE for APOL for the past 10 years is somewhere around 30.

4. Calculate the estimated Share Price in year 10 from now.

Thus, getting an estimated share price for APOL in 10 years from now will be easy.

EPS x PE == Share Price

And that will be $1260.

5. Decide an annual return rate that you want to get from this investment.

For me, that will be a 15%.

6. Calculate the Company's Intrinsic Value by discounting the year 10 stock price back into present value.

Now, this is getting interesting.

We need to Discount the future 10 year's $1260 stock price back and reflect it's present value, so that we know what is the price that we should be buying this stock in order for us to achieve a 15% rate of return.

By using back the same compound calculator, we can the Present Value of $311.

7. The easy way out.

Now that's for you to understand the whole process of this method.

Once you are pretty familiar and comfortable with it, you can skip by all the pain of using the compound calculators, and dive straight into using the Discounted EPS Calculator that I've created.

Just plug in the correct numbers and values, and this is the final thing that you will get. :)

• Back To 7 Steps To Long Term Investing

======================================

tag : invest, stock, market, warren, buffett, value, growth, long, term, fundamental, analysis, discounted cash flow, dcf

Calculating the intrinsic value of the company will be the last step in our Stock Valuing Process.

There's definitely no reason for use to overpay for a company's stock no matter how good the prospect of the company may look.

And thus, we need a valuation method to calculate the Intrinsic Value of a company.

There are 2 methods which I'm aware of.
- The Discounted Cash Flow (DCF)
- The Discounted EPS (DESP)

As I'm someone which is from a non financial background, I personally find the DCF concept a bit hard to grasp. 

I personally uses the Discounted EPS  method, as I find it making more sense to me.

Anyway, you may use both, as I believe both of them should work well if you truely stick with realm of expertise.

I chose to share the DCF first because it's the one method that are most widelyly used in today's findamental analysis.

We are working on a 10 year FCF modal.

I know.

It is not easy, and pretty difficult to grasp.

The whole concept of this doesn't seem to be making a bit of sense at all. It happened to me too.

But once you continue practicing, the understand will grow deeper, and you will slowly see the story bit by bit.

Let's take a real case study from a company.

Let's take a look into Apollo Group's Financial Metrics. 

1. Forecast Next 10 years' FCF (using an estimated growth rate based on past FCF growth)

Here's the snapshot of the FCF for the past 10 years.


By using the compound calculator, we get an compound annual growth for the past 10 years as 26.15%.

By using an excel spreadsheet, we need to calculate for all the next 10 years estimated FCF that the company will be able to generate.

2. Discount these FCF to Present Value (using a discounted growth rate value)

By using an excel spreadsheet, we managed to calculate the FCF for each and every year, for the next 10 years that APOL will be generating.

We even discounted it back to their respective Present Value, based on a Discounted Rate of 15%.

Anyone that follows my blog knows that my goal for long term investing is to achieve a 15% compound annual growth, and that is why I chose the Discounted Rate of 15%.

Here's how it looks like
(the forecasted FCF is using an estimated growth rate of 26.15%, while the Discounted FCF is using a discounted rate of 15%)

3. Calculate the
Discounted Perpetuity Value (using a perpetuity growth rate)

where
g = perpetuity growth rate (3%)
R = Discounted rate (15%)

Plugging in the values, and this is what we get:-

Discount it back to Present value, with the 15% discounted rate (using the compound calculator again), and we get a Discounted Perpetuity Value = $14,598.

4. Calculate Total Equity Value (which can be also
briefly assumed as the Enterprise Value)

Now this is easy.

This will be the Enterprise Value of APOL.

If someone were want to acquire APOL right now, this will be the value that they at least have to come up with, to take over this company.

5. Calculate Per Share Value

Now, divide the Total Equity value by the Total Outstanding shares:-

$26,213 / 154.7 = $169

This will be the intrinsic value that we have reached, based on our 10 year modal Discounted Cash Flow on Apollo Group.

Well, APOL is currently trading at $50, which is like a 70% discount to it's Intrinsic Value (if all the number's we've plugged into our modal is what we truly believe in).

6. The Final Step

Was there a final step? I thought you said there were only 5 steps?

Well, you are right. :)

The previous 5 steps are just something that we need to understand how the entire DCF modal works.

Once you've understand how it works, we don't need to go thru the entire painful process every time we want to calculate the intrinsic value for a company.

Because I've come up with a Discounted Cash Flow Calculator.

^_^

• Back To 7 Steps To Long Term Investing

======================================

tag : invest, stock, market, warren, buffett, value, growth, long, term, fundamental, analysis, discounted cash flow, dcf

After looking at all the reasons for investing in a particular stocks (Step #1 - #4), we now look for reasons for NOT investing in a particular stock.

No matter how good the stock's industry is, 

No matter how wide the company's moat is,

No matter how good it's growth and profitability is,

If it is sick .... financially, there is no guarantee that it's gonna survive the next wave of influenza.

Ok. So how do I look at a company's financial health?

Basically, I look at a company's financial health the same way as I look at a normal person's balance sheet.

These are the 2 golden questions that you should be asking:-

• Is the company capable of paying of it's Short Term Interest(Installment) obligation?
• Is the company capable of paying back it's Long Term Debt?
  

Let's go through the above 2 points with a case study by looking into a balance sheet of a normal person, a working employee, an engineer, PinkPig, with a net saving of $2000 a month after deducting all basic expenses(food, accommodation, rental, etc)  and other loans (study loan etc).

Let's say, PinkPig just bought a new car, which cost $100k.

He puts up 10% as down payment ($10k), and took a $90k loan from the bank.

He needs to pay $1875/= as monthly installment to the bank.

So far, this is the information that we've got:-

Now, let's start drilling into PinkPig's financial health by asking the above 2 golden question, using these financial metrics:-

1. Long Term Debt Payback Time

This is basically a measure so that we get a feel of whether the company is REALLY capable of paying back all it's debt that it is owing the bank.

For PinkPig's case:-
- PinkPig owes the bank Long Term Debt of $90k.
- PinkPig's Annual Savings (EBIT) is $24k.

If PinkPig were to save up all his annual savings, how long will it take pinkpig to repay the total loan?

$90k / $24k, and we get around 3.75 years.

Anything which spans around 5 years or so is still an acceptable (and comfortable) number for me.

The key to this is just to have a feel whether the company is really capable of repaying back the Long Term Debts if they were to use up all it's Net Income into repaying their loans.

If you want to have a feel of what it looks like, take a look into Ford Motor's Financial Health here. 

In year 2009, Ford had a net income of $2 Billion.

You might say "WOW!!!"

Wait till you take a look at it's Long Term Debt .... which is standing at a whooping $133 Billion.

It takes Ford at least 66 freaking years to pay back it's Long Term Debt, by plowing back all it's net earnings into the bank.

And this is by assuming that Ford is capable of earning $2 Billion year in and year out, no matter what.

2. Times Interest Earned (Interest Coverage Ratio)

 (EBIT = Earnings Before Income-Tax)

PinkPig's Times Interest Earned(TIE) is
= PinkPig's Annual Savings / Annual Installment
= $24,000 / $22,500
= 1.067

The golden question number 1:-

• Is PinkPig capable of paying of it's Short Term Interest(Installment) obligation?
  

Yes. He is capable. Only if nothing unusual happens to him.

If something were to happen to him, and his saving drop by a mere 10% to  $21,600, he will have problem with that.

Either he will have to sell of something to repay the bank installment, or he will have his car confiscated back by the bank.

This is very crucial to companies, especially those that can't meet their short term debt obligation.

The only way for them to meet this short term obligation is to liquidate their assets, which will in turn eat into their core business, and eventually affect their long term business growth.

We definitely do not want to be put into a nasty situation like that.

Look for a TIE ratio which is pretty high.

The higher the better.

A company which has a TIE ratio of 10x means that it is capable of meeting it's short term obligation even if it's earnings were to drop 10x due to any unforeseen disaster (eg:- economy crisis).

Once a company is seriously wounded, it's really hard for them to be able to regain back their previous glory, not to even mention about fending of competitors and defending their once-used-to-be-market-leader status.

• Back To 7 Steps To Long Term Investing

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tag: stock, market, investing, fundamental, analysis, economic, moat, value, growth, investor, warren, buffett, financial, health

St. Jude Medical (Financial Metrics)

Industry : Medical Appliances & Equipment

Business :
Focused on the development, manufacture and
distribution of cardiovascular medical devices for the global
cardiac rhythm management, cardiology, cardiac surgery and
atrial fi brillation therapy areas and implantable neurostimulation
medical devices for the management of chronic pain. We sell
our products in more than 100 countries around the world.
Our largest geographic markets are the United States, Europe,
Japan and Asia Pacifi c. Our four operating segments are
Cardiac Rhythm Management (CRM), Cardiovascular (CV),
Atrial Fibrillation (AF), and Neuromodulation (Neuro). Our
principal products in each operating segment are as follows:
CRM — tachycardia implantable cardioverter defi brillator systems
(ICDs) and bradycardia pacemaker systems (pacemakers); CV
— vascular closure devices, heart valve replacement and repair
products and pressure measurement guidewires; AF — electrophysiology
introducers and catheters, advanced cardiac mapping,
navigation and recording systems and ablation systems; and
Neuro — neurostimulation devices.

Economic Moat :

Installing most of these implantable devices into human bodies requires a vast amount of time/effort to be learned. It's a way of locking customers to their own brand once the customers (hospitals/physicians/surgeons) are used to one brand, because switching to another brand will be a painful process, and very costly in terms of time and sometimes money wise.

Growth :

Profitability :
One thing I like about it is, the still on-going improvement of their net margin.
Medical Instruments Suppliers normally have a high teens on their net margin. St. Jude is not exception, with the numbers flowing around 15% all these while.
Free Cash Flow has been growing steadily and consistently too for the past 10 years.

Financial Health :

Competitors :
There are companies which falls within the same business field.
A few of those that are worth mentioning are listed below:-

• Zimmer (ZMH)
• Stryker (SYK)
• MedTronic (MDT)
• Becton Dickinson(BDX) (though not really a direct competitor, it does fall into the Medical Instruments Supplier industry too. Worth a check)

Intrinsic Value :

(link)

Miscellaneous :

• 7 Steps To Long Term Investing

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tag : fundamental, analysis, st jude, medical, stock, market, health, care, cardiovascular, orthopedic

As mentioned in the economic moat's post, we used 4 financial metrics to determine the profitability of a company as a filter to look for companies which 'might' have some economic moats.

Let's go through them here again.

In this post, we will go through all 4 of those metrics, the meaning of them, and how do they represents the profitability of a company.

Net Profit Margin

This is the measure that tells how strong a brand name a company has.

The stronger the brand is, the greater power it has for raising the price of its products freely.

Return On Asset

Remember the phrase Warren Buffett used to say?

There's only 2 ways a company earns great money:-
- have a high Inventory Turnover
- have a high Profit Margin

... and this is the closest thing that can represents what Warren Buffett meant.

From the formula, the only way to improve ROA is either to increase Net Profit Margin (by charging higher product premium), or increase the Asset Turnover(have a higher inventory turnover rate).

ROA is a good way to measure the efficiency of how management managed a company.

Examples of companies which achieve great efficiency thru:-
- High Asset(inventory) turnoever
> retailers like Wal-Mart, Home Depot, etc
- High Profit Margin
> Companies with Patent, strong Brand names, etc like Pharmaceuticals(Pfizer), Tiffany, etc.

Return On Equity

From the formula, there's only 2 ways to improve the ROE:-
- increase a company's efficiency (ROA)
- increase the company's Financial Leverage (by taking more DEBT)

As from the above, we know that,
Financial Leverage=Asset/Equity, and
Asset=Equity+Liability.

Thus, if we were to increase a company's liability by taking in more debts, the Asset/Equity ratio will increase.

Which is partially true, but not always the case.

Banks balance sheet does indeed makes most of their income by taking in more debts (which comes from customers' savings in the bank).

Taking in more debts is a double edge sword.

If used properly, it can be a good thing.

But if being misused, it can be pretty disastrous, and straineous to a company's health, which is why we really need to look carefully into a company's Financial Health when debt is in the equation of the balance sheet (which will be the next topic that I will be posting soon).

Free Cash Flow

Regardless of how good a company may report it's earnings, the final utmost important thing that investors are interested at, is how much money will the company leaves for the investors, which is all being recorded in the Free Cash Flow(FCF).

2 ways to improve FCF:-
- Increase cash flow from operations
- decrease Capital Expenditure

And we know that, the only way to increase cash flow from operations is to only depend on the growth rate of a company, which is pretty much what we've discussed in the previous post.

There's a limit to how much a company can grow, and eventually everything will pretty much go stagnant. That's when the capital expenditure comes into play.

The company that needs the lowest capital to keep the business from continue running will be the champion in this area.

Examples:-

- Software companies, which really do not need any huge capital expenditure in keeping the business going after the first upfront cost, which makes them pretty much a cash machine. (Microsoft, Adobe, etc)

• Back To 7 Steps To Long Term Investing

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tag: stock, market, investing, fundamental, analysis, economic, moat, value, growth, investor, warren, buffett

SPY seems to be at a very critical price junction.

$111 - $112 area seems to be the resistance.

This coincides with the current 50MA.

I'll wait for a better indicator as to which direction the market will go before I make any decision.

Remember the Crude Oil Chart,

about the Busted pattern I discussed 2 weeks ago?

Well, see how it turned out 2 weeks later :)

Gold seems to be in the process of forming a descending wedge pattern.

Until it breaks above the upper trend line of the wedge,  I would assume that this gradual downwards move will remain.

USD has been gaining a lot of strength.

A major breakout above it's resistance in early December last year.

It re tested the previous high in mid January, successfully defended the support, and never looked back.

How long will the USD keep going up?

Let's take a look at the British Pound.

British Pound had a MAJOR breakdown recently.

$158 area looks to me like a very important support, and it didn't hold.

I really think this breakdown has caused serious technical damage.

So long as the British pound continues to slide, I believe that the USD will continue to gain it's strength in its upwards move.

USD is not the only one that is gaining strength.

ALTR !!!

A breakout from ascending triangle in early August last year.

A targetted $5 move was met in early January 2010.

It's normal for price to retreat when the targetted price is met. Normally, everyone sees that, and people will start selling. That's normal.

What's interesting is that, after the pullback of selling, the strength  continues, and it breaks out from the $23 resistance.

There really seems to be a lot of buyers out there that eager to get into ALTR.

Honestly, I'm really ............ EXCITED !!! :P

I don't know whether i truly understand the meaning of 'plagiarism'.

By reading the defination from wikipedia,  this is what I understand .....

I was really hoping that I could find some citation or stuff like that from this so-called Pro-Invest site.

But after reading it from head, to tail, I could only conclude that, it matches exactly, for word to word, text to text, of this original post.

What I can only say is that, this guy really did a bad job.

At least, if he wanted to plagarise, do have the courtesy to read the entire content first, and for pete's sake, copy the entire post.

I bet he was getting it from here, which he didn't even care to follow to the original post by clicking at the bottom link, and copy the whole thing.

:)

The Growth of a company is the next big thing that we will be looking at in one of our investment steps.

Growth is the biggest thing that long term investors are drolling over more than anything else, and the only factor that they are willing to pay more than what's a company is worth right now.

After all, what is the difference of buying a company's stock rather than a CD that pays a fixed dividend if they never grow?

Knowing that growth is important to stock investing is one thing. Understanding HOW the company gets it's growth from is the key.

It's important for us to understand where the company gets its growth from.

Once you understand that, it will be easier to get a feel on how confidently that the growth will be consistent in the future.

This will be the 3 main questions that you've gotta ask yourself when analysing a company on it's growth:-

Understanding #2 will be able to help you get a grasp on understand #1 and #3.

One thing to beware is, growth which comes from cost cutting is not sustainable.

It's just a matter of time where the company will finally find out that, it has reached its most efficient stage, whereby no more cost can be cut, and that's when the growth stops growing.

Take a look at the example below:-

From the above, if we were to only put our focus on the EPS, this is a very outstanding company (from year 1 and Year 2's growth perspective).

But, if we were to take into consideration of its Sales growth and Operating Income, we can see that,
- the Operating Income is growing at ~40%
- but the sales growth is only at~ 7%

Clearly, the overwhelming growth in EPS is coming from cost cutting !

This kind of growth does not, and will not last long.

What we are looking for, are companies which show consistent growth in all the 3 areas, namely their Sales Growth, Operating Income and EPS.

Conclussion:
Sales growth is the only growth that can keep the company's growth sustainable.

• Back To 7 Steps To Long Term Investing

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tag: stock, market, investing, fundamental, analysis, economic, moat, value, growth, investor, warren, buffett

In that post, we came to a conclusion that, in order to have a winning edge, we should be only placing bets whenever we receive 2 cards which at least have a range of 9 (eg:- A-10, 2-J, 3-Q, 4-K)

That post focus more on Trading/Gambling expectancy.

So now that we know that we should only place bets when we get a certain range of cards, and pass on others.

The next question is, how much of bets should we place each time?

100% of out total money? 50%? 25%?

Well, that's what we are gonna talk about today in this post. Money Management.

Why is Money Management so important in Trading/gambling?

Why is it that we have to know what's the right amount to bet every time?

Can't we just bet any amount of money?

Of course, if you are planning to play just for the fun of it, this post really doesn't matter to you.

But if winning is what you're looking for, then you should read on.

It's not about winning money. To me, it's about the excitement of finding the winning edge, that's what makes the game exciting.

So, back to the question. How much amount should I be betting every time?

Even if you get a A-K, would you be betting 100% of all your money into it?

No right? Because no matter how small the possibility is, there's still chance that you will get an A or K, and once you got that, that will be the end of the story.

You are no chance of fighting back anymore, because you are practically out of the game, with no more money left to play.

So now, do you see the importance of having a good money management?

The basic point of having a good money management is to make sure that you bet at an acceptable amount, which even after a string of losses, can still keep you in the game to fight back, and ended up winning in the end.

In Mathematical Probability terms, it's called the Kelly Value.

Kelly Value is the value that, based on the winning/losing probability and winning/losing average of your gambling expectancy, how much you should be betting on each bet (or you shouldn't be betting more than the Kelly Value on each bet).

whereby:-
- W == the winning probability
- R == the average win/loose ratio

Well then, now let's take a look back on our expectancy table of this "Between" game.

Since only with cards ranging 9 and above give us a positive expectancy, we will use that row(A-10) to calculate our Kelly Value, to be at the conservative site.

To find the Kelly value, we need 2 numbers:-
- Winning Probability
- average Win/Lose ratio

Winning Probability for A-10 is 64% (as shown in the table above).

We are now left with the average-Win & average-lost amount.

Average-win is easy to calculate, as for all the time, we will win $1 if we were to bet $1 every time. Agree?

As for Average-lost, there are 2 types of lost that we can be hit with:-
- 12% change of a $2 lost
- 24% change of a $1 lost

To calculate for the average lost, this is the formula I used:-

... and we get to an average-lost == $1.33.

Let's round it up and use $1.50

And now, we get the
average win/lost ratio == $1/$1.50 == 0.66

Now that we've got all the numbers ready, let's calculate our Kelly Value.

(here's an online calculator for doing just that)

This means that, we should not be betting on more than 10% of our total money that we are using form gambling.

To summarize things up and make it easier to understand, that means that, if you are bringing $100 to gamble, then you should be only betting $10 every time when you receive 2 cards which have at least a range of 9 or better (A-10, 2-J, 3-Q, 4-K or better). 

I'm not saying that if you do that, you will 100% definitely win every time, but by doing this, it will definitely improve your winning probability by a ton.  

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tag :gamble, trading, investing, invest, trade, gambling, between, red dog, yablon, in between, ace deuce, between the sheets, win, player, banker, casino, money, management.

What is a Economic Moat, and why is it so important that when finding a company to invest in, we look for this criteria so thoroughly?

Here's an explanation quoted directly from Investopedia:-

Normally, firms which is capable of generating a consistant profit over a long period of time has some sort of economic moat.

And as such, these are a few financial metrics which I personal use to filter or scan out in finding companies for further research.

The keyword here is Consistency, preferably at least 10 years.

But still, not all companies which pass this filter/scan has some sort of moat.

We need to really understand how the company operates, and where their Real Economic Moat comes from, if they ever do exists.

Here are the 5 types of economic moats.

• Back To 7 Steps To Long Term Investing

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tag: stock, market, investing, fundamental, analysis, economic, moat, value, growth, investor , warren, buffett

Just came back from a wonderful Chinese New year reunion.

Had a wonderful time doing some catch up with old friends, and get to know some new ones too.

Of course, gambling is part of the equation when it comes to chinese gathering, and we had our share of fun too :)

This year, we played a new interesting game called "Between".

It isn't a new game, but to us, it was our first time playing it.

If you do not know how the game is being played, you can read up on some of the explanation over here, here and here.

Basically, it's an easy game. We played a little bit different from the official rules, and here's our game rules:-

That's it.

Now, let's go to the basic of trading gambling.

All form of gambling involves in 2 parts of the equation:-

- Finding the Expectancy of your strategy
- Having a good Money Management for it.

For now, let's just talk about the Expectancy. Leave the Money Management aside first.

So, what is the meaning of Trading Expectancy?

In layman term, it means that the amount that you win on average, every time you bet $1.

And with that in mind, it makes total sense that, our strategy of finding an edge for this game (in fact, it's any game) is to find a strategy that generates a POSITIVE expectancy.

Now, assuming that we are betting a dollar ($1) every time,

and assuming that you've got an Ace and a 4.

What's your chances of winning (expectancy)?

From the table above,

- probability of hitting pole
  > 6 cards / 50 cards == 0.12

- probability of NOT between
  > (9*4 cards) / 50 cards == 0.72

- Probability of Winning
  > (2*4 cards) / 50 cards == 0.16

and you get an expectancy of -0.8.

What does this mean?

well, this means that, if on every single time, when u get 2 cards which have a range of 3 (either A-4, 2-5, 3-6, etc ...), and you bet a dollar on it,

after 100 times, you will loose $80, theoretically.

I know, you might say that, the outcome is totally random. Luck plays a big part on this equation, bla bla bla ....

But, if you play this strategy(bet $1 on every time u get a 3-ranged card) long enough, your output results will definitely won't be far away from a -80% return. It's the Law Of Average.

I've drafted all the possible expectancy into a spreadsheet here. 

From the Table/chart above, we can clearly see that, placing a bet on any 2 cards which have a range lesser than 8 will be a suicidal game strategy in the long run.

Only cards which have range of 9 and above has a positive expectancy (winning edge).

This means that, anything which has a smaller range of A-10, 2-J, 3-Q and 4-K will be a NO NO !

:)

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tag : gamble, trading, investing, invest, trade, gambling, between, red dog, yablon, in between, ace deuce, between the sheets, win, player, banker, casino.

SPY signaled a short entry for today.

- 22MA is below 50MA
- Wm%R is overbought

We have 2 watchlist for short entry tonight.

SPY & REP

SPY

110.41,109.74,109.07,108.4,107.73,107.06,106.39,105.72,105.05,104.38,103.71,103.04

REP

23.1,22.73,22.36,21.99,21.62,21.25,20.88,20.51,20.14,19.77,19.4,19.03

For the first time, since the time i ever remembered, the market gave out a triggered signal on going SHORT.

SPY 22MA has crossed below 50MA.

And is currently overbought.

This is the signal for me to start picking up some SHORT trades.

$108 - $110 seems to be a very sensitive price area, where we will see a lot of bulls and bears fighting against each other.

This might cause a lot of high wave candles (long tails) which makes swing trading pretty difficult, because stops will be easily shaken out.

Anyway, I won't be able to initiate any open trades this time around. Will be taking a week of for the Chinese New Year.

(you can check out some possible short candidates from the free candle scan website)

$GOLD is still currently on it's A-B-C wave correction.

But it does seem like the C wave correction is done .... yet.

Price is now right below the resistance trend line, and has already gotten to the Overbought region.

I don't think it's very likely that GOLD is able to break thru this resistance this time.

The Friday's hanging man candle looks like a good shorting opportunity for me though.

Crude Oil ($WTIC) defended it's support trend line, and is currently above it's support again.

Looks like a busted pattern to me.

Normally when a fake breakout happens, price will go into the other direction in a fast mode. 

This is normally due to the traders which got their stops shaken out, and a rush in short covering that causes the immense shoot up in price.

 $USD met it's bull flag's price target.

The Flagpole (the blue rectangle), which is the initial run-up, had a price range of $4.

This will be the targetted price for the next run-up after the breakout of the brief consolidation area(flag), which is in cyan color.

The breakout from the flag started at $76.5, and it's right now at $80.5, which is the measured target price area.

Price normally meet with some resistance at targetted area, because everyone sees it, everyone knows it, and everyone sets it as their selling point, and thus, it makes sense that price will some what stall at that area.

Whether or not price will continue to move up, or start to fall, depends on how strong the momentum of the next wave of traders.