With the market corrections and turmoil going on, it is tempting to open your investment club Valuation report to see what you have "lost".
Here's the valuation report as of yesterday from one of my own clubs:
None of us likes to see that we have an unrealized loss in our investments. But valuation reports are deceiving. They don't really give you any information on the actions you should take. You get an entirely different picture if you look at your club projections for the future returns from your stocks. Here are our projected 1 year returns for the stocks in our portfolio:
These numbers are based on our judgements about the business fundamentals of these companies. For example, we've analyzed how we expect these businesses to grow their sales and maintain or increase their margins.
As you can see, while we might get a sinking feeling from looking at the valuation report, the second report tells us that there may be a great sale going on.
Are we good at making predictions? That's a question that we can gain insight into by looking at our bivio Performance Benchmark report. Our return is down, but we are still beating the market by almost 2 points for the last 1 year period. We've been beating the market pretty regularly lately so we are comfortable our process is helping us make good investing decisions.
Bottom line. Your valuation report is an accounting report that is used to keep your accounting records. It is not a portfolio management tool. It tells you what has happened, but gives you no input on what might happen in the future.
Don't let negative numbers on a valuation report scare your club into making emotional decisions. It's not easy but that's why, at times like these, it's good to be connected to a community of investors who can help you stand your ground and adhere to what history has proven time and time again to be true.
The market has provided us with plenty of rope. We can
either hang on and climb with the winners or let go and fall
with the losers. Personally, I'm a climber, so I'm selling
cash-covered puts on solid growth companies. No matter what
the market does, I make money selling the puts. If my strike
prices are correct, I then buy solid growth companies at
fire sale prices. What could be better than that?
Marty Eckerle on
Interesting comment, Laurie. How are you estimating your one year price projection?
Marty
From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Laurie Frederiksen Sent: Wednesday, August 26, 2015 2:49 PM To: The Club Cafe Subject: [club_cafe] Why You Don't Want to Look At A Valuation Report
With the market corrections and turmoil going on, it is tempting to open your investment club Valuation report to see what you have "lost".
Here's the valuation report as of yesterday from one of my own clubs:
None of us likes to see that we have an unrealized loss in our investments. But valuation reports are deceiving. They don't really give you any information on the actions you should take. You get an entirely different picture if you look at your club projections for the future returns from your stocks. Here are our projected 1 year returns for the stocks in our portfolio:
These numbers are based on our judgements about the business fundamentals of these companies. For example, we've analyzed how we expect these businesses to grow their sales and maintain or increase their margins.
As you can see, while we might get a sinking feeling from looking at the valuation report, the second report tells us that there may be a great sale going on.
Are we good at making predictions? That's a question that we can gain insight into by looking at our bivio Performance Benchmark report. Our return is down, but we are still beating the market by almost 2 points for the last 1 year period. We've been beating the market pretty regularly lately so we are comfortable our process is helping us make good investing decisions.
Bottom line. Your valuation report is an accounting report that is used to keep your accounting records. It is not a portfolio management tool. It tells you what has happened, but gives you no input on what might happen in the future.
Don't let negative numbers on a valuation report scare your club into making emotional decisions. It's not easy but that's why, at times like these, it's good to be connected to a community of investors who can help you stand your ground and adhere to what history has proven time and time again to be true.
We estimate 1 year prices by estimating 1 year earnings growth and then multiplying the 1 year out estimated EPS by an estimated P/E.
We estimate 1 year earnings growth using judgements for the rate we expect sales to grow from the TTM sales combined with judgements on expected net margin and number of shares outstanding.
Every quarter we compare how our stocks performed compared to our judgements. We then adjust them if needed and use our projections to make purchase and sale decisions.
Laurie Frederiksen Invest with your friends! www.bivio.com
On Wed, Aug 26, 2015 at 6:14 PM, Marty Eckerle wrote:
Interesting comment, Laurie. How are you estimating your one year price projection?
Marty
Marty Eckerle on
Thanks for the reply, Laurie. Putting thought to this after my request, I came up with the same process using the average PE after outliers, if any. There are probably other PE selections scenarios based on one's own judgment factors. I am going to try this as a comparison of suggested one year price targets found on Yahoo. I did compare all your target prices and found all to be more conservative: probably a good thing.
Marty
From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Laurie Frederiksen Sent: Thursday, August 27, 2015 4:50 PM To: The Club Cafe Subject: Re: [club_cafe] Why You Don't Want to Look At A Valuation Report
We estimate 1 year prices by estimating 1 year earnings growth and then multiplying the 1 year out estimated EPS by an estimated P/E.
We estimate 1 year earnings growth using judgements for the rate we expect sales to grow from the TTM sales combined with judgements on expected net margin and number of shares outstanding.
Every quarter we compare how our stocks performed compared to our judgements. We then adjust them if needed and use our projections to make purchase and sale decisions.
Laurie Frederiksen Invest with your friends! www.bivio.com
On Wed, Aug 26, 2015 at 6:14 PM, Marty Eckerle wrote:
Interesting comment, Laurie. How are you estimating your one year price projection?
Marty
Laurie Frederiksen on
I've usually found that if things look good, even with conservative judgements, that's often a good thing!
We just look at the Yahoo numbers as kind of a reference point. If our estimates are wildly different than theirs, we usually look at things in a bit more depth to see if we missed something. There are occasions where we just have no clue where they're coming from and we prefer our own conservative judgements.
Laurie Frederiksen Invest with your friends! www.bivio.com
Thanks for the reply, Laurie. Putting thought to this after my request, I came up with the same process using the average PE after outliers, if any. There are probably other PE selections scenarios based on one's own judgment factors. I am going to try this as a comparison of suggested one year price targets found on Yahoo. I did compare all your target prices and found all to be more conservative: probably a good thing.
Marty
From:club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Laurie Frederiksen Sent: Thursday, August 27, 2015 4:50 PM To: The Club Cafe Subject: Re: [club_cafe] Why You Don't Want to Look At A Valuation Report
We estimate 1 year prices by estimating 1 year earnings growth and then multiplying the 1 year out estimated EPS by an estimated P/E.
We estimate 1 year earnings growth using judgements for the rate we expect sales to grow from the TTM sales combined with judgements on expected net margin and number of shares outstanding.
Every quarter we compare how our stocks performed compared to our judgements. We then adjust them if needed and use our projections to make purchase and sale decisions.
Laurie Frederiksen Invest with your friends! www.bivio.com
On Wed, Aug 26, 2015 at 6:14 PM, Marty Eckerle wrote:
Interesting comment, Laurie. How are you estimating your one year price projection?
Marty
Mike Jones on
When preparing an SSG, my partners and I use ValueLine estimates for initial earnings growth and similar forecast figures. After all, VL analysts should know better than we what to expect. Then for companies that seem worth considering further, we perform sensitivity analysis by modifying growth rates one at a time to see how large a variance is needed to move a company into the Buy range. If the resulting growth figure still seems reasonable, we may buy. Sometimes changing estimates by only a small amount will force a company into the Hold range which suggests a company that might be worth passing on.
We still require that a company have 5 years of positive earnings before we buy. That has prevented our losing money on Stratasys but has cost us a big gain on Netflix when it was starting up. Since we exist to learn, we bite the bullet when our strict adherence to our guidelines keeps us from doing something we want to do but shouldn't.
Mike Jones
Wall$treet Wannabees]
Bloomington, MN
From: Laurie Frederiksen <laurie@bivio.biz> To: The Club Cafe <club_cafe@bivio.com> Sent: Thursday, August 27, 2015 3:50 PM Subject: Re: [club_cafe] Why You Don't Want to Look At A Valuation Report
We estimate 1 year prices by estimating 1 year earnings growth and then multiplying the 1 year out estimated EPS by an estimated P/E.
We estimate 1 year earnings growth using judgements for the rate we expect sales to grow from the TTM sales combined with judgements on expected net margin and number of shares outstanding.
Every quarter we compare how our stocks performed compared to our judgements. We then adjust them if needed and use our projections to make purchase and sale decisions.
Laurie Frederiksen Invest with your friends! www.bivio.com
On Wed, Aug 26, 2015 at 6:14 PM, Marty Eckerle wrote:
Interesting comment, Laurie. How are you estimating your one year price projection?
Marty
Richard Pfeffer on
<Personally, I'm a climber, so I'm selling cash-covered puts on solid growth companies>
How far out are your expiration dates?
What percent profit do you make on average (premium divided by cash input) when puts expire without being exercised?
<No matter what the market does, I make money selling the puts>
What percent does the stock have to fall before your premium no longer covers the loss on the stock?
<If my strike prices are correct, I then buy solid growth companies at fire sale prices. >
If the stock stays above your strike price and the puts expire worthless, how far above your strike price would the stock have to go to make it more profitable to have bought the stock without options?
Richard Pfeffer, Ph.D.
The Options Doctor
On Wed, Aug 26, 2015 at 4:37 PM, William C. Peterson <wmpeterson@cox.net> wrote:
The market has provided us with plenty of rope. We can
either hang on and climb with the winners or let go and fall
with the losers. Personally, I'm a climber, so I'm selling
cash-covered puts on solid growth companies. No matter what
the market does, I make money selling the puts. If my strike
prices are correct, I then buy solid growth companies at
fire sale prices. What could be better than that?
