Researching new stocks
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Researching new stocks Would appreciate seeing forms that other clubs use when researching new stocks. Besides the SSG, see attached for the Yankee Chapter Model Club. -----Original Message----- From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Cheryl Bish Sent: Monday, January 27, 2014 3:52 PM To: club_cafe@bivio.com Subject: [club_cafe] Researching new stocks Would appreciate seeing forms that other clubs use when researching new stocks. Here's a couple from Crow River. The blue one is old. We don't use the SSG anymore. The green one is current. We get our information different sources now. By the way, a BI friend of mine sent me a link to www.gurufocus.com today. I've been to the site many times, but I never really paid attention to the graphs. If you enter a ticker and click on Interactive Chart, the left menu is full of familiar items you can immediately put on the graph. Looks like it might be a good replacement for the SSG.
Lynn O. Lynn Ostrem
Resource Management Group, Inc. 4439 McAllister Av NE St.Michael, MN 55376 Office: 763/497-5153 Fax: 763/497-5838 Cell: 612/750-4943 garbagecop@gmail.com On Mon, Jan 27, 2014 at 4:47 PM, Ira Haas <haasil@ct.metrocast.net> wrote: Besides the SSG, see attached for the Yankee Chapter Model Club. Thanks Lynn. Those graphs on Gurufocus are great. Laurie Frederiksen
Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Follow Us on Google+ Click here to Subscribe to the Club Cafe email list. Click here to Unsubscribe On Mon, Jan 27, 2014 at 7:58 PM, Lynn Ostrem wrote:
Lynn, please elaborate on how you have come to not use SSG and what besides the two forms you attached you use to form the basis of your evaluations.
Barbara Jansen
Treasurer, Market Moguls
-----Original Message-----
From: Lynn Ostrem <garbagecop@gmail.com> To: The Club Cafe <club_cafe@bivio.com> Sent: Mon, Jan 27, 2014 5:58 pm Subject: Re: [club_cafe] Researching new stocks Here's a couple from Crow River. The blue one is old. We don't use the SSG anymore. The green one is current. We get our information different sources now.
By the way, a BI friend of mine sent me a link to www.gurufocus.com today. I've been to the site many times, but I never really paid attention to the graphs. If you enter a ticker and click on Interactive Chart, the left menu is full of familiar items you can immediately put on the graph. Looks like it might be a good replacement for the SSG.
Lynn O.
Lynn Ostrem
Resource Management Group, Inc. 4439 McAllister Av NE St.Michael, MN 55376 Office: 763/497-5153 Fax: 763/497-5838 Cell: 612/750-4943 garbagecop@gmail.com On Mon, Jan 27, 2014 at 4:47 PM, Ira Haas <haasil@ct.metrocast.net> wrote:
Besides the SSG, see attached for the Yankee Chapter Model Club. Hello Barbara, First, my club left BI in 2006 because we didn't see the value in the wrap-around cost of the annual club fee. Then we began using the data files from StockCentral because they were half the price and the data was good. Then BI bought ICLUB (and Toolkit) and brought the maintenance inhouse and we began having issues with the data. In fact, our portfolio manager became so irritated with these issues, she stopped using the data files altogether and has been completing our Pert reports by hand for the last year. (She informed us last month she will no longer be using Toolkit) When members began to question the numbers, we started using other sources, which eventually led to dropping our data file subcriptions. And actually, it was a good thing because it took us off auto-pilot with the SSG and made us look at, and talk about, our potential or current stocks in a whole different light. That is how we came NOT to use the SSG. I never thought I could invest without it, and now I feel I am more in tune with my companies because I don't use it.
Second, just because we don't use the form, doesn't mean we don't use the methodology. You can easily graph revenues, EPS, Pre-tax profit, price, P/E, debt, ROE or just about anything you want at YCharts.com or GuruFocus.com for free. I've used bigcharts.com forever to perform long-term P/E analysis. With these other graphs, you can also add other companies for comparison purposes. So Sections 1 and 2 of the SSG are easily replicated elsewhere.
As for price and return, I have never been comfortable with the form. If you think about it, we are asked to look in the rear view mirror to come up with a reasonable future growth rate. Then we are asked to GUESS how much, and how little, investors may be willing to pay over the next 5 years. Really? Then we put it on a totem pole, divide it into 3rds or quarters, and we buy or sell based on the price's location on the pole.
Mark Robertson of ManifestInvesting,.com showed me the light a long time ago. The back of the SSG is so confusing to everyone, and most members couldn't do it by hand, if they had to. Manifest's methodology is more aligned with the original system George Nicholson, founder of NAIC, had intended:
Look at Section 4a on the SSG: If you were to multiply your estimated 5-year future growth rate times the company's signature P/E (5-yr average), you would get a more realistic idea of what that price may be in 5 years. If you subtract the current price from the future price, then divide that figure by the current price, you would get your estimated average return. If that return meets your desired goal (say 15%), then it's a buy. If it doesn't meet your goal, it's not! How simple is that? All the U/D ratio does is calculate for you a margin of safety. You can easily reduce the future price by 25% on your own.
For the last several years that I used the SSG, I entered the same 5-yr average P/E into Sections 4a and 4b just to get the form to complete the calculations. That would generate the same "total" and "projected" return at the bottom - rendering the U/D ratio section worthless. But I felt it was a more realistic approach to a future price.
Today, we still employ the same methodology, but we incorporate the future growth rate that is provided by the companies in their annual and quarterly reports. We also take into consideration analysts' consensus estimates. We look at the Yahoo Estimates page to see how likely it is that a company will meet or beat expectations. We love companies that under promise and over deliver. With a simple calculator, we can play with various scenarios to come up with reasonable future price and return figures. Or, we look at analysts' estimated returns and price and our discussions revolve around how likely we believe their numbers. Frankly, the SSG left us brain dead! At least without it we have to THINK.
Maybe Mark Robertson or Jim Thomas will be so kind as to walk through a couple of scenarios to show you how easy it is to come up with potential return, by hand. Speaking of Jim Thomas: Years ago, Jim made a post in the Manifest forum that changed my investing mindset forever. I have saved it, and reposted it several times over the years. I am forever grateful to him because it helped me see the big picture and gave me permission to stop completing these forms like a robot. This is from my notes in June of 2006:
Someone wrote: NAIC tells us that 80% of what we need to know to be a successful investor is on the SSG. If that’s true, does Manifest provide closer to 100% of what you need to know?
Jim Thomas answered: Whether you are looking at PAR on the SSG or PAR on the Dashboard, we’re never going to be able to accurately gauge returns in 5 years from now. These are nothing more than convenient methods of ranking stocks by their potential for producing returns. If your SSG PAR ends up being close to your MI PAR, does it really matter what the specific number is? Does it matter which method was used?
If my estimates come close to a 20% return, I don’t actually expect to get 20% if I invest in that stock and hold it for 5 years. What I do expect is that, more often than not, I’ll get a “better” return by investing in that stock than if I invest in a stock with an estimated 15% (or 10%) return. I’m interested in MI and the SSG because they should tend to steer me towards investing in stocks that will likely produce higher returns, and away from stocks that are likely to produce slower returns.
Jim went on to say: The Quality Rating is an excellent approach, but like any other metric, it’s only measuring those things that can reasonably be measured. Using nothing more than PAR, MI Quality Rating and simple portfolio management rules, I suspect that a person can do better than the vast majority of individual investors.
My analysis time and energy are limited, and I want to focus on what’s important. [Let someone else crunch the numbers] then I can put in my own valuation and expand on what the Quality Rating tells me, plus arrive at a reasonably short list of key issues and risks for the company, exploring items that could cause me to sell or avoid a particular stock.
[I related to Jim’s comments, because NAIC investors seem to spend a great deal of time trying to disseminate numbers (P/E ratios, high and low price in 5 years, etc.) that are simply not able to be measured accurately. We need to be able to differentiate what we know we can reasonably understand and what we can’t, and let the pros help us with the latter.] Lynn Ostrem Crow River Investment Club
> Years ago, Jim made a post in the Manifest forum that changed my
investing mindset forever. I have saved it, and reposted it
several times over the years. <
For those who might care to read it in
full, the discussion to which Lynn refers is at http://www.manifestinvesting.com/forums/6/topics/291 (I
think a ManifestInvesting subscription is required for
access).
-Jim Thomas
Lynn: Could you please clarify what you meant when you said "we began having issues with the data." Please provide some examples of the inaccuracies contained in the data. Jack Ranby Hello John. I learned a long time ago not to get drawn into a public discussion about data! And even though I thought about it for 10 seconds, I wouldn't dare draw Sheryl into this discussion for fear of her reaction.. She was SO mad about all the extra work she felt she had to do to make sure our SSGs, and subsequently, our Perts, were correct. This went on for years.
I was not the keeper of Toolkit for our club. She was one of those people who followed every number, understood exactly how Morningstar normalized data, then double checked it against the 10Q and 10K.. She could run through the calculations in Toolkit and show you every result that would calculate incorrectly. It drove her nuts. She called support for awhile, but her issues were not resolved. And since she was the only one who cared about all that stuff, she would be the only one who could provide that info. And I promise that she would be less interested that me about geting into that discussion.
I never cared about it, myself. If it was close, I was happy. That was until she showed us that substantial differences could crop up, and that we were making decisions with those errors. I can't give you specifics since we didn't keep those SSGs. But if you were to ask her, she would tell you to take 3-4 SSGs and run through every number, annual and quarter, and verify them. Then run through every calculation.
Lynn O. > She could run through the calculations in Toolkit and show you every
result that would calculate incorrectly. <
I would be glad to discuss, publicly or privately,
any Toolkit calculation that anyone thinks is incorrect.
I have a pretty good track record of getting
problems in Toolkit corrected.
-Jim Thomas
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