How to tell a solid company.

[Tesla.Lee]

What numbers should I look at to determine a solid and a good company to invest in, that won't go down drastically in price (or even go to zero and fold)?

...and where do I go to get the numbers on the web?

If it is not so simple as that, could you recommend an easy to read book on the subject please?

Thanks in advance for helping out a newby...

 

[jjames69]

it was once said worldcom was the stock everyone had to own, but it went bankrupt.

all companies can go down drastically, and eventually become obsolete. diversification in your assets is the best way to reduce volatility.

you could also invest in defensive stocks. these are stocks that are not as dependent on the economy, are non cyclical, and pay a dividend. sectors include drugs medical, food, tobacco, utilities, etc.

https://www.investopedia.com/articles/stocks/07/defensive_stock.asp

for the basics of fundamental analysis, you could probably just google it.

 

[tomorton]

An excellent guide to stock-picking based purely on fundamental analysis is Jim Slater's "The Zulu Principle".

 

[Tesla.Lee]

Thank you for those posts! I will check the book out...

 

[NVP]

What numbers should I look at to determine a solid and a good company to invest in, that won't go down drastically in price (or even go to zero and fold)?

...and where do I go to get the numbers on the web?

If it is not so simple as that, could you recommend an easy to read book on the subject please?

Thanks in advance for helping out a newby...

Do a course in finance .....it will pay dividends .....you will learn what to look for ...also remember a good finance team can make even a dog company look good for a while and the auditors will always support it as they are toothless and always just chasing fees .....take it from someone who’s been there and played the corporate game as an accountant

So,even once you have learned what to look for ....don’t believe what you see

Sorry about the reality check :smart:
Neil
NVP

 

[Tesla.Lee]

Thank you Neil about the insider's tip - enlightening or sure... so if fundamentals are not to be trusted, than what do you trust?

 

[bluebellmk]

Through lots of reading etc I use Discounted cash flows to value a company. Friend works for a large wealth management firm in the city as an analyst and told me thats how they value equities so I have began to use that model myself.

 

[NVP]

Thank you Neil about the insider's tip - enlightening or sure... so if fundamentals are not to be trusted, than what do you trust?

I don’t trade stocks .....if I were asked to invest and had to chose stocks I would be looking much more strategically.

I would look at the sector first and choose those that will prove robust over the trading horizon

Then it would be companies with the track record of success and with a good management team in place

Companies are run by people so I have to see good directors at the healm

N

 

[Tesla.Lee]

Are stocks that dangerous?
How about day trading them where you are in it for minutes?

...or would you recommend the Forex market?

 

[Brumby]

What numbers should I look at to determine a solid and a good company to invest in, that won't go down drastically in price (or even go to zero and fold)?

...and where do I go to get the numbers on the web?

If it is not so simple as that, could you recommend an easy to read book on the subject please?

Thanks in advance for helping out a newby...

As the saying goes "there is no free lunch". If your investment decisions are to be based on fundamentals, it is simply too inefficient and cost ineffective to attempt the effort on your own. There are research firms that offer research reports on sectors and or companies or you can become a client with say Merrill Lynch which you can then access their research materials. They have specialist analyst that cover sectors and frequently conduct conference calls with management of the target companies.

 

[NVP]

Are stocks that dangerous?
How about day trading them where you are in it for minutes?

...or would you recommend the Forex market?

Hey there ....

I didn’t say stocks are dangerous ....I merely implied that speculating on anything requires deep knowledge of the asset class involved and the risk/ return criteria required by the investor

Horses for courses

I’m a forex trader but I accept and embrace the challenges of that asset class and I am accepting of the risks required for the returns I need

Nothing wrong with investing in stocks if you know what you are doing and you are happy with the risks required to get the rewards and returns you seek

N:smart:

 

[Tesla.Lee]

Thanks a lot for those informative words of wisdom! They will help me no doubt...

 

[bluebellmk]

Thank you Neil about the insider's tip - enlightening or sure... so if fundamentals are not to be trusted, than what do you trust?

You can get opportunities this way. Accountants will place on a companies balance sheet the price they paid for something even if the price has moved.

e.g a company could have

£1bn Cash
£250m Investments
£200m Investment in company X
__________________
£1.5bn debt
£400m Accounts Payable

Cash = 1.25bn
debt = 1.9 bn

Now the 200m that is booked is shares purchased in Company X say made in 2009 when prices were low, prices have increased massively since then and it could now be worth £1bn. However it is booked on the balance sheet as only £200m therefore the equity price could be depressed if analysts missed this giving you an opportunity to buy and watch it increase when it is spotted.

An extreme example but it does happen, yahoo had their Alibaba holding valued at £2bn on their statement but was closer to £20bn odd if I remember correctly.

 

[NVP]

You can get opportunities this way. Accountants will place on a companies balance sheet the price they paid for something even if the price has moved.

e.g a company could have

£1bn Cash
£250m Investments
£200m Investment in company X
__________________
£1.5bn debt
£400m Accounts Payable

Cash = 1.25bn
debt = 1.9 bn

Now the 200m that is booked is shares purchased in Company X say made in 2009 when prices were low, prices have increased massively since then and it could now be worth £1bn. However it is booked on the balance sheet as only £200m therefore the equity price could be depressed if analysts missed this giving you an opportunity to buy and watch it increase when it is spotted.

An extreme example but it does happen, yahoo had their Alibaba holding valued at £2bn on their statement but was closer to £20bn odd if I remember correctly.

surely most accounting standards Globally insist on more current and relevant market valuations for publicly listed companies ....especially when we are talking pensions exposure

 

[bluebellmk]

surely most accounting standards Globally insist on more current and relevant market valuations for publicly listed companies ....especially when we are talking pensions exposure

Pulled the below off the internet:

There are situations when the market value of a fixed asset is much higher than book value, such as when the market value of an office building skyrockets due to increased demand. In these situations, there is no way under Generally Accepted Accounting Principles (GAAP) to recognize the gain in a company's accounting records. However, revaluation is allowed under International Financial Reporting Standards (IFRS).

 

[Brumby]

An extreme example but it does happen, yahoo had their Alibaba holding valued at £2bn on their statement but was closer to £20bn odd if I remember correctly.

There are situations when the market value of a fixed asset is much higher than book value, such as when the market value of an office building skyrockets due to increased demand. In these situations, there is no way under Generally Accepted Accounting Principles (GAAP) to recognize the gain in a company's accounting records. However, revaluation is allowed under International Financial Reporting Standards (IFRS).

The arqument IMO ultimately rest upon whether you believe in the market efficient hypothesis.

The Yahoo valuation and its investment holdings in Alibaba came into sharp focus when it divested its internet business to Verizon and basically leaves it as an investment holding company. The market greatly discounted its valuation in Alibaba because as an investment company Yahoo is subject to 36.5 % CGT if it ever disposes off its holdings in Alibaba.

The notion that one can comb through the investment universe to find gems that are undervalued because the market is inefficient may exist but I would question whether such an approach is highly dependent on luck and ultimately a question of effectiveness.

 

[bluebellmk]

The arqument IMO ultimately rest upon whether you believe in the market efficient hypothesis.

The Yahoo valuation and its investment holdings in Alibaba came into sharp focus when it divested its internet business to Verizon and basically leaves it as an investment holding company. The market greatly discounted its valuation in Alibaba because as an investment company Yahoo is subject to 36.5 % CGT if it ever disposes off its holdings in Alibaba.

The notion that one can comb through the investment universe to find gems that are undervalued because the market is inefficient may exist but I would question whether such an approach is highly dependent on luck and ultimately a question of effectiveness.

I'm sure Buffet, Klarman & Co show that the market does indeed have inefficiencies that can be exploited

 

[Brumby]

I'm sure Buffet, Klarman & Co show that the market does indeed have inefficiencies that can be exploited

Value investing is sound conceptually but the issue is one of execution. IMO, an individual investor lacks the resources or requires disproportionate expense in time and resources for an outcome that might well be unknown. The problem with the Buffet example is proof of concept but exemplify that success is not necessarily transferable because we will have many Buffet live examples. It should also be noted that because Buffet has deep pockets, he makes strategic investments into target companies. That means, he is able to transform board representation, reform management and dictate business direction so that true value is extracted from under performance. An individual investor cannot exploit inefficiencies unlike the way Buffett can.

If you are able to execute value investing efficiently and cost effectively then by all means carry on with what works for you. Just because Buffet can do it successfully doesn't mean such execution is transferable.

I have an actual example in my own portfolio. I invested in a property trust company that invested substantially in commercial real estate in Japan during Japan's deep recession. When I invested, I had a view that Japan will come off the long recession and commercial properties will rise in value over time. Unfortunately even though the property market did come off from its low, the market continues to trade the shares at a discount against both nta and market valuation. Additionally, the discount is even deeper when currency factor was incorporated. I had to hold it for years and only managed an exit at a significant premium when Blackstone bought the whole portfolio.

 

[HumbleBee]

Balance sheet and its brand

 

[soundmanshane]

What numbers should I look at to determine a solid and a good company to invest in, that won't go down drastically in price (or even go to zero and fold)?

...and where do I go to get the numbers on the web?

If it is not so simple as that, could you recommend an easy to read book on the subject please?

Thanks in advance for helping out a newby...

There are many things to look at and I must admit I don't fully understand It all myself.

personally I wouldn't recommend what you should look at just recommend that you learn what the fundamentals are. if you don't know what they all mean then someone telling you what to look at isn't going to be of any use in my opinion.

If you're Uk based the london stock exchange is a good place, it has all the company fundamentals and you can begin to look into trends and work out what you may want to look at, as people MAY hold more weight to different parts of fundamentals than others.