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Sunday, 29 March 2015

Investment Management Portfolio - Is Practicing Fundamentals Analysis Sufficient?

Dear Friends,

Is Investing is as easy by just looking at Fundamental Analysis?
Not that simple ....

There are main categories that one must look at before making a trade.

1. Fundamental Analysis
2. Management Team / Major shareholders
3. Economic / Industry Analysis
4. Political sentiment

What we have been sharing in our article so far is the Fundamental Analysis (FA). The good thing is FA plays the vital part of engaging a company - To Buy or Not to Buy. But we shall not blindly use only FA for decision making process. If it is so easy as looking only at FA, we shall only use screener and buy the companies that PE<10 and P/NTA <1. Is it that simple?

Management Team / Major Shareholders:
Bear in mind, good company is run by Great People. The brains and movers behind. If the bosses is reliable and generally sincere in doing business, you shall see their words/promises is highly achievable. Read their annual statement and hear their speeches, is it always being delivered or empty promises? Every year does they make better achievements and lowering business costs or spending more money on themselves and more perks given to directors?

Economic / Industry
Let's face it, every industry has different valuation. Under different economic situation, the valuation also varies. There is no hard and fast rules on this, get the industry average possible around 10 companies about the sane size and you shall have an idea how it goes.
Currently why Healthcare stands to get better valuations while Property suffers? Yes, market perspective on future expectation of the income to be generated.

Political
Policies and the tax structure do impact the industry and the economics. As the policies keep changing, our investment ideas also changes.

How to make a good trading decision?

1. Take out companies that does not have good Fundamentals.
 Rational - if the management can't even make profit for the company consistently, how are they going to take care of you shareholders?

2. Avoid Management team that are not prudent/sincere
Management words are meant to be the future direction of the company, If he breaks his promises/make artificial statements, his reliability is indeed low. As his business partner (shareholder), you also wanted to con me (again and again nonsense statement and promises), how this relationship can go far?

3. Choose the Industry that are in the Theme Play, focus for the next 1 to 3 calender years. Fund Managers tends to invest for Medium to Long Term and no one hit wonder. Contra and few weeks trading period is too risky. Theme Play companies need more time to fully value itself.

4. Avoid companies that are being hit by Government Policies (tax, subsidies cut and tightening rules). Go for the companies which the Government is supporting for the next 1 to 3 years. They are the so called 'children to be nurtured for the next few years'.

If you apply the 4 condition above before trading, the likelihood of you making losses will be greatly reduces. Even we made the wrong call, we do understand what is the risk involved.

Happy trading!


Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares is citied for illustration purposes.

Regards,

Humble Pie










 

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