Sunday, 11 October 2015
Fundamentals Is Not By Financial Analysis Alone
Dear Members, to do thoroughly analysis on the targeted company, looking at the Financial Report card are insufficient. There are more to look at besides the company’s numbers. Most of them did not share the whole picture on how a stock being selected by using a complete checklist. We are sharing some of the commonly used parameters by Fund Managers to screen the stocks.
1. Management Team
Good companies are being run by great management. Those involved before in scandals and hanky panky practices will be avoided. Their reliability and trustworthiness are low. For the announcement/speeches made by the MD/CEO, it must be in line with the company’s direction. If they say one thing and do another thing, it is a no go. Be careful on those syndicated counters. Companies go for listing to raise funds and not making money from the market. Remember that.
2. Financial Health Ratios
Companies must be in good health. Generally this is the main factor being used by FA clan practitioners to do their analysis. Tell me one thing; if the company is in bad shape, do you still want to put your hard earn money into it? Putting your money in the company means you are a shareholder. You share the upside and also the downside if the business.
3. Pricing Analysis
You found a healthy company with good management, so what is next? Buy? Not really. Look at the price. Cheap or expensive. FD’s PE in Malaysia is around 18x, only blue chips with high dividends yield can command that valuation. Generally main board PE should be around PE10x to 14x while ace is around PE 7 to 10x. Anything more or less than the amount, you need to have a good reason / story to back your purchase.
4. Theme Play / Industry in Action
This is a subjective manner, people buy a stock because of the upside value. Generally funds will rotate base on what is hot now and not few years down the road. Why? If we buy base on FA, we can keep it for months and years but how about Fund Managers? For you to know they have 12 months only to invest. By the time November comes, they have to finalize their trades and cut some losing stocks to show better year end results with not much losses carry forward and some spare cash to start the next year. Basically 10 months. For your understanding, theme play is for midterm. Pure FA play is definitely more than 10 months.
Some FA clan will argue this PE is cheaper than that PE and the forward EPS is better than that EPS. So buy A stock and not B stock. Remember, listed company is there for business purposes. It’s the Management Team who runs the day to day business. Do not rely only to Financial Health to make the investment decision. It is just a part of the Fundamental Analysis.
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.
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