Monthly Archives: December 2012

The Stockodo Seven: First Edition

Red number sevenMost other blogs have a weekly wrap-up of sorts, summarizing interesting articles and tools they’ve found over the prior week. I’m going to the same – and even decided to give my summary a particularly cheesy name, just to add to the entertainment value of course! Every 1 – 2 weeks I’ll be summarizing the best posts from other blogs in the investing / finance world and sharing them here with you. Enjoy, and Happy New Year!

Great Reads

  1. Brett Wilson at WStreetStocks points out 2 Small Cap Low PEG Stocks that are worth taking a look at. I love Arctic Cat machines, and doughnuts too for that matter!
  2. There’s a great article at Old School Value written by Jae Jun outlining 6 Strong Small Cap Stocks to Take You into 2013. One of them on the list – Rue21 – is one that I’ve written about recently as well.
  3. EBIX is a company that I’ve recently bought stock in after a recent significant drop in it’s price due to some bad press. The Long Term Value Blog has done a great job looking at EBIX in detail and made some observations regarding whether there is any validity to some of the claims made.
  4. Aswath Damodaran over at Musings on Markets has written one of the best summaries I’ve read to date on Apple in 2012. Definitely worth checking out.
  5. Our Freaking Budget is one of the most entertaining (and great looking) blogs I’ve come across in a while. Joanna wrote a cool article on New Year’s Resolutions that have inspired some of my own.
  6. For anyone interested in learning some basics on Technical Analysis, Marvin has written an extremely clear and easy to understand article on How to Identify Support & Resistance at Brick by Brick Investing.
  7. I review corporate and project budgets as part of my day job, but never have I come across a more entertaining budget review than the one I recently read on iHeartBudgets.

Special Thanks

A special thank you to Greg McFarlane at Control Your Cash for featuring a recent article I wrote on the Carnival of Wealth! I appreciate it!

How Stock Fundamentals are Derived from Company Financials Part 1: Balance Sheet

File folderValue investors are very interested in the fundamentals of the companies they invest in, particularly historical data over the past 5 – 10 years. These days it’s easy to go to any of dozens of websites and pull up fundamental data such as EPS, P/E Ratios, Debt/Equity Ratios, and virtually any other metric you can think of simply by entering a ticker symbol. But where does this data ultimately come from?

The answer is that it comes from the company financials which are reported annually and quarterly in the form of a balance sheet, income statement, and cashflow statement. Why do we care? Well there’s two problems that the company financials can help us solve. First, most of the websites that provide this pre-calculated fundamental data, only do so for the current year. If we want to know what the debt/equity ratio was 8 years ago for example, we need to look at the company financials. That brings up the second problem. If you look at the financials, you won’t find the same metrics we’re used to seeing. Most of the fundamentals we’re used to seeing are actually derived from various line items on the financial statements, and to a non-accountant it’s not always immediately obvious which ones to use!

This post is the first of a three-part series, in which we’ll look at company financial statements line by line and derive the fundamentals we’re used to and love. Today we’ll look at the Balance Sheet. Continue reading

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Buffalo Wild Wings (BWLD) Analysis & Valuation

Buffalo wild wings logoBuffalo Wild Wings (BWLD) was one of the top performers in a recent stock screen for companies that exhibited steady, predictable, growth with little debt. As part of the value investing workflow we developed in an earlier article, a detailed analysis must now be conducted, followed by a determination of BWLD’s intrinsic value.

BWLD is a restaurant owner, operator, and franchisor operating primarily in the United States, with a few locations in Canada as well. Restaurants are themed as sports bars, but attempt to be equally friendly to both sports fans and families alike. They have managed to succeed in obtaining a dominant position with their brand, and the company’s restaurants are the destination of choice for Sunday football as well as other major events. The company was founded in 1982 and has been publicly traded since 2003.

Buffalo Wild Wings has enjoyed phenomenal and consistent growth over the past decade. EPS has grown at a compounded annual rate of 24% over the past five years with sales growing only slightly lower at 23% / year. As of today, BWLD was trading for $71.94 which translates to a market cap of $1.34 billion. The company meets all of the other PGLD criteria as well, and boasts zero long term debt. Let’s look a bit deeper at the latest quarterly and annual reports to get a better picture. Continue reading

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Excel Watch List Spreadsheet for Value Investors

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Online watch lists are great for keeping tabs on potential investment opportunities but they’re limited in that it can be difficult to add columns for custom data such as intrinsic value, price targets, etc. I usually use an excel spreadsheet to manage my watchlist. This allows me to add any columns required to include additional information about the stock, and has the added benefit of being able to pull this information directly from my analysis itself (which I also keep in excel format). Today I am going to show you a sample excel watch list spreadsheet, and make it available for you to download and experiment with. Continue reading

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Have the markets already priced in a fall off the fiscal cliff?

Fiscal Cliff

Well here we are on December 28 with only a couple of trading days left in 2012, and it appears extremely unlikely that US government officials will reach any sort of agreement before the end of the year. Sharp tax increases and spending cuts will automatically be implemented next week until an alternate deal can be forged. The markets have been in a steady decline since October, as investors correctly predicted that this would happen. Markets are about 5% lower than the highs seen back in September / October, having rebounded from the 8% decline weathered in November. Continue reading

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A Buy & Hold Approach to Value Investing

buy-sell-hold-diceMy usual approach to dealing with investments is to take a proactive approach to both position management and exit strategy. There are many investors however who prefer to take a much more passive approach to their holdings. Value Investing does not necessarily need to be extremely complex or require constant monitoring / action by those who partake in its methods. In this post we’ll look at a method that more passive investors can take towards value investing using a buy & hold mentality.

For the purposes of our discussion today, we’ll define buy & hold to mean forever, i.e. 15+ years. We will use traditional stock valuation strategies to select excellent companies at a price that represents good value. Instead of actively managing the position however, we’ll adopt a buy & hold approach, attempting to accumulate even more every time the stock is undervalued. This may be a more palatable approach for the passive investor who wants to spend a minimal amount of time and effort managing her portfolio, but wants to retain overall control (as opposed to mutual funds for example). Continue reading

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Stock Quotes in Excel with Office 2013

Stock market quotes on cubeMicrosoft Office 2013 is rolling out now, and is finally adding some functionality that will enable stock quotes to be dynamically updated in our excel worksheets. Currently, stock prices must typically be updated manually by hand, or through the use of clunky web queries and/or macros. Office 2013 incorporate the addition of Office Apps, one of which is called Bing Finance and automatically connects to Morningstar to download stock data for the selected tickers. Let’s have a look and see how this works. Continue reading

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Position Management using Intrinsic Value

LED exit signThere was an interesting article written a way’s back on the Long Term Value Blog which noted how most value investors spend an inordinate amount of time focused on the entry, and a disproportionately small effort on both the exit and analyzing exit timing. I am going to attempt to dedicate a series of articles towards position management and exit strategy.

Absolutely critical to returning a profit on any investment is proper position management. Entry strategy, position sizing, and exit strategy (both to minimize losses and to capture a profit) are key aspects to a complete system. We’ve already looked at a simple method for entry into a value position, so now let’s look at managing an existing position and eventual exit. Specifically we’ll look at an approach based completely on the stock’s intrinsic value, with action based on how that value changes over time. Continue reading

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Averaging Down as a Value Investor

Double down arrowEven the mention of averaging down among some investment circles will lead to a very quick and hostile education on their errors in your ways. Averaging down refers to a position entry strategy whereby the investor attempts to acquire more and more shares as the stock price drops. This results in an overall lower cost basis for the position, and allows more shares to be purchased than would have been possible with other methods, assuming a fixed amount of available capital. Those opposed to averaging down argue that you are only throwing money at a losing investment, rather than focusing on investments that are doing well. Which is correct? Let’s look at both sides of the coin. Continue reading

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Position Sizing at the Portfolio Level: Capital Allocation

Coins on a table

Traditional diversification advice dictates that individuals should own a wide variety of investments in their portfolio including a portion allocated to income vehicles such as bonds, a cash / money market position, and a minimum of 20 stocks. This post isn’t going to focus so much on the macro-level strategy of bonds/cash/stock, but will look at the number of stocks and ways in which capital can be allocated to them as a value investor.

There are two primary reasons to ensure a portfolio has adequate diversification. First, if any one company has a catastrophic event, we don’t want it to have a devastating effect on the investor’s entire portfolio. A 50% drop in a company’s stock makes a much bigger impact if it’s part of an equally balanced portfolio of 5 stocks, compared to another portfolio that holds 20. Secondly, various industries are cyclical in terms of their growth and by choosing to invest in companies from a wide range of different industries, it can serve to smooth our the ups and downs in an investor’s portfolio. Does it make sense to follow traditional diversification advice as a pure value investor? Let’s have a look.

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