Friday, February 12, 2010

BanyanTree : Value Investing Questionnaire

BanyanTree is a group of friends that hang around once a month to discuss a variety of topics of interest. I would like to share some notes and ideas from those meetings.

The following is a Questionnaire from such a discussion on Value Investing moderated by Harish. I understand in concept what is value investing all about, but haven’t got a chance to read any literature yet to fully grasp strategies based on Value. For those like me that don’t know much about ‘Value Investing’, here is a quick excerpt from Wikipedia :

Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham & David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis. Although value investing has taken many forms since its inception, it generally involves buying securities whose shares appear underpriced by some form(s) of fundamental analysis. -- Source: Value Investing – Wikipedia

Update : You can preview and read portions of the Benjamin Graham’s books at Amazon (No Affiliate links)here: The Intelligent Investor, The Interpretation of Financial Statements and Security Analysis

or at Harper Collins below:

 

Nevertheless I love to look at questionnaires and seriously answer them in writing, as they will help consolidate our own understanding of a topic and clarify our positions. Here is the questionnaire and my answers to each of those questions.  The questionnaire must be looked at in context with the discussion to see why and how those questions matter. However, the questionnaire still stands a good chance on its own, in getting clarity on how you invest.

Thank you Harish for sharing the questionnaire and allowing me to publish it on my blog.

Do you think that stock market is risky or it is in a way gambling?

Most investments (whether they are made in the stock market or elsewhere) are by nature have an inherent risk in it, as there is an element of expectation in each investment.  Essentially we are trying to predict a favorable outcome and invest, so in a way it can be considered as a gambling activity as other outcomes are always a possibility and you have no control on any of those outcomes.

What is the most important criteria in your analysis for buying a stock? 

Prefer solid fundamentals and potential for an upward market swing for established stocks. I also focus on startups and smaller businesses where potential for an upswing becomes the major factor rather than sound fundamentals.

If there is no stock price quote (ticker) available for the stocks you buy would you feel comfortable holding the stocks for a year or two?

Stock price is very important factor in all investment decisions (Buy or Sell), and I won’t be comfortable without a stock price for a longer period of time (no more than a week).  The investment in stock is only worth what the market is ready to pay and one quarter can change a lot particularly if there are any significant directional changes by the company or market in which it operates itself change.

What is most important criteria in your view of a sound business?

Differs for established and startups. For established, it is again solid fundamentals and potential for an upward market swing. For startups, it is about the size of the opportunity and potential for a given startup in that market.

What is your upper bound for P/E ratio when you buy a stock?

P/E is normally not a significant factor in my decision. For instance Google P/E is around 35, is still one of my favorites for some time.

Do you ever purchase a stock which did not come as recommendation from TV, News, Friend, analysts?

I never made a decision myself alone (except when I am swing trading). I discuss at least with one other friend before I make any decision. I don’t research for stocks using TV, news, magazines or exclusive financial sites like WSJ.

Do you attempt to read the annual reports of the company you purchase stock for?

Not really. I prefer reports that are summarized in easily understandable 3 to 4 parameters (and sometimes on top, purchase some analysis on those annual reports) than trying to decipher all of them myself.

8 comments:

  1. It looks like this book was written like 70-80 years back. Do you think it make sense now? btw, can i join the grp?

    ReplyDelete
  2. There is 'risk' and 'lottery' written all over stock markets. Its a market, just like any other, is being manipulated and fully controlled by some influential companies at the expense of individual investors. So what you do is invest in something and pray that it will be in your favor.

    ReplyDelete
  3. Hi Karan,

    I havent read the book, but heard about it through some of my friends. I do not know the exact content in that book and cant comment on whether it is still valuable.

    This is a private group of friends, and not open. I will post updates now and then so you can stay in touch though.

    ReplyDelete
  4. Murali,

    I met you during a presentation in Chicago couple of years back. You seem to know more than any of these books and that talk got me started on the right foot.

    How come you are involved in a group that is discussing so elementary stuff? Or was it a pre-cursor of something else like the bbs here in Chicago.

    Have a good day,
    vijji Kamat

    ReplyDelete
  5. I read the intelligent investor, its kinda obsolete in many ways. I like Phisher more and found lot more useful.

    ReplyDelete
  6. I love the intelligent investor. Even Warren buffet vouched for it. Principles in the book are timeless.

    ReplyDelete
  7. Hi Vijji,

    I am very glad that it helped you get started. Though it was a small gathering, I am afraid, I do not recall you.

    I just attended one meeting so far and reviewed the material of this value investing session. This group is quite an exception, for having a much broader agenda rather than focusing on one thing like BBS. Also the frequency is just once a month unlike BBS that meets 6-10 times a month.

    Let us see how it goes and hope we will meet again this summer.

    ReplyDelete
  8. Hi Gina,

    Do you mean to say "Common Stocks and Uncommon Profits ..." by Philip A Fisher?

    ReplyDelete

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