What is Value Investing? Part 4

What are the criteria in choosing a public listed company to invest in?These criteria is obtained from the book,”The New Buffetology” which is written by Mary Buffet.I will explain how can you apply those criteria in KLSE.Some criteria might not be suitable and need some modifications.

The first criteria is the EPS pattern over a decade.By observing the EPS pattern for the past 8 to 10 years,an investor will be able to get a sense of a company’s sustainability and reliability in its industry. You should chart the EPS in Excel as linear graph, and observe its EPS fluctuation and direction.If the fluctuation of the EPS is little and the trend is upward,then you are looking at a stable company.You can only predict the future of a company which has shown stable growth over the 10 years.Small fluctuation of EPS is acceptable.

Erase all the companies which does not have …(continue)

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3 Responses to What is Value Investing? Part 4

  1. AhYap says:

    Buffettology is a very good book and suitable for beginners too.

    The best thing about EPS trend is that if the company suffer a 1 time fall of it EPS that is correctable (such as losing a lawsuit) that will not affect the company in the long run, that is the best time to buy. It will give very good return.

    http://finance.yahoo.com/q/bc?s=AMGN&t=1y

    AMGN is one of the most successful biotech company (I know buffet doesn’t buy biotech). It has a free fall from $75 simply because one of his researched drug in the final stage was canceled. Investors are worried and dump the stock. Earning drop.

    The cancellation of that drug won’t affect the company in the long run, it does burn some cash away currently and lose some earning. But such a big company will definitely do good again in the future.

    I bought at $57 and laugh because PE around that time is only 23 I think and remember, E (earning) at that time is pathetic (very low), so PE 23 means P also very low.

    In the future, either if the E go up, the P will go up. And the overall PE will go up.

    Says the E go back just to normal (up 30%), then investors and fund manager are so happy and they push up the PE to 30 (7 / 23 = 30%) that is 60% return!

    You can’t do that for normal stocks that have ordinary PE or high PE.

    As of writing it is $63. 😀

  2. nang says:

    AMGN needs to put a lot of cash/profit into research every year,to come up with new drug.They earn from patentship but i think the profit margin is rather thin & unstable.I won’t invest in a company which needs to retain so much cash for research.

  3. […] is Value Investing? Part 7 Now,you should have calculated annual EPS growth (from Part 4), understood a company’s strength,weakness,opportunity and threats (SWOT) (from Part 5) […]

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