Invest
Trinity of Fundamental Analysis Investing
By Singapore Man of Leisure  •  May 15, 2014
In investing, the trinity are: 1) Cash Flow 2) Asset Values 3) Profits Just like the trinity of trading, these 3 components are best viewed as a holistic whole. Most newbies are so fixated on a particular financial ratio or metric that they become like the 4 blind men touching each singular part of an elephant - and missing the overall big picture. Example? Fixation on P/E only. If it's only that simple.... These 3 components are the basic building blocks for these popular fundamental analysis strategies: 1. Value play (Buy low; sell high). 2. Growth play (Buy high; sell higher). 3. Asset play. 4. Turnaround play. 5. Dividend play. Notice I used the word "play"? Let's use the example of a "newbie" value investor to illustrate what I mean. Newbies and "born-again" (failed traders) value investors tend to have lots to say about what they intend to do. High conviction here; strong beliefs there. They intend to or have bought when prices are below the intrinsic value of stocks they are tracking. Now ask them what they will do when the prices have recovered and are at fair value - price is the same as intrinsic value? Or better still, what will they do when prices exceed their intrinsic values? Exactly. That's how I would test for real conviction and check for deeper understanding beyond regurgitating popular buzz words. Not convinced? Try asking yourself why the long time majority and controlling shareholders of F&N decide to sell to ThaiBev? Some plays take decades to complete. Reminisces of a sofa salesman A sale is not completed until the customer pays in full. This was not evident to me when I was working in Metro and Robinsons. Since the customer pays up immediately, a sale automatically results in instant profit and cash in pocket. When I moved to selling sofas at IMM, I found out quickly that we only take a 30% deposit when the sale is made. Balance 70% is collected only when we deliver the made-to-order sofa one month later. And if the delivery gets delayed... A sale here may result in instant "accounting profit", but the cash flow is not the same. Apply it to investing and you will understand the meaning of "play". And yes, this is a poke to those who says unrealised losses are not real; using the same logic, unrealised profits are not real too. Wink, wink.
Singapore Man of Leisure (welcome to my blog; just google it!)
Read the full article
By Singapore Man of Leisure
LEAVE A COMMENT
LEAVE A COMMENT

Your email address will not be published.

*

Your Email Address will not be published
*

Read More Articles
More from thefinance