Return on Equity

Return on Equity

Return on equity (ROE) is usually considered something of a ‘Holy Grail’ for many investors, particularly those, like us with a “Value Investment” disposition.
 

What If?

One of the statements I've often heard used by those who try to justify their compulsive ‘undersaving’ or ‘underinvesting’ is “what if I get hit by a bus tomorrow”, or some such morbid, doom-saying prediction.  The inference here is that life is full of uncertainty, so better to enjoy the full measure of your discretionary income in the here and now, than to sock some money away and risk the prospect of leaving behind some inheritance by accident should an unexpected disaster befall you.

Valuing Companies Part 2

You may have noticed I do a lot of 2 part posts.  The reason being is that I start off with a short sharp investing principle I think readers might enjoy, and by the time I’ve typed it out, it runs to 3 pages and is too big for a single post.
 

Valuing Companies Part 1

Without going into enormous lengths, I thought I would talk a little this week about my process in deriving intrinsic valuations of companies I consider for investment.
 

Analysts Top Picks

I am frequently critical of the funds management industry, as I pointed out in my post, routinely, when you factor fees into the equation, over 80% of managers fail to beat the most suitable benchmark.  The key reason for this is fees & charges, of course, but it at least warrants consideration of how useful the advice of brokers/analysts in general is.
 

The Importance of Benchmarking

The S&P/ASX200 TR index (my preferred benchmark) finished calendar 2010 at 34,518.53 points.  If you are a market follower, you will have heard many commentators saying the market was down in 2010.  This is a mistake often perpetrated on an unsuspecting market by an (in my opinion) uninformed ‘commentariat’.
 

The Importance of Buy & Hold

In mid-March 2008, when the market was down 25.85%, I was quietly confident that there shouldn’t be a huge amount of downside left after such a substantial decline.
 

Investment Reading

Well, it’s nearly Christmas, buy someone you care about something useful, a book on investment, to help get them started on the road to financial security.
People, who are interested in investing, invariably will at some stage buy, or be given book/s about investing. I am no different than most, probably having consumed more financial literature than anyone I know. There are lots of really ordinary books out there, don’t let that stop you read everything you can lay your hands on.

Borrowing to Invest

Borrowing to invest is often demonised in the financial press.It is referred to as ‘leverage’ and for good reason, it ‘levers’up your gains and losses.The only time the leverage has no apparent effect is when the return is the same as the cost of the leveraged capital.Recent examples to demonstrate the potential effects of leverage […]

Taxation Value of Equity Investments, Part 2

To clearly demonstrate the advantage of buy and hold equities, I will posit the following situation. Ten years ago on November 23, in the year 2000 you had $10,000, which you wanted to invest in a quality Australian company. I was originally going to say you chose BHP (whose performance I might add was much better than the stock I chose), however, they have done several things like stock splits & de-mergers in the last 10 years, that make a retrospective calculation tricky.

Taxation Value of Equity Investments, Part 1

One thing that does not get nearly enough coverage when talking in terms of wealth creation is the important taxation differences between the various asset classes. People talk about the ‘safety’ of having your funds in cash. When it comes to people like self-funded retirees, with just enough asset coverage to see them out, cash is a valid investment position. For someone with a long-term investment horizon, say younger than 55, or older, but with substantial assets, say more than $2m, cash will likely be a significant anchor on your performance.

Managed Funds

You will often hear me talk about the poor performance as a whole of the managed fund industry, after taking into account fees.Mathematically of course, over any given period, 50% of funds are going to out-perform and 50% will under-perform.Unfortunately, studies have shown that when fees and charges are added into that, over 80% of all managed funds fail to beat a basic benchmark.

I decided, rather than trust someone else’s ‘studies’; I would look into the matter myself.Here was what I discovered:

Beating the Indices

Our most satisfying result was calendar year 2008, a horrible year for investors globally, the S&P/ASX200 (TR) index declined by about 40%.I do not think it appropriate to quote an un-audited result here, but suffice to say that while our portfolio declined in value; it was nowhere near the quantum of the broader market. Any loss of capital is undesirable; however, if the cause of it enables you to accumulate significant positions in some seriously mis-priced issues then, in the longer term, it is not such a bad thing.