trader_sal:

blaster:

Hello chrib I thought you said you were not a daytrader?

 

Just because someone isn't a "day trader" doesn't mean they never do a day trade. I'm not a day trader but will sometimes make a day trade.

Bingo!

I'm not a trader either, but if I buy in and something makes a run that I dont think will be sustained, I'll take my profits (and usually, watch and wait for it to back down, get back in with the principle plus the profit and now be even better able to leverage my LT B&H approach).

Hello

guess  no one saw that  CPSL  had a double top on Monday and it was a smart move to get out before the close 

 I see that chirb was the wise one to not jump to any conclusions..

You guys have to start seeing the forest for the trees..

Good luck

Angell:

Trader_Sal,

You are right some of my discussion has been over-the-head of the beginner. Again not because they are stupid but because a lot of what I have talked about is complicated and most have probably not received the formal education I have received. Nonetheless, I think your "beginner investor" thread is good idea. The only porblem is that it may be difficult to teach, since most investment topics are math intensive. Either way if I find some time I will start another thread that will attempt to explain some of those topics. By the way this threads purpose was not necessarily to teach how to invest, it was simply to show that frequently trading causes your to incur signficiant tax and transaction related costs that make it very difficult to consistently outperform the market.

Angell

Fortunately the beginner investing stuff's already out there. I learned all the fundamental techniques I needed to perform sophisticated analyses on a company's fundamentals starting here:

http://www.fool.com/

Anyone else get their schooling at Fool's School? Anyway maybe some of you will end up taking the same path I did, spending 7 years on this path only to throw it all out in a fit of pique.

I don't know, maybe I'll start day trading more. My past track record has been mediocre though. I've lost more money day trading than I've made (net of -0.5% of my portfolio, so not disastrous)

What's cool about charting is that it works on all timeframes.

If I take what I do on the daily charts and apply them intraday, theoretically the same principles should apply. I have a much better record trading the daily charts.

The only thing is, I need the same tools for intraday that I have for daily. Namely, I need to be able to scan through a ton of intraday charts quickly, say on a 10- or 15-minute timeframe. Right now all I can do is look at one intraday chart at a time using Ameritrade. Anyone know where I can get the tools to scan through, I don't know, 40-50 15-minute charts at a time?

Chrib:

I don't know, maybe I'll start day trading more. My past track record has been mediocre though. I've lost more money day trading than I've made (net of -0.5% of my portfolio, so not disastrous)

What's cool about charting is that it works on all timeframes.

If I take what I do on the daily charts and apply them intraday, theoretically the same principles should apply. I have a much better record trading the daily charts.

The only thing is, I need the same tools for intraday that I have for daily. Namely, I need to be able to scan through a ton of intraday charts quickly, say on a 10- or 15-minute timeframe. Right now all I can do is look at one intraday chart at a time using Ameritrade. Anyone know where I can get the tools to scan through, I don't know, 40-50 15-minute charts at a time?

Tradestation calls this tool their Radar Screen. 

jackg1606:

Tradestation calls this tool their Radar Screen. 

Maybe I'll open an account there - any chance you could send me a screen shot? chribstrades@gmail.com
Feel free to send me any referral bonus link

Chrib,

"Fortunately the beginner investing stuff's already out there. I learned all the fundamental techniques I needed to perform sophisticated analyses on a company's fundamentals starting here:

http://www.fool.com/

Anyone else get their schooling at Fool's School? Anyway maybe some of you will end up taking the same path I did, spending 7 years on this path only to throw it all out in a fit of pique."

---------------------------------------------------------

I finally understand why you performed so poorly with your fundamental analyses: You followed the horrible advice of the Motley Fool. I mean in that article the Motely Fool doesn't even define free cash flow correctly. They define cash flow as EBITDA (earning before interest, taxes, depreciation, and amortization)! This is not cash flow. Do they think taxes and capital additions are not cash costs of the business? If you based your DCF models on EBITDA than it is very clear why you did poorly with fundamental based analysis, you were essentially capitalizing taxes and depreciation. I strongly suggest that no one follow the advice of the Motely Fool. Those articles are simplistic and deficient in many respects. If you want to learn fundamental based anlaysis pick up a book by Aswath Damadoran or Shannon Pratt. Aswath Damadoran is a professor at  NYU''s who speacliazed in business valuation (BV). He is an academic expert on anything related to valuation. Shannon Pratt is esssentialyl the authorative source on everything BV. He is the founder of Willimate & Associates and started the Business Valuation Review and Business Valuation Update, which are both professional journals used by the valuation community. Those two sources will provide very good valuation information (Damadoran is more focused on publicly traded companies and Pratt is more focused on Small Buinsesses. However, that doesn't really matter because the concepts do not change). The Motely Fool is for children (no offense Chrib. I am not calling you a child).

Angell

Angell

Angell:

Chrib,

"Fortunately the beginner investing stuff's already out there. I learned all the fundamental techniques I needed to perform sophisticated analyses on a company's fundamentals starting here:

http://www.fool.com/

Anyone else get their schooling at Fool's School? Anyway maybe some of you will end up taking the same path I did, spending 7 years on this path only to throw it all out in a fit of pique."

---------------------------------------------------------

I finally understand why you performed so poorly with your fundamental analyses: You followed the horrible advice of the Motley Fool. I mean in that article the Motely Fool doesn't even define free cash flow correctly. They define cash flow as EBITDA (earning before interest, taxes, depreciation, and amortization)! This is not cash flow. Do they think taxes and capital additions are not cash costs of the business? If you based your DCF models on EBITDA than it is very clear why you did poorly with fundamental based analysis, you were essentially capitalizing taxes and depreciation. I strongly suggest that no one follow the advice of the Motely Fool. Those articles are simplistic and deficient in many respects. If you want to learn fundamental based anlaysis pick up a book by Aswath Damadoran or Shannon Pratt. Aswath Damadoran is a professor at  NYU''s who speacliazed in business valuation (BV). He is an academic expert on anything related to valuation. Shannon Pratt is esssentialyl the authorative source on everything BV. He is the founder of Willimate & Associates and started the Business Valuation Review and Business Valuation Update, which are both professional journals used by the valuation community. Those two sources will provide very good valuation information (Damadoran is more focused on publicly traded companies and Pratt is more focused on Small Buinsesses. However, that doesn't really matter because the concepts do not change). The Motely Fool is for children (no offense Chrib. I am not calling you a child).

Angell

Angell

Thanks for your feedback - my DCFs had undergone so many transformations over the years, and I do remember how different writers had completely different methodologies for figuring both numerator and denominator. At the very end I was using a spreadsheet-based program called eVal based on the text Equity Valuation and Analysis with eVal by Russell Lundholm & Richard Sloan. A step up from the Fool, but in my opinion no more accurate since DCF calculations are incredibly sensitive to small percentage changes in the discount rate used. Change your discount rate from 8% to 8.5% and suddenly your stock is no longer "undervalued" - well, since I pulled 8% out of my a$$ anyway...

Chrib,

Two things. First, if you are using Excel spreadsheets to calculate  a value your valuations are becoming too comlicated. As Warren Buffet has always said "Value should just scream at your." Therefore, if you need an Excel spreadsheet to consider every single little detail than the value isn't screaming. Secondly, I completely agree: changes in the discount rate can dramatically change an indication of value.  This is actually one of my major problems with DCF analysis. For example, in certain situations a 1% increase in the rate can reduce the value of the business by 20% (assuming most of the value is tied to the terminal year). Moreover, since rates are probably the most difficult aspect of DCF analysis to estimate, it becomes obvious how subjective a DCF analysis can become. I have come up with some solutions to this problem, however. The best way is to use multiple rates to derive various levels of value. For example, if you are using CAPM to derive a rate I typically will look at the standard error of the beta term in a regression. This will give you a range of "true" betas. I will typically pop the beta out 2 standard deviations to the upside to derive what I call a conservative beta. This conservative beta is high enough from the CAPM beta that you can essentialyl be statistically confident that it is not much higher. I will then value the business using this conservative beta. If the business is still undervalued that you can be pretty confident in that assessment (assuming of course your cash flow projections are reasonable). If you are using a build-up method to derive a rate then I would simply tack on what I call an rate uncertainty premium. Typically, I add about 2% to non-premium build up rate. Again I would then revale the business using this rate. If the business is still undervalued (or atleast fairly valued) you can be pretty confident that you are a receiving decent value for the money your must pay. Another easier method is to simply not mess with the rate but to only by busineses that are significanly below your estimate of instrinsic worth. For example. you could value the business using a traditional market rate 9-10% (this is usually dervied by obtaining the yield on govt bond maturing in 20yr and adding an equity risk premium of approximately 4-6%). Then value the business. If the business is 50% below the value your derive, you can be very confident that the businesss is undervalue. If it is not undervalued than it just means taht your rate is incorrect. But the correct rate would have to be very high to justify a valuation of 50% below your estimate using a 9-10% discount rate. Since I do not typically assess risk on the rate but on the risk characteristics of the business (academics don't support this) then I would be more than happy to buy a business yielding, say a corret rate 15%, to justify a 50% undervalution at an incorrect rate of 9-10%.

Angell

 

Angell:

(assuming of course your cash flow projections are reasonable).

I don't think there really is a way to make reasonable cash flow projections 5, 10, 15 years into the future. I don't think it can be done even 2 years into the future for tech companies.

You're kinda stuck with big caps in boring markets: WAG, JNJ, MMM, barf barf barf. A big risky buy would be MRK. And I don't mean to bring up a sore point, but FNM had some of the steadiest cash flow figures around.
Sure this is what Buffett buys, but it is so damn uninteresting. There really is no way to do a DCF that you can have any assurance in for GOOG for example. I did an evaluation with optimistic cash flow growth figures and came up with a price of $2,500+ per share. Then I did another evaluation with pessimistic figures and came up with $200 per share. Meanwhile GOOG has made millions of people tons of money and I'm still tinkering with my spreadsheet. Forget that!