It depends upon the investor and their preferred style. I have studied technical analysis but today put very little reliance on it, apart from being careful with securities that have low trading volumes. Because they are illiquid, it can be hard to sell out in future, so this has to be considered carefully.
I like fundamental analysis because it looks at intrinsic value (I am a big follower of Warren Buffett). Intrinsic value is based upon a company’s ability to generate cash flow. To make a determination of potential cash flow in future requires fundamental analysis.
I don’t really time the market at all but when I have the cash and the market is down, I tend to put more in on a portfolio basis, usually into managed funds. I set aside an allocation of the portfolio for specific opportunities I identify from time to time, based upon fundamental analysis.
What individuals should do really depends on their investment time horizon, risk appetite, tolerance for losses (which can stress you out!), current cash flow needs and a host of other things. You have really got to think these through before you do anything.
Saturday, April 26, 2008
Thursday, April 24, 2008
Growth or Margins - what's more important?
Both.
Growing margins and revenue are a key driver of cash flow growth.
Cash flow growth is the key driver of valuation - whether using DCF or PE multiples.
Fast growth companies trade at higher multiples than slower growth companies but fast growth companies face more risks (typically).
That is the second key factor in valuation - risk - the volatility in the cash flow amount and growth rate.
So don't forget to manage risk. Negative surprises kill valuations fast.
The state of the economy has an impact as it sets the macro environment the company operates in.
But more important is the state of the specific industry & geography of their target clients and things that impact demand and the ability to increase sales volumes, raise prices or reduce cost of good sold for its products.
Some markets actually grow when the rest of the economy struggles.
Growing margins and revenue are a key driver of cash flow growth.
Cash flow growth is the key driver of valuation - whether using DCF or PE multiples.
Fast growth companies trade at higher multiples than slower growth companies but fast growth companies face more risks (typically).
That is the second key factor in valuation - risk - the volatility in the cash flow amount and growth rate.
So don't forget to manage risk. Negative surprises kill valuations fast.
The state of the economy has an impact as it sets the macro environment the company operates in.
But more important is the state of the specific industry & geography of their target clients and things that impact demand and the ability to increase sales volumes, raise prices or reduce cost of good sold for its products.
Some markets actually grow when the rest of the economy struggles.
Aussie inflation - interest rate increases are not the answer!
CPI in Oz has blown out to over 4%. That means you have to knock 4% off rates of return to work out the real rate of return.
There is still talk of futher rate rises. I doubt it. Reserve Banks use monetary policy to soften or stimulate demand. As demand increases or decreases, so move the inflationary tendencies in the economy.
So inflation is high, so interest rates must go up right?
No. There are from time to time other causes of inflation.
Most of Australia's inflation is on the supply side in staples (things we must buy almost regardless of price) rather than discretionary ( things we can do without if we have to).
Key drivers of current inflation are:
1. rent (we have to have places to live; rents are up more because of low supply than excessive demand; raising interest rates won't stop people looking for places to live).
2. oil prices (again this is supply driven mainly - raising interest rates is unlikely to stop us buying petrol)
3. food, esp. fruit & veg (raising interest rates will not stop people buying food although maybe we will cut back on our fruits and veg)
4. healthcare (if we are sick we will go to the doctor, if we need high blood pressure pills we will still buy them - maybe we will cut down on the viagra but raising interest rates will not stop most people buying their medication - I hope)
The things currently driving inflation are not that closely tied to consumer spending, thus it would be a mistake to raise interest rates further despite current inflation levels.
I think the board of governors of the RBA are wise enough to realize this. Lets hope.
I don't think we will see any rate cuts for awhile but if they use their heads, they won't raise rates at the moment either.
The economy is in grave danger and its now not the consumers fault.
There is still talk of futher rate rises. I doubt it. Reserve Banks use monetary policy to soften or stimulate demand. As demand increases or decreases, so move the inflationary tendencies in the economy.
So inflation is high, so interest rates must go up right?
No. There are from time to time other causes of inflation.
Most of Australia's inflation is on the supply side in staples (things we must buy almost regardless of price) rather than discretionary ( things we can do without if we have to).
Key drivers of current inflation are:
1. rent (we have to have places to live; rents are up more because of low supply than excessive demand; raising interest rates won't stop people looking for places to live).
2. oil prices (again this is supply driven mainly - raising interest rates is unlikely to stop us buying petrol)
3. food, esp. fruit & veg (raising interest rates will not stop people buying food although maybe we will cut back on our fruits and veg)
4. healthcare (if we are sick we will go to the doctor, if we need high blood pressure pills we will still buy them - maybe we will cut down on the viagra but raising interest rates will not stop most people buying their medication - I hope)
The things currently driving inflation are not that closely tied to consumer spending, thus it would be a mistake to raise interest rates further despite current inflation levels.
I think the board of governors of the RBA are wise enough to realize this. Lets hope.
I don't think we will see any rate cuts for awhile but if they use their heads, they won't raise rates at the moment either.
The economy is in grave danger and its now not the consumers fault.
Winning Entrepreneurs! How do they do it?
I just recently interviewed several people on this very question (mainly Australian VC’s). There are more than 3 here but you can see the traits and habits that lead to success.
Successful entrepreneurs tend to have the following habits/traits:
1) Stong self-belief & persistence (one founder had to visit 49 VC’s before finding one that would back him)
2) They listen and learn (bad one’s don’t listen); Good ones know what they don’t know and openly admit it. Good ones are always learning
3) They are good at building teams and recruiting ‘A’ caliber people
4) They spend a lot of time talking to customers and potential customers to really understand their world and their needs
5) They talk and network with people who have done it before!
6) They are very good communicators and work at it
7) They are rational risk takers They are creative
Interestingly, not all entrepreneurs make great leaders. Sometimes they have to hand over the reins and that is again where points 3 and 2 really come in.
Watch out for a book I am co-authoring on this subject in early 2009/late 2008 (Enterprise and Venture Capital).
See other ideas at my other blog: www.tomthemoneyman.wordpress.com
Successful entrepreneurs tend to have the following habits/traits:
1) Stong self-belief & persistence (one founder had to visit 49 VC’s before finding one that would back him)
2) They listen and learn (bad one’s don’t listen); Good ones know what they don’t know and openly admit it. Good ones are always learning
3) They are good at building teams and recruiting ‘A’ caliber people
4) They spend a lot of time talking to customers and potential customers to really understand their world and their needs
5) They talk and network with people who have done it before!
6) They are very good communicators and work at it
7) They are rational risk takers They are creative
Interestingly, not all entrepreneurs make great leaders. Sometimes they have to hand over the reins and that is again where points 3 and 2 really come in.
Watch out for a book I am co-authoring on this subject in early 2009/late 2008 (Enterprise and Venture Capital).
See other ideas at my other blog: www.tomthemoneyman.wordpress.com
Do I need to put my own money in to my startup?
You almost always have to.
If you don't put up a significant part of your personal networth in the business, no one else will invest.
If you won't bet the farm on the idea, no one else will.
But once started, you don't need to do it all yourself.
But investors, and even bankers, want to see substantial personal commitment by the founder at the seed and start up stage.
With your own money, you show the world you believe.
With your own money, keep the equity yours and you keep control.
But to grow fast, eventually you will need outside capital. When that time comes, don't be too greedy about control and ownership. It is better to own 50% of something worth $50m than 100% of something worth $5m.
visit my other blog for more ideas: tomthemoneyman.wordpress.com
Links:
http://tomthemoneyman.wordpress.com
If you don't put up a significant part of your personal networth in the business, no one else will invest.
If you won't bet the farm on the idea, no one else will.
But once started, you don't need to do it all yourself.
But investors, and even bankers, want to see substantial personal commitment by the founder at the seed and start up stage.
With your own money, you show the world you believe.
With your own money, keep the equity yours and you keep control.
But to grow fast, eventually you will need outside capital. When that time comes, don't be too greedy about control and ownership. It is better to own 50% of something worth $50m than 100% of something worth $5m.
visit my other blog for more ideas: tomthemoneyman.wordpress.com
Links:
http://tomthemoneyman.wordpress.com
Why aren't there more women CEO's of large companies?
Its an interesting question.
This may sound glib but the CEO's I know are nearly married to the company. They have a lot of positive features but work very long hours and are almost always 'on'.
My gut feeling is women want a more balanced life. Running a company is very satisfying but there are a lot of things in life that give more enjoyment & personal satisfaction than purely money and power.
Women just may be better attuned to those other things in life that make it great!
Therefore I think its largely because of conscious or unconscious choice.
This may sound glib but the CEO's I know are nearly married to the company. They have a lot of positive features but work very long hours and are almost always 'on'.
My gut feeling is women want a more balanced life. Running a company is very satisfying but there are a lot of things in life that give more enjoyment & personal satisfaction than purely money and power.
Women just may be better attuned to those other things in life that make it great!
Therefore I think its largely because of conscious or unconscious choice.
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