Long term investments

Valuation The Headington Shark. 2017 I feel that to write an article about valuation  is a must in a finance blog and especially if the blog is focusing on long term investment opportunities. At the outset I would like to quote the classic Spanish writer Antonio Machado who said "Only a fool thinks price and value are the same". The key of a good investment is to analyse the intrinsic value of a business, and try to buy it under this value. There are many reasons to value a company: fix a fair price of company in an IPO (Initial Public Offer), what price to pay in a take over of a competitor company, a spin- off, companies which are involved in a liquidation process or only because you are a professional investor or non-professional investor and you want to incorporate new stocks in your portfolio. There are different techniques of valuation but I be very arrogant if thought could explain I could explain all of them in a simple article. I  would just like...

Growth, risk and current assets Have you ever noticed that some investment managers are reluctant to invest in companies with excessive growth? For example a company with a growth on revenue of 50% . In this article I would like to explain one of the possible reasons which is the trade off between liquidity and profitability. Working capital management  is very important when it comes to minimising the risk of insolvency while maximising the return on asset. Just for your better understanding   I will explain with an example of overtrading. A company is in an overtrading situation when it strongly increases its revenue but without sufficient capital to fund it. Usually an overtraded company increases the level of sales, increases the level of current assets (inventory and receivables), most of the mentioned assets are financed by credit and the liquidity ratios fall dramatically. The company is in a sweet moment in terms of sales but at the same time is struggling...

PRICE EARNING RATIO (PER) PE=MARKET PRICE/EPS This is not an academic blog, however I would like to write about the Price Earning Ratio or PE ratio. This ratio is very used in the industry and you would find very easily in the economic news papers.  It can be calculated by dividing the market value of the stock by the earning per share (EPS) or dividing the total market capitalization by the total earning. A high ratio indicates that investors have a positive perception of the company (the investors are discounting high growth of a company). As lower the PE ratio, cheaper will be the stock in particular. Value investors try to find good companies with low PE ratio (we assume that the market is inefficient or weak efficient), otherwise the investor would not invest in a company wih a low PE ratio. Comparing PE ratios of different companies is meaningless, companies ratios has to be compared inside their industry. We also can not consider this ratio in insolation whe...

My ideal investment manager Bottom-up approach in the selection of the stocks. Good knowledge of business, accounting and valuations techniques. Person aware about the macroeconomic situation. Transparent and independent. Person who has a fluent relationship with the directors of the companies of its portfolio. Personality: calm, analytical and with tons of common sense. A person who can do a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis in the  target companies of the portfolio. Committed with  ESG issues: environment, social and governance. Investor and consumers are directly responsible  the world that we live in. ESG is not only necessary from an ethical point of view but  is also a risk for our portfolios, especially for a value investors or investors with a long term approach. However it is very interesting how many investment managers disregard ESG criteria when it comes to building up a portfolio. No very expensive fees. Par...

Tips for long term investments  Oxford 2014  Investing is less complicated that people think. What  is complicated is to have outstanding returns. Below you can find some recommendations that I learnt from my own experience.  Reduce your cost and expenses. Generally we  focus on getting high returns but we can save more money if we analyse our expenditure behaviour. Be systematic, try to put aside money every month. Save or invest looking to achieve an objective (buy a car, pension, etc) Analyse you risks towards the investment and make a breakdown for every objective considering the length of time - E.g. The risk of my pension is much higher that my savings for a two years objective such as buying a new car. Try to invest in real assets that correlate positively with inflation (real state, stocks...). Diversify ( 15-20 securities is enough ) Invest only in what you understand. Try to avoid branch bank offices produ...