A recent article in Business Standard from India takes a look at the stocks that pass a method similar to Benjamin Graham’s method of calculating the MOS for companies. Their overall conclusion is that this method is good for identifying undervalues stocks with a good margin of safety. This isn’t much of a surprise considering that Graham is considered one of the greatest investors of all time. To learn more I suggest reading Graham’s The Intelligent Investor.
Author Archive for Brian
I came across an article that calls for a decline in value stocks because they have outperformed growth stocks in recent years. The main thing I got from the article is that people are obsessed with labels.
After reading the article you should see that Big Moat investing is great because you are looking for good value in a stock but that does not mean you are looking for ‘value stocks’. Big Moat methodologies work just as well with so-called value stocks, growth stocks, or any other kind of stock as long as they meet the Big Moat criteria.
The article also has a great “thanks for pointing out the obvious” sentence too: (emphasis mine)
It appears that yesterday’s growth stocks may be today’s value stocks, and vice versa. But no matter which category you aim to invest in, you’re dealing with a moving target.
Today’s installment of Wallstrip covers Berkshire Hathaway, the company headed by Warren Buffett.
Buffett and his mentor Benjamin Graham provided the basis for Big Moat investing. No one can argue with the success of Buffett’s methodology, especially since Berkshire’s stock recently passed $100,00 per share.
One of the easiest ways to keep track of the news that is reported on the companies you’re following is to use RSS feeds. By using RSS you will no longer need to search through search engines and web pages to come across news for these companies. RSS makes it very easy to have the news filtered for you.
What is RSS?
RSS is an abbreviation for Really Simple Syndication. RSS feeds are a text version of the content available on news sites, blogs, and forums that can be read by software that is specifically made to read RSS feeds. By subscribing to an RSS feed, you can aggregate the content of most of the sites you read daily and not have to actually visit the site every day.
If a site has an RSS feed available, you will see the icon below in the address bar of the Firefox browser or in the status bar of Internet Explorer.
How will I read RSS feeds?
For the purposes of this article, I’m going to use Google Reader as the feed reader which is browser-based. My suggestion is to make sure you’ve upgraded to Firefox 2.0 because the latest enhancements will make subscribing to RSS feeds even easier. Google Reader is not the most powerful or customizable feed reader available but Google provides this software for free and it will be sufficient for most people out there.
How do I create and subscribe to feeds?
Once you have your Google Reader account, you will need to find or set up the RSS feeds in order to receive the content. Since we’re focusing on finding news about our Big Moat companies we’ll start our search at Google News.
Because I’m interested in Fastenal, I’ll simply search for ‘fastenal’ and view the results. As you can see the first item is about Fastenal’s race-car sponsorship.
Since I don’t want this type of news included, I change my search string to ‘fastenal -racing -indy –hamilton’. Now the results are focused on the company itself.
If you look in the browser’s address bar, you’ll see the orange RSS icon. Click on this icon to bring up the subscription pane that’s pictured below.
Make sure Google Reader is selected in the drop-down box and click Subscribe Now to add the subscription to your feed reader.
This process can be repeated to create a separate RSS feed for each of the companies you are following.
Is there a specific stock you’re interested in? I’m looking for suggestions for the company you would like to see researched next. I’ll be doing a series of posts similar to what I did with Fastenal. I’ll also do the backtesting to see how much profit you would have made using Big Moat methods. Send me an email using the Contact Us page. Thanks!
Today’s stock at Wallstrip is Google so we’ll take a look at it from a Big Moat perspective. This is one company that we don’t even have to look at the Big 5 numbers to analyze: [begin analysis] All of the numbers are huge! [/end analysis] Of more interest for Google are the Margin of Safety and Sticker prices. The current stock price is approximately $460 and using the Big Moat calculator I get a sticker price of $1600 and an MOS price of $800. Look at that Google is on sale!
Google is a perfect example of a Risky Biz stock. There’s very little history and a huge upside if it continues to go up, but there is a lot of room for it to come back down. GOOG is definitely not a Big Moat stock, but one you would definitely want to consider if you’re looking for Risky Biz candidates.
Backtesting is one of those things that in a lot of cases doesn’t mean a whole lot, especially since there was no guarantee that you would have been looking at a particular stock at the time you are testing. In any case, we’ll take a look at how FAST performed if we were to make trades according to Big Moat indicators. For the purposes of our test all stock purchases or sales are made on the market open on the day after each of the indicators go green. The dates tested are January 1, 2003 - October 18, 2006 and the initial dollar amout invested is $10,000.
# of Trades: 27
# of Winning Trades: 10
# of Losing Trades: 17
$ of Profit: $1863.38
Total Return %: 18.63%
Largest Single Winning Trade: $2442.34
Largest Single Losing Trade: ($1636.04)
A lot of today’s population is made up of people who have gone to school, got a job and show up for work each day like they were told they were supposed to do. Many people have aspirations of doing more and making more but never reach the heights they desire. Many of these people even make a habit of complaining about “the rich” or “the man” keeping them from getting their due.
Its no secret that today’s world is a world of debt and a population that has come to expect their right to a job and a steady paycheck and insurance benefits. My belief is that 40 hours of work and saving whatever you can is simply not going to be enough in the coming years. Only those who take control of their own financial destination are going to live the way they truly want. Ben Stein, the actor/economist, has written an excellent column (registration required) for the NY Times on how to get your piece of the pie. In the column he says,
You are always better off working in a field where torrents of money are sloshing through and you can grab a handful as it goes by. That means Wall Street. Finance is the ultimate great business. (Warren E. Buffett famously said that you are always better off being mediocre in a great business than great in a mediocre business, and he easily could have been talking about Wall Street.)
Even if you’ll never have a Wall Street job, you can see why it important to take control of your own finances and investments. You can invest a little now to gain a lot later, but you have to be ready to take your share when the money comes passing by.
Today’s Wallstrip converstation covers Research in Motion, the makers of Blackberry. Looking at RIMM from a Big Moat perspective, the first thing to notice is that RIMM is immediately considered a risky biz because of the lack of 10 years of history. Of all the numbers, Sales have been huge which is completely expected of a fairly new technology that is now called a Crackberry. Equity has been up and down with the most recent year being less than 10%. EPS has also been up and down over the time measured. Currently, RIMM is not considered a true Big Moat candidate, but the popularity of the technology cannot be denied so this may be a company you’re willing to invest in as part of your Risky Biz portfolio.
Click to view RIMM’s Big Moat Numbers full size
Wallstrip is a site where a stock of the day is introduced and discussed each day by several leading stock bloggers. Today they look at Apple (AAPL) and we get to see the opinions of long term investors, day traders and options traders. Its definitely worth checking out!
