Sharp Sharp what is all this Stock Market thing you speak of?
Chairman M’o. Pleased to be of audience to you.
Very simple, it’s all a shopping mall. The JSE is a shopping mall, you get on, shop around and then leave. End of Blog/website. Now go decide which shop/products you want to own and buy them, sell them when you feel the need.
When anything on this website fails to make sense, refer to the above statement. That is by far one of the easiest and quickest ways to get to your destination. Everything else we’re about to do is not as simple as the statement above. “Then why do it?” I hear you asking. Again simply put, we believe that for as long as you’re doing anything at that level of simplicity you’ll get the same return as everyone else who is doing the same thing. So short answer, we want a slightly better return on our money than simply putting it in the bank. B Graham
Normally after a paragraph like the one above most people are ready to sell their kidney and take the road of “high risk high reward” [contrary to popular belief, under situations as such you do need both your kidneys]. But not yet please. They interpret that the more gutsy I am with my money the more I deserve to get back in return. You see the risk should be in the investment and not in the fact that you are willing to lose it all. Life doesn’t care and you can lose it all and still not get your “high reward”. So the first lesson, LEARN TO DO NOTHING. Yes that’s right. Sitting on your hands is probably the best investment decision you will make half the time.
The ability to do nothing after committing to a share you have invested in after doing your research will save you fortunes in buying the wrong stock or make you fortunes in holding on to a stock that is now “surely overvalued”. So proactively learn to do nothing at all. Absolutely Nada!
But then when do I “buy and sell?” When does the fun part come? When does all the adrenalin stuff happen that I always here of? And that’s the second lesson. HAVE A PHILOSOPHY. Which philosophy for choosing a company is the best one? Yay, I’m glad I’ve finally arrived at a website that reveals “the secret”. Truth is, all of the philosophies work. Yes ALL. Most of the problems come when you apply half of this strategy, 2/3rds of that one and then fully lose money. All the strategies work at their given point in the market. Markets follow cycles that are typically all completed within a 7 year period. So at different times in that 7 years yours is to apply lesson number one from above. Do nothing. When it’s not time for your strategy, do nothing. “But others are making money”. Yes, and they won’t be when you are so let them!
The rest of this journey is dedicated to practicing OUR PHILOSOPHY on this website. Value Investing.
Value investing is the practice of buying shares at a deep discount compared to their PAST performance and then waiting for the price to return to their normal valuation. Sometimes it involves receiving dividends while you wait (our favorite), but sometimes not.
When then do we play in the cycle? Best time is when everyone else has left. When there’s breaking news and red banners on news channels of Job losses and unprecedented losses. That is when we go in and look through the marked down basket for the items that shouldn’t be there. We Buy Buy Buy and Buy at this point. It is also at this point (after buying) that I would advise you to fully employ lesson one. Sit on your hands. Do nothing. It’s about to be a bumpy road but at the end of it you come out with WAAAAAAAAAYYYYYYY better returns than you would’ve had you been panicking with everyone else that is on the panic philosophy.
How does it work?
1) Value the company
2) buy the share BELOW its value.
- A good value company, as per Benjamin Graham (every philosophy has its father), is one where the Cash or Working Capital exceeds its liabilities, and at best the share price.
So Current Assets bigger than Current liabilities (two times bigger at least) and long term liabilities (one time bigger at least).
- A good company should then be trading at around what the highest risk free rate in the country is at. So in ours that would SAFELY be 8.5%. To convert that to stock market language we say 100% divided by 8.5% and that gives us a Price to earnings of 11.76. I will be using 11.5 for simplicity of rounding and a rule of thumb reference. Just one other tweak I will make to this is to use an average earnings over a 5 year period (the time our strategy is normally inactive). So we will pay 11.5 times for the value of 5 years earnings. Anything above that is too expensive ie reduces our expected return to below 8.5%.
In conclusion, I hope this is the beginning of the best part of your financial future. Often times it will feel as if we have moved far away from the simplicity of this document. It is at those times that I would advise you to be in contact with us on any of the available platforms and we will gladly bring you back on course.
- Have a Philosophy for choosing companies (Ours is mostly Ben Graham Value)
- Do your research and buy your company when convinced
- Sit back and let money do a 9-5, 24/7, 365 for you.
- Be in contact with us about your experience ☺
I hope to learn as much from you as you will from me and even more so to make money together. I wish you money!