SOS Financial Indicators Warren Buffett unveiled!

CAN WE USED INDICATORS ON STAND ALONE BASIS?

Most of the time, no.

1)  PEG must be considered when we are using PE evaluation

2)  EBITDA Growth must be considered when we are using EBITDA Multiple evaluation

3)  P/BV must be considered when we are using ROE

4) That is why we must evaluate not only its Profit & Loss (subject to accounting tricks), Balance Sheet (off balance sheet items) and also its Cash Flow, for a period of time.

5) Financial indicators is not an end of an evaluation, we have to consider the MANAGEMENT and BUSINESS MODEL

6)  Financial indicators used as a GUIDE only, why?  Because, in Bursa Malaysia stocks, there are very different from NYSE, there are TWO LEVELS.  First, the fundamental level, second, the demand and supply of the SHARES.

7)  There are many UNDERVALUED shares in term of P/BV and remain the same for many years, e.g TA Enterprise, Insas, BCorp, MUI, etc

8)  There are also many OVERVALUED shares in term of ROE, but they did not look at the P/BV as well.

9)  Fund Managers goes in crowd, no matter how we debate it, Bursa are influence by them greatly as they dominate the VOLUME of the market.

10)  They occasionally driven by FEAR.




WARREN BUFFETT BEST KEPT SECRETS UNVEILED?

1) He likes using ROE, but must be based on a long term perspective (average) taking into account cyclical movements.  Must also consider with P/BV.

2) Another indicator is the growth is earnings over 10  years over the increase in Shareholders' Equity, to see what is the rate

3)  (EY + DY) divided by P/BV - seldom being discussed.  If the ratio 0-2 (overvalued), 2-4 (fairly valued), 4 and above is undervalue  (compared with long term bond yields of 3%)

4) Normally the estimated valuation is compared with the sector they are in as well as their past historical PE range.  Different sector enjoys different range of PE.


MALAYSIA STOCK EXCHANGE

1)  Not all principles (used by Warren Buffett) can be applied locally.  May use it as reference

2) Why, because the stock market dynamics is different, less liquid, family owned, more manipulations, major pension funds and unit trusts influence the market, MSCI, currency, politics etc.

3)  Not all undervalued stocks worth investing, because it is locked, very difficult to monetise.  Sometimes major shareholder privatise a low price.

4) Many sectors are cyclical and not many long term retail investors (mainly are traders).

Main source: http://sosfinancialplanning.blogspot.com/2018/04/sos-financial-indicators-and-its.html