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WeekendCasanova · 04-14-2016 11:33 AM

I can't find a thread like this on the forum so I decided to create it. The purpose of this thread is for myself and others to post their respective investment strategies/theories. Whether it's your own, or a strategy that you've discovered, implemented, and have liked, or even one that you hate.

I've always been interested in different investment strategies. Limiting yourself to one is a big mistake in my opinion. I'll be posting some of my favourite strategies, and some that I don't like. The point is to learn, test, and improve.

The first strategy that I'll be posting is the Piotroski High F-Score screen. It's a less-common method, and you rarely see it being used in the industry. In saying that, however, wealth management and boutique investment banking firms are beginning to use it more nowadays.

Personally, I've used this method in the past. It's fairly simple to use if you have a general understanding of accounting and financial concepts. If you don't have a general understanding of these concepts, I'll be going fairly into detail below.

Investment Strategy: The Piotroski High F-Score Screen

Numerous research studies point to the long-term success of using value strategies to select stocks. Value strategies build stock portfolios by seeking out stocks with low prices relative to variables such as; earnings, book value, cash flow or dividends.

Joseph Piotroski is an accounting professor at the University of Chicago Graduate School of Business. He recently undertook a study of low price-to-book value stocks to see if it's possible to establish some basic financial criteria to help separate winners from losers.

Low Price-to-Book-Value

Piotroski's work starts with low price-to-book-value stocks. Price-to-book-value was a favourite measure of Graham and his students who sought companies with a share price below their book value per share. While the market does a decent job of valuing securities in the long-run, in the short-run it can overreact to the information it receives and pushes prices away from their true value. Measures such as price-to-book-value help to identify which stocks are truly undervalued and neglected.

For those who are unfamiliar with investment concepts, the price-to-book-value is determined by dividing the market price by the book value per share. Book value is generally determined by subtracting total liabilities from total assets and then dividing by the number of shares outstanding. It represent the value of the owners' equity based upon historical accounting decisions.

If accounting really captured the current values of the firm, then it's not a stretch to imagine that the current stock price will be selling for a price near its accounting book value. However, this is not the case; many events often distort the book value figure.

For example - inflation can leave the replacement cost of capital goods within the firm far above their stated book value, or the purchase of a firm may lead to accounting goodwill (not economic which although intangible, is important). Some services are more conservative in reporting book value and may subtract out the value of intangibles such as patents, copyrights, trademarks, or goodwill. Different accounting policies among industries may also come into play when screening for low price-to-book stocks.

Piotroski first limited his universe to the bottom 20% of stocks according to their price-to-book-value ratio and this should be your first screening criterion. Valuation levels of stocks vary over time, often dramatically from bear market bottoms to bull market tops. During depths of a bear market, many firms can be found selling for a price-to-book ratio less than one. In the latter stages of a bull market, few companies other than troubled firms sell for less than book value per share.

Most stocks trade with an extremely low price-to-book value. These firms are neglected or often financially troubled. Small, thinly traded stocks are rarely followed by analysts. The flow of information is limited for these stocks and can lead to mispriced stocks. Analysts typically ignore these stocks and tend to focus on stocks with general interest.

Financially distressed firms are often beaten down below their intrinsic value as investors await strong signs that a company has fixed its problems and the worst is behind them. Poor performance = overly pessimistic expectations of future performance. This pessimistic value translates into above market performance as companies outperform market expectations in subsequent quarters.

Piotroski found either situation can create buying opportunities, after checking on financial strength, especially when studying smaller cap stocks.

Financial Conditions

Piotroski developed a 9 point scale that helps to identify stocks with solid and improving financials. Profitability, financial leverage, liquidity, and operating efficiency are examined using popular ratios and basic financial elements that are easy to use and interpret. For this screen a passing stock is required to have a score of eight or nine.

1) Minimum Profitability: Piotroski awarded up to 4 points for profitability; 1 for positive return on assets, 1 for positive cash flow from operations, one for an improvement in return on assets over the last year, and 1 if cash flow from operations exceeded net income. These are very very simple tests that are easy to measure. Don't worry about industry, market, or time-specific comparisons.

2) ROA (Return on Assets): Using this strategy, ROA is defined as net income before extraordinary items for the fiscal year preceding analysis, divided by total assets at the beginning of the fiscal year. A high ROA implies that the assets are producting and well-managed.

Piotroski didn't look for high levels; only a positive figure. While this strategy may not seem restrictive, he found that over 40% of the low price-to-book-value stocks had experienced a loss in the prior two fiscal years. Positive income is a significant event for these firms. The next variable to consider is improving profitability. 1 point should be awarded if the current year's ROA is greater than the prior year's ROA.

3) Operating Cash Flow: 1 point is awarded if a firm had positive operating cash flow (OCF). OCF is reported on the statement of cash flows and measures a company's ability to generate cash from day-to-day operations as it provides goods and services to its customers. Factors such as cash from the collection of AR, cash incurred to produce any goods and services, payments, taxes, etc...A positive cash flow from operations implies that a firm was able to generate enough cash from continuing operations without the need for additional funds. A negative cash flow from operations indicates that additional cash inflows were required.

4) Accrual Accounting Check: This examines the relationship between the earnings and cash flow. 1 point is awarded if cash from operations exceeded net income before extraordinary items. This measure tries to avoid firms making account adjustment to earnings in the short run that may weaken long-term profitability. Piotroski feels that this element may be especially important for value firms; which have a strong incentive to manage earnings to avoid violations to debt covenants.

5) Capital Structure: Up to 3 points should be awarded for capital structure and the firm's ability to meet future debt obligations. 1 point if the ratio of debt-to-total-assets declined in the past year, 1 if the current ratio improved over the past year, and 1 if the company did not issue any additional common stock. Since many low price-to-book value stocks are constrained financially, he assumed that an increase in financial leverage, a deterioration of liquidity or the use of external financing is a sign of increased financial risk.

6) Financial Leverage: This method defined debt-to-total-assets as long-term debt + the current portion of long-term debt divided by average total assets. The higher the figure, the greater the financial risk. Smart use of debt allows a company to expand operations and leverage the investment of shareholders provided that the firm can earn a higher return than the cost of debt. By raising additional external capital, a financially distressed firm is signaling that is unable to generate sufficient internal cash flow. An increase in long-term debt will place additional constraints on the financial flexibility of a firm, and will likely come at great cost.

7) Liquidity: In order to judge liquidity, a company earns 1 point if its current ratio at the end of its most recent fiscal year increased compared to the prior fiscal year. Liquidity ratios examine how easily the firm could meet its short term obligations, while financial risk ratios examine a company's ability to meet all liability obligations.

The current ratio compares the level of the most liquid assets (current assets) against that of the shortest maturity liabilities (current). Go back to accounting 101 and divide current assets by current liabilities. A high current ratio indicates a high level of liquidity and less risk of financial troubles. Too high a ratio may mean unnecessary investment in current assets or failure to collect receivables(or a bloated inventory), all negatively affecting earnings. A low ratio implies illiquidity and the potential for being unable to meet current liabilities and random shocks that may reduce the inflow of cash.

Piotroski assumed that an improvement in the current ratio is good signal regarding a company's ability to service its current debt obligations. He also indicated in a footnote that the decline in current ratio was only significant if the current ratio is near one.

8) Equity: 1 point if the firm did not issue common stocks over the last year. Similar in concept to an increase in long-term debt, financially distressed companies that raise external capital could be indicating that they are unable to generate sufficient internal cash flow to meet obligations.

9) Operating Efficiency: Now we examine changes in the efficiency of operations. 1 point for showing an increase in their gross margin, and another point if asset turnover has increased over the last fiscal year. These ratios reflect two key elements impacting ROA. Longer-term investors (I know lots on this forum are day-traders), buy shares of a company with the expectation that the company will produce a growing future stream of cash. Profits point to the company's long-term growth and staying power. Gross profit margins reflect the firm's basic pricing decisions and its material costs. This is computed by dividing gross income (sales - COGS) by sales for the same time period.

Piotroski zeroed in on improving gross profit margin because of immediate signal of an improvement in production costs, inventory costs, or increase in the sale's price of the company's product or service.

The final element in Piotroski's financial scoring system adds a point if asset turnover for the latest fiscal year is greater than the prior year's turnover.

Asset turnover (total sales divided by beginning period total assets) measures how well the company's assets have generated sales. Industries differ dramatically in asset turnover, so comparison to firms in similar industries is crucial. Too high a ratio relative to other firms may indicate insufficient assets for future growth and sales generation, while too low an asset turnover figure points to redundant or low productivity assets. An increase in the asset turnover signifies greater productivity from the asset base and possibly greater sales levels.

Conclusion

I've attached a chart showcasing the results (I couldn't find 2015/2016, so if anyone can, please post below!). The screening results tie low price to book to a perfect score of 8 or 9. Overall, Piotroski found that the higher the financial score, the higher the average portfolio return. Overall, the higher the financial score the greater the average portfolio return. Results of individual stock will vary dramatically. Even with these additional financial tests it is important to perform a careful analysis of any passing stocks.

[Image: Untitled.png]

Summary
Piotroski: High F-Score Screening Criteria
The stock must satisfy at least eight of the following nine parameters:
- The return on assets for the last fiscal year (Y1) is positive
- Cash from operations for the last fiscal year (Y1) is positive
- The return on assets ratio for the last fiscal year (Y1) is greater than the return on assets ratio for the fiscal year two years ago (Y2)
- Cash from operations for the last fiscal year (Y1) is greater than income after taxes for the last fiscal year (Y1)
- The long-term debt to assets ratio for the last fiscal year (Y1) is less than the long-term debt to assets ratio for the fiscal year two years ago (Y2)
- The current ratio for the last fiscal year (Y1) is greater than the current ratio for the fiscal year two years ago (Y2)
- The average shares outstanding for the last fiscal year (Y1) is less than or equal to the average number of shares outstanding for the fiscal year two years ago (Y2)
- The gross margin for the last fiscal year (Y1) is greater than the gross margin for the fiscal year two years ago (Y2)
- The asset turnover for the last fiscal year (Y1) is greater than the asset turnover for the fiscal year two years ago (Y2)

not_dead_yet · 04-14-2016 01:14 PM

If you're going to cut and paste someone else's work, why not post a link to the original material?

WeekendCasanova · 04-14-2016 01:19 PM

(04-14-2016 01:14 PM)not_dead_yet Wrote: If you're going to cut and paste someone else's work, why not post a link to the original material?

It's not from one individual source. Otherwise, I would. The strategy screen name is enough, considering it's simply to a search on his name, and his philosophies.

Thanks for the suggestion, however.

Edit: If people are interested, even though I'm not affiliated with them, AAII screens provides industry journals. I'm not sure if you can purchase them without working in the industry, but you can find many screens there.

Beirut · 04-14-2016 05:04 PM

Thanks weekend this is pretty interesting to me.

Im reading the intelligent investor now, and have researched investing before it, as its sort of new around here and most people invest in real estate alone here (and banks, since they return 6.5% on our local currency).

Anyway, all the technical analysis speculation methods seem like horseshit to me, my mind is blown how what is essentially gambling is portrayed as a science, in many instances. Although like i said, im a total newb.

This technique however it seems relies on the solid fundamentals that Graham and Buffet preach and makes much more sense to me.

Idiot question: where do you get the info and numbers about the companies from?

WeekendCasanova · 04-15-2016 11:46 AM

(04-14-2016 05:04 PM)Beirut Wrote: Idiot question: where do you get the info and numbers about the companies from?

It depends on who your broker is, or which services you have subscriptions to. Yahoo Finance is a good, free tool. As well, you can use http://sedar.com/ for Canadian companies, and http://www.sec.gov/edgar/searchedgar/companysearch.html for U.S companies.

If you use a discount broker, for example in Canada it's mainly Questrade, they have a 'market research' section where you can search for the financials of pretty much any company out there.

In addition, there's Reuters, Bloomberg, Morningstar etc...Many options out there.

PhDre · 06-02-2016 02:07 PM

I have about 40k euro that I want to invest for a medium term period (2-5 years). Since this capital represents the majority of my savings, I want to invest it in a low risk way. I am not looking for return on investment, but for a decent strategy to keep up with inflation and to minimize my losses in case of a collapse of the euro or usd.

Unfortunately all investment advice on the internet seems to come from mainstream economists (i.e. people who believe in infinite economic growth, the sustainability of ever increasing debt, … ) and I don’t trust them at all.

There are two things I am wary of at the moment:
- entering the stock market with the current high P/E ratios, especially given the fact that I don’t have the knowledge nor the time to manage my investments on a daily or weekly basis.
- Entering the real estate market. The market in my home country is strongly overvalued and I don’t want to invest in a market that I don’t know.

I was thinking of splitting the capital over savings accounts in euro, yuan and rubles and a bitcoin wallet, but honestly, I’ve got no idea what I’m doing.

Can you guys give me some ideas for a strategy? Again, I am not looking for return on investment but for a way to minimize the hit I take in the case of strong inflation or a collapse of the euro.

~~BlackHat~~ · 06-02-2016 02:23 PM

(06-02-2016 02:07 PM)PhDre Wrote: I have about 40k euro that I want to invest for a medium term period (2-5 years). Since this capital represents the majority of my savings, I want to invest it in a low risk way. I am not looking for return on investment, but for a decent strategy to keep up with inflation and to minimize my losses in case of a collapse of the euro or usd.

Unfortunately all investment advice on the internet seems to come from mainstream economists (i.e. people who believe in infinite economic growth, the sustainability of ever increasing debt, … ) and I don’t trust them at all.

There are two things I am wary of at the moment:
- entering the stock market with the current high P/E ratios, especially given the fact that I don’t have the knowledge nor the time to manage my investments on a daily or weekly basis.
- Entering the real estate market. The market in my home country is strongly overvalued and I don’t want to invest in a market that I don’t know.

I was thinking of splitting the capital over savings accounts in euro, yuan and rubles and a bitcoin wallet, but honestly, I’ve got no idea what I’m doing.

Can you guys give me some ideas for a strategy? Again, I am not looking for return on investment but for a way to minimize the hit I take in the case of strong inflation or a collapse of the euro.

Agricultural land seems like a good play if you want to hedge against inflation. At the end of the day we don't really need Iphones but we will always need wheat,corn.

Kissinger2014 · 06-02-2016 04:35 PM

There is an ETF: QVAL, that seems somewhat close to the Piotroski approach of quality on the cheap. The famous hedge fund manager, Joel Greenblatt, who wrote "The Little Book that Beats the Market" had an ETF that used his Magic Formula (basically low Price/CF and low debt), but he closed that.

With any of these quality/value plays be prepared for high tracking error, they can lag the market for years. But in the end, they do seem to outperform.

~~jj90~~ · 06-02-2016 05:27 PM

(06-02-2016 02:07 PM)PhDre Wrote: I have about 40k euro that I want to invest for a medium term period (2-5 years). Since this capital represents the majority of my savings, I want to invest it in a low risk way. I am not looking for return on investment, but for a decent strategy to keep up with inflation and to minimize my losses in case of a collapse of the euro or usd.

While not impossible, it is highly unlikely that there is a "collapse" in a major world currency. Will your purchasing power be cut, yes. Will you experience Weimar Republic inflation, possible but unlikely. The Brazilian real has been depreciated against the US dollar 50% in the last 5 years, people still live fine there. No Mad Max scenarios. Possible != probable.

In the event it all goes Pete Tong, you will see it coming.

(06-02-2016 02:07 PM)PhDre Wrote: There are two things I am wary of at the moment:
- entering the stock market with the current high P/E ratios, especially given the fact that I don’t have the knowledge nor the time to manage my investments on a daily or weekly basis.
- Entering the real estate market. The market in my home country is strongly overvalued and I don’t want to invest in a market that I don’t know.

I was thinking of splitting the capital over savings accounts in euro, yuan and rubles and a bitcoin wallet, but honestly, I’ve got no idea what I’m doing.

Can you guys give me some ideas for a strategy? Again, I am not looking for return on investment but for a way to minimize the hit I take in the case of strong inflation or a collapse of the euro.

There are 2 main assets that has withstood the test of time regarding inflation. Dividend paying equities, and RE/land. Pick your poison.

There's a reason why stock markets/real estate in most major developed economies are strong(high).

Don't try your currency idea if you have no idea by your admission what you are doing. You aren't hedging your inflationary risk and are just really taking a bet on other economies inflation.

RatInTheWoods · 06-02-2016 06:50 PM

For Australia:
Real estate - 3-4% net rental returns and a capital growth between 1-10%
Dividend shares - 4% dividend franked, and some long term capital growth (> than inflation)

For Thailand:

Real estate 9% net rental returns 12% capital gains <- but with a metric shit ton of risk!!!

Looking into P2P lending now

~~chakalaka~~ · 06-02-2016 07:45 PM

(06-02-2016 04:35 PM)Kissinger2014 Wrote: There is an ETF: QVAL, that seems somewhat close to the Piotroski approach of quality on the cheap. The famous hedge fund manager, Joel Greenblatt, who wrote "The Little Book that Beats the Market" had an ETF that used his Magic Formula (basically low Price/CF and low debt), but he closed that.

With any of these quality/value plays be prepared for high tracking error, they can lag the market for years. But in the end, they do seem to outperform.

Greenblatt has a site with stocks fitting the little book criteria:

https://www.magicformulainvesting.com/

Supposedly it gives you between 10-30% in 3 years. I haven´t tried this yet.

Greenblatt also has some funds:

https://www.gothamfunds.com/performance.aspx

lavidaloca · 06-02-2016 08:30 PM

(06-02-2016 06:50 PM)RatInTheWoods Wrote: For Australia:
Real estate - 3-4% net rental returns and a capital growth between 1-10%
Dividend shares - 4% dividend franked, and some long term capital growth (> than inflation)

For Thailand:

Real estate 9% net rental returns 12% capital gains <- but with a metric shit ton of risk!!!

Looking into P2P lending now

The net rental returns is biased because you might have only 20% down on say a 100k property.

That would mean your making 4k on a 20k investment per year. Anyone would take that.

Cruisen_Chubby · 06-03-2016 10:06 AM

(06-02-2016 02:07 PM)PhDre Wrote: I have about 40k euro that I want to invest for a medium term period (2-5 years). Since this capital represents the majority of my savings, I want to invest it in a low risk way. I am not looking for return on investment, but for a decent strategy to keep up with inflation and to minimize my losses in case of a collapse of the euro or usd.

Unfortunately all investment advice on the internet seems to come from mainstream economists (i.e. people who believe in infinite economic growth, the sustainability of ever increasing debt, … ) and I don’t trust them at all.

There are two things I am wary of at the moment:
- entering the stock market with the current high P/E ratios, especially given the fact that I don’t have the knowledge nor the time to manage my investments on a daily or weekly basis.
- Entering the real estate market. The market in my home country is strongly overvalued and I don’t want to invest in a market that I don’t know.

I was thinking of splitting the capital over savings accounts in euro, yuan and rubles and a bitcoin wallet, but honestly, I’ve got no idea what I’m doing.

Can you guys give me some ideas for a strategy? Again, I am not looking for return on investment but for a way to minimize the hit I take in the case of strong inflation or a collapse of the euro.

If your holding period is 3-5 years; forget real estate. A) Not much you can buy with 40k in a developed market B) Not very liquid (if you need the money in 3 years)

Don't consider a savings account (regardless of denomination) an investment. Interest rates right now are dog shit. Inflation will win. Savings accounts are for emergency funds; not for growth or preservation of capital.

Investing in bitcoin is highly speculative-- not good nor bad, but beyond your risk tolerance for such a short time horizon.

I'd suggest a well diversified mutual fund/ETF that invests heavily in dividend paying equities (dividend aristocrats, etc.)---

Reasoning: The SP500 is approaching an all time high. We are in an 8 year bull market. The market must take a breather before pushing on. When the market drops, you'll still be getting your quarterly dividends.

In terms of inflation... when prices rise, corporate profits rise... when corporate profits rise, your stock price rises... when your stock price rises as do your dividend payouts and there will be capital gains when you go to sell (3-5 years from now).

In regards to the dollar crashing. If it does, that means American exports will go up. A lot of the dividend paying stocks are companies that would benefit from a weaker dollar.

Always position yourself and your portfolio to win on both sides of the market. It sounds tough; but it can be done.

WeekendCasanova · 06-03-2016 08:47 PM

If inflation is your concern, you have a few options.

- Bonds: While bonds are typically horrible for inflation (inverse effect), several bonds are indexed to inflation. TIPS (treasury inflation protected securities) are one option, however, I don't touch them because I'd rather be a bit more active and produce a higher return with that money; in general I stay the hell away from bonds, but for a less-active investor, they're a good choice.

- Real estate: But again, your 5 year max time horizon makes this point somewhat moot. However, check out real estate investment trusts (reits) as a good alternative.

- Stocks: Stocks are an investor's best friend during inflationary periods. Look for income-producing stocks with a dividend. I wouldn't read too much into the high P/E ratios right now in the market. Most blue-chip stocks that pay dividends are still fundamentally close their true-value; so even a slight drop won't affect you too much and you'll still be receiving that dividend. I can't say exactly which, but we're heavily invested in energy stocks right now (oil), as well as some Mutual Funds and ETFs that concentrate on resource stocks, for inflationary hedging. The prices are quite low right now, but they aren't nearly as volatile as they were a couple of months ago.

RatInTheWoods · 06-04-2016 12:38 AM

(06-02-2016 08:30 PM)lavidaloca Wrote: The net rental returns is biased because you might have only 20% down on say a 100k property.

That would mean your making 4k on a 20k investment per year. Anyone would take that.

Sorry I should have said no mortgage, ie you own the place.

Its a 4% net on the capital you have in the house, ie you want to net $100 a week per $100,000 in the house.

If you have a mortgage it gets complicated with negative gearing tax benefits etc.

~~BlackHat~~ · 06-04-2016 06:48 AM

Dealing with tenants is the worst thing you can do if you are aiming for location independent income. If the tenant turns out to be a degen you will lose your income stream and have to deal with lawyers.

It is better to invest in REITS, at least REITS have hundreds if not thousands of tenants so there is no risk of losing your main income stream. It's much more diversified.

Suban Shelvey · 06-04-2016 11:39 PM

(06-02-2016 06:50 PM)RatInTheWoods Wrote: For Australia:
Real estate - 3-4% net rental returns and a capital growth between 1-10%
Dividend shares - 4% dividend franked, and some long term capital growth (> than inflation)

For Thailand:

Real estate 9% net rental returns 12% capital gains <- but with a metric shit ton of risk!!!

Looking into P2P lending now

Australian real estate has two big advantages on a world scale;

1.Negative Gearing
2.Huge leverage potential - only require 5-7% deposit of the property price + taxes

I'm bullish on property in vietnam but can't justify the risk just yet.

PhDre · 06-07-2016 01:07 PM

Thanks for all the good advice.

In the end I believe that only real estate holds real value (and maybe precious metals, but they don't generate income streams).
The reason for my 3-5 year horizon is that in that time frame, I will probably be able to buy a house at a massive discount (just a perfectly legal rearrangement of family wealth, no shady business).

In the meantime I will look into funds/ETFs that invest in dividend paying stock.
Do you suggest that I mainly aim for funds with exposure to European companies (I am spending all my money in euros) or should I diversify and include funds with exposure to US/China/...?

Also, currently I hold a fund that invests in bonds and other debt securities, all in euro.
I've had it for the past 8 years, and it has slightly outperformed the Euro MTS 1-3 index, which is used as a reference indicator for the fund.
Do I sell it, or do I keep it?

~~jj90~~ · 06-07-2016 07:43 PM

You can buy something like MSCI World ETF or something similar if you don't want region specific risk(US, Europe, Asia).

If you don't know what to do or are indifferent, do nothing.

Kissinger2014 · 06-07-2016 07:57 PM

(06-07-2016 01:07 PM)PhDre Wrote: Thanks for all the good advice.

In the end I believe that only real estate holds real value (and maybe precious metals, but they don't generate income streams).
The reason for my 3-5 year horizon is that in that time frame, I will probably be able to buy a house at a massive discount (just a perfectly legal rearrangement of family wealth, no shady business).

In the meantime I will look into funds/ETFs that invest in dividend paying stock.
Do you suggest that I mainly aim for funds with exposure to European companies (I am spending all my money in euros) or should I diversify and include funds with exposure to US/China/...?

Also, currently I hold a fund that invests in bonds and other debt securities, all in euro.
I've had it for the past 8 years, and it has slightly outperformed the Euro MTS 1-3 index, which is used as a reference indicator for the fund.
Do I sell it, or do I keep it?

I strongly suggest you reconsider the idea that only real estate and precious metals hold "real value." Over the past around 100 years, equities (stocks) have outperformed real estate and precious metals. Companies like Johnson and Johnson or Exxon Mobil, even Facebook and Apple, have "real value." Trademarks, distribution systems, network effects, all have some sort of "real value." Holding any sort of capital that is able to add value and create a product or service that people are willing to pay is the basis of the capitalistic system and are of great value --- the greater value a company can add, the more it is worth.

Home ownership, at least in America, has paid off for many people mainly because of (a) the special tax benefits homeowners enjoy in America (b) leverage - being able to put down $20 k and borrow $80 k.

While holding bonds have been a great idea that past 7-8 years, since the financial crisis, it is hard to imagine they will enjoy the same returns in the next 7-8 years. Interest rates, in least in Europe, are at record lows. Some countries have negative rates. With bond prices inversely related to interest rates, it is likely that rates will only rise over the course of the next date (though, most experts, did not think that interest rates in America would continue to be at near record lows for so long). I have very little of my money in bonds because of that reason.

RatInTheWoods · 06-07-2016 10:54 PM

(06-07-2016 01:07 PM)PhDre Wrote: In the meantime I will look into funds/ETFs that invest in dividend paying stock.

What kind of dividend yields are on offer for Euro shares?

Do they come with tax credits? (Franking)

Easy_C · 06-07-2016 11:26 PM

Had a good call on my end. I pitched Big Lots last May, when it was 44 calling for a price target of 52. My argument was that using a FCF model I estimated an intrinsic value of 56, but that trading patterns would make it difficult to break out to that level. It closed last week at 53.

Easy_C · 06-07-2016 11:38 PM

(06-07-2016 10:54 PM)RatInTheWoods Wrote:
(06-07-2016 01:07 PM)PhDre Wrote: In the meantime I will look into funds/ETFs that invest in dividend paying stock.

What kind of dividend yields are on offer for Euro shares?

Do they come with tax credits? (Franking)

Look into preferred stock. They're a different investment product than the kind of "stock" you usually buy, but offer higher yield than debt in most cases and have other properties which are somewhat advantageous right now.....plus I know a guy who is senior level great asset management firm that recommended them as being cheap for what you get (relative to the rest of the market right now).

PhDre · 06-08-2016 01:58 AM

(06-07-2016 07:57 PM)Kissinger2014 Wrote:
(06-07-2016 01:07 PM)PhDre Wrote: Thanks for all the good advice.

In the end I believe that only real estate holds real value (and maybe precious metals, but they don't generate income streams).
The reason for my 3-5 year horizon is that in that time frame, I will probably be able to buy a house at a massive discount (just a perfectly legal rearrangement of family wealth, no shady business).

In the meantime I will look into funds/ETFs that invest in dividend paying stock.
Do you suggest that I mainly aim for funds with exposure to European companies (I am spending all my money in euros) or should I diversify and include funds with exposure to US/China/...?

Also, currently I hold a fund that invests in bonds and other debt securities, all in euro.
I've had it for the past 8 years, and it has slightly outperformed the Euro MTS 1-3 index, which is used as a reference indicator for the fund.
Do I sell it, or do I keep it?

I strongly suggest you reconsider the idea that only real estate and precious metals hold "real value." Over the past around 100 years, equities (stocks) have outperformed real estate and precious metals. Companies like Johnson and Johnson or Exxon Mobil, even Facebook and Apple, have "real value." Trademarks, distribution systems, network effects, all have some sort of "real value." Holding any sort of capital that is able to add value and create a product or service that people are willing to pay is the basis of the capitalistic system and are of great value --- the greater value a company can add, the more it is worth.

I absolutely agree that these companies hold "real value".
However, as a minority shareholder you do not have the power to put any claim whatsoever on this value.
If you get lucky, the company decides to pay a decent dividend and/or the market value of the companies rises.

I held 2k in shares of a certain bank prior to the banking crisis.
This share was listed by all market analysts as a super safe investment that slowly but steadily appreciated in value.
Then the crisis hit and the bank was bailed out by the government (with my tax money).
All of a sudden my shares were worth only 1/1000 of their original value.
I didn't attach too much importance too it, I accepted that I had played and lost, and simply kept the shares too see if they would ever rebound to a decent value.

Then the bank reorganised itself and they started to buy back stock.
With one caveat: only those who had 1000+ shares (which represented 20k+ just prior to the crisis) would get any compensation. I held 100 shares and mine simply got confiscated, just like those of countless others. And there is no legal action that we can take.

So the bank is still there, it still has employees and infrastructure, it still does business and it still pays millions of euros a year to its executives. Yet my claim to any of that "real value the business provides" got taken away from me, with the approval of the government.

That is why I think that personal possessions like real estate represent more "real value" than stock. Because you have far more control over them and have a far stronger claim on the actual value that they represent.

iknowexactly · 06-08-2016 05:10 AM

After losing a lot trying to trade options, I'm trying this approach: Buy and hold dividend paying financially strong companies in areas which cannot really have recessions:

Living indoors (Apartments REIT- APTS)
Sickness (nursing home REITS -VTR, hospitals MPW, medical offices- DOC)
Death cemetery and Funeral homes- STON)

You can buy "sin" stocks but states are progressively restricting smoking.

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