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TranceAddict Investors Club @ Marketocracy (pg. 29)
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| Krypton |
Made up a new formula called "The Yield Ratio Formula" to find the Yield Ratio...
Purpose: This formula measures how cheap or expensive a stock's dividends and earnings (profits) are relative to valuation metrics. The cheaper the dividends and earnings of a company, the better! The higher the Yield Ratio, the better...
Dividend Yield + Earnings Yield
-------------------------------------------------- = Yield Ratio
Price/EPS + Price/Sales + Price/Book
*Yields expressed as whole number...
For example...
AA has a yield ratio of .5
AEP has a yield ratio of .38
Therefore, AA's dividends and earnings are cheaper than AEP. Easy as that! I'm compiling a list of the Dow Jones Composite Index of about 70 large cap multinational companies including the Dow Jones Industrials (30 companies). Soon I will know whose earnings and dividends are the cheapest in the market.
If you're a value investor, you should really be loving this...
:D |
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| atbell |
| quote: | Originally posted by Krypton
One should never be completely out of stocks. The subprime market is only 1.8% of the entire mortgage market, with less than 1% who are in foreclosure. It's being completely overblown to make it seem like it's the apocalypse. It's not THAT bad, really.
I'de go in 10% bond/silver/gold, 90% stock right now. |
I'm going to pull the same line as always, and to support capitalizt to an extent. Get out of US$ holdings.
I also think that the numbers for the sub-prime mess are much more dramatic then the ones you're using.
It isn't just the matter that the sub-prime borowers are losing thier houses, or the sub-prime lenders are loosing thier investments. The matter ballons as construction sector takes hits, as the durable goods sector gets nailed, as developers are stuck with empty subdevisions, and as the declining wealth of the "consumer" cuts back thier spending.
Not to mention that Federal Reserve studies have shown that consumer spending due to the wealth effect (people thinking "boy my savings are high because stocks/housing/the paintings on my wall are worth so much" tend to spend more) is significantly greater when the wealth is housing wealth vs. stock wealth. This means that declines in the realestate market are going to have much larger effects then the same percentage drop in stock value would.
It also means that the moderate economy of the 2000's has likely been fueled primarily by this housing wealth effect.
Oh, and the "credit crunch" refers to credit card dept, loans and lines of credit. As the financial institutions are scrutinizing thier lending they've notice exactly how deeply in debt individual americans are, especially in the credit card markets.
Again, STAY OUT OF US $$$$. If you don't you risk being a slum lord, the most sucessful person in the US, someone who can't afford to travel outside of the country. |
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| Shakka |
| quote: | Originally posted by Krypton
The subprime market is only 1.8% of the entire mortgage market, with less than 1% who are in foreclosure. It's being completely overblown to make it seem like it's the apocalypse. It's not THAT bad, really.
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Sorry, but you are wrong. The problem with the assumptions you are making (at least a few of them) is that subprime is NOT the problem. Subprime was but the canary in the coal mine.
The people that don't understand this whole credit mess are going to be playing catch-up until they understand that the problems go FAR beyond subprime. Yes, subprime is only 1.8% of the mortgage market (I'll just assume your stats are correct), but nearly 50% of all new mortgage originations made in 2006 were of the subprime variety and we're only now halfway through the teaser-rate resets that won't even peak until mid-'08. You have problems with credit standards across the entire credit spectrum from subprime to prime. Did you know that E-trade sold their PRIME portfolio (granted it was a distressed sale, but it was their PRIME portfolio) for 27 cents on the dollar?!?!? Super senior AAA rated tranches of CDOs are taking massive losses. AAA rated securities are NOT supposed to behave like that. We've now had well over $100 Billion (with a "B") in writeoffs and there are undoubtedly more to come. Paulson's plan to help is nothing but paying lip service to something he and the administration are impotent against. I just read a report that said since Dubya announced his first plan in September that was supposed to help 300,000 people has to date only helped...wait for it...547 mortgage holders. Ouch. Credit markets are still frozen, banks still have billions in hung bridge loans on their balance sheets, credit standards are being rapidly tightened on top of the housing mess that is exacerbated by 10+ months of housing inventory, auto loan delinquency rates are going up, consumer credit is contracting, the consumer IS softening. And it goes beyond just the house and the mortgage. What about all of the companies that depend on the housing market? Building materials stocks (USG, AMWD, AWI, EXP for example), home improvement (HD, LOW), etc. And with mortgage equity withdrawal (MEW) having hit a wall as well, the outlook for the consumer simply looks poor. People have been saying for years that the American consumer would weaken and have been wrong for years. Perhaps this time things really are different and the Fed can't help. What other levers can they pull?
What is happening is paying the piper for years of credit driven excess that has suddenly hit a brick wall. The only question is can the Fed manage to bail out the consumer yet again or have they finally run out of ammo? One only needs to look to Japan to see the results of an impotent central bank.
The house is the consumer's biggest asset (or liability these days). When your biggest asset is stuck in a brutal recession, how can you be so glib? Pollyanna is dead. |
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| Krypton |
Well, perhaps I overlooked the spillover effect a bit, but I may be a hypocrite. The only stocks I've been investing in have been international companies like TGA, EGY, FCX, MTL, EXM, etc... If there is a recession, I'm going to be going on a buying spree. Right now, I'm on buying spree. I see bargains all over the place. I mean, look at Citigroup; ENORMOUS value in this one!! The dividends are so cheap, Warren Buffet should be in it. Even with all the write-downs and all the crap, I'm a value investor. I see value in bad times, and I jump on it. Maybe that's why my view is so optimistic despite the problems. I see way past these problems on the long-term uptrend these companies are all on. Home Depot, yea, they're doing badly, but they are so cheap right now, you'de be stupid not to buy them right now.
I've heard rumors of 50/50 recession chances and all that. Great, more bargains for me to jump on! |
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| Krypton |
I've been hard at work doing my analysis and I've got another new formula, called the "Intrinsic Strength Value" (IS)...
Purpose: This formula measures the strength of...
1. Company fundamentals
2. Company valuation based on fundamentals
3. Yield valuation
.1(Fundamental Strength) + 10(Gamma) + 10(Yield Ratio) = Intrinsic Strength
The coefficients are just weights to keep each measure relatively proportional to one another. The higher the IS, the better. A high IS indicates a company with strong fundamentals, cheap valuations, and cheap dividends and earnings. This is the ultimate goal of value investors and I believe I may have reached the pinnacle of my mathematical algorithm. The IS basically says it all by incorporating my metrics of fundamental strength, gamma, and yield ratio into one all-encompassing formula, perhaps like physics "Theory of Everything". This is my theory of everything pertaining to my own system.
I will be posting my results as a snapshot of my spreadsheets soon, so you guys can see what's up with my very heavily researched watchlist...
EDIT: I've been working for a couple days on this Intrinsic Strength Value, and I've changed some variables around and added a new one. So here is the refined formula...
.1(FS) + 1.33(Gamma + Yield Ratio + PEG)
------------------------------------------ = Intrinsic Strength Value
(Debt/Shareholder's Equity) + 1 |
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| Shakka |
| quote: | Originally posted by Krypton
Well, perhaps I overlooked the spillover effect a bit, but I may be a hypocrite. The only stocks I've been investing in have been international companies like TGA, EGY, FCX, MTL, EXM, etc... If there is a recession, I'm going to be going on a buying spree. Right now, I'm on buying spree. I see bargains all over the place. I mean, look at Citigroup; ENORMOUS value in this one!! The dividends are so cheap, Warren Buffet should be in it. Even with all the write-downs and all the crap, I'm a value investor. I see value in bad times, and I jump on it. Maybe that's why my view is so optimistic despite the problems. I see way past these problems on the long-term uptrend these companies are all on. Home Depot, yea, they're doing badly, but they are so cheap right now, you'de be stupid not to buy them right now.
I've heard rumors of 50/50 recession chances and all that. Great, more bargains for me to jump on! |
By all means, more power to you--just be careful trying to bottom-fish. Something you won't read or hear about much, but something worth knowing since everyone thinks he's the greatest thing since the invention of the vagina...Warren Buffet almost bankrupted himself in the early 70's trying to call a bottom on Geico. It's a dangerous game, dancing on a razor's edge.
Out of curiosity, what are the positives you see in Citigroup that make you so bullish on it? That it's too big to fail? That they finally found a new CEO? Don't get me wrong, I have call options on this one but it's more of a spec play. In any event, it's a conglomerate that hasn't been able to make the "all financial services under one roof" system work yet. Dividends are cheap until they get cut (notice FRE and WM cutting the out of their divvy's lately?). And if you can't trust book value due to pending writedowns and unknowable Level 3 asset values, how can you really say you're doing straight up value investing? Isn't there a lot of hope and faith built into that thesis as well? I'm not saying you're wrong, just trying to paint the other side and convey the danger in trying to call bottoms. To each his own. |
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| Krypton |
| quote: | Originally posted by Shakka
By all means, more power to you--just be careful trying to bottom-fish. Something you won't read or hear about much, but something worth knowing since everyone thinks he's the greatest thing since the invention of the vagina...Warren Buffet almost bankrupted himself in the early 70's trying to call a bottom on Geico. It's a dangerous game, dancing on a razor's edge.
Out of curiosity, what are the positives you see in Citigroup that make you so bullish on it? That it's too big to fail? That they finally found a new CEO? Don't get me wrong, I have call options on this one but it's more of a spec play. In any event, it's a conglomerate that hasn't been able to make the "all financial services under one roof" system work yet. Dividends are cheap until they get cut (notice FRE and WM cutting the out of their divvy's lately?). And if you can't trust book value due to pending writedowns and unknowable Level 3 asset values, how can you really say you're doing straight up value investing? Isn't there a lot of hope and faith built into that thesis as well? I'm not saying you're wrong, just trying to paint the other side and convey the danger in trying to call bottoms. To each his own. |
I never call bottoms, I just see bargains.
Would you pay $50 a share for $1 dividends or $35 a share for those same dividends? Of course you're going to go after the higher dividend yield because it's cheaper. It's really nothing Citigroup did to warrant my evaluation. I have just found that their depressed share price means their dividends and earnings(when they return to profitability) are cheaper. I believe the fundamentals indicate the company to be undervalued SUBSTANTIALLY by my gamma at about 4. Earnings yield is 10%!! How cheap is that!? PE, PB, PS, P/cashflow are all BELOW industry AND market averages. Citigroup is one gigantic bargain, and I am definately long on it, for the LONG-TERM. I don't give too much thought to short-term trends. |
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| Capitalizt |
| Are you sure that dividend in C is rock solid krypt? With all the crap they've been going through lately, I wouldn't be surprised if they reduced it soon. If you're looking for good dividends and reliable earnings, check out some energy partnerships like KMP and MMP. |
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| Krypton |
Citigroup's fundamentals strength is 59, so I can't say dividends are rock solid, I'm just saying the company is a damn huge bargain right now.
I'm already around 13.71% in financials anyways, without Citigroup. My top financials are GHL, GS, NDAQ, MCO, and HCC. My favorite sector still remains energy with 36% allocated. I can't say I've avoided the subprime issues because I started the portfolio pretty much after it all came out, but my exposures are diversified, international/domestic, with good fundamentals, and relatively good valuations. |
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| Shakka |
I don't have much respect for sell-side analysts, but they are at least worth paying attention to since they tend to move stocks. Morgan Stanley just came out this morning and said Citigroup was their best short idea for 2008. Mike Mayo, a very well regarded financial analyst at Deutsche Bank was also a bit cool to the new CEO this morning (though it is at least an incremental positive in his view).
Here's a brief summary of Morgan's comments this AM. I'd say that sweet dividend yield is very much at risk.
| quote: | | Add Morgan Stanley (MS) analysts to the list of Wall Street observers who don't think Vikram Pandit's elevation to Citigroup (C) CEO will lift Citi's stock out of the doldrums. MS pitches Citi as its "top short idea for 2008," cutting its price target to $28. MS says Pandit is likely to cut Citi's dividend to 30c/quarter from 54c today. Pandit probably won't spinoff units and is likely to issue hybrid securities, diluting shareholders, the analysts write. |
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| Krypton |
| quote: | Originally posted by Shakka
I don't have much respect for sell-side analysts, but they are at least worth paying attention to since they tend to move stocks. Morgan Stanley just came out this morning and said Citigroup was their best short idea for 2008. Mike Mayo, a very well regarded financial analyst at Deutsche Bank was also a bit cool to the new CEO this morning (though it is at least an incremental positive in his view).
Here's a brief summary of Morgan's comments this AM. I'd say that sweet dividend yield is very much at risk. |
For any long value investors in Citigroup at this point, the value of future earnings and dividends would not come for years to come, especially until after the current reduction in credit markets recovers. It is a true value play. A very long-term view that sees past the current business cycle.
But I just want to make clear I'm not getting involved with Citigroup..
Goldman Sachs is my favorite out of the big banks.. |
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| Krypton |
(SNAPSHOTS OF MY WORK BELOW)..
I've been working for a couple days on this Intrinsic Strength Value, and I've changed some variables around and added a new one. So here is the refined formula...
.1(FS) + .77(Gamma + Yield Ratio + PEG)
------------------------------------------ = Intrinsic Strength Value
(Debt/Shareholder's Equity) + 1
I have invented the fundamental strength algorithm (FS), gamma, yield ratio, and the ultimate result, the Intrinsic Strength Value.
I consider the formula to be the pinnacle of my trading system analysis. I see it as the Theory of Everything in my Economic Theory of Stock Value. It states that companies with exceptional fundamentals (measured by FS), substantial undervaluation (measured by gamma), high dividends and earnings relative to stock price (measured by yield ratio), with optimistic growth estimates (measured by PEG), and that have the lowest amount of debt relative to asset values (measured by debt/equity ratio)... are the best companies to invest in HANDS DOWN!!!!!
My Intrinsic Strength Value takes all these variables and indicates a company's inherent value based upon their business model. The entire trading system has over 100 different variables which are incorporated into my evaluations, so that is a very rich amount of data to look at, and gives my calculations a much higher degree of safety margin. Know that an intrinsic strength of 10 or more indicates a very good company, so keep that in mind when I publish these results.
I will be starting a study of my over 100 stock watchlist and will share it with you guys in January. You will see what I have evaluated to be the best stocks I can possibly gather together on one list. Look at it as, krypton's been digging for gold in the river, and with a great strategy, has found lots of gold nuggets! I hope you guys appreciate this because a lot of managers just keep this stuff secret. But the key to my system is the fundamental strength algorithm which only I have, so my secret is still safe..:D
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The Fundamental Strength Algorithm
A look at my earnings yield calculations...
The Intrinsic Strength Valuation...
I'll be working on the 3rd spreadsheet until the first week of January where I'll have my results ready for publishment and testing. I can't wait!! This truelly is my life's work..:cool: |
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