Economist - Societe Generale

SocGen could become a good target.

Financial Times - Sovereign funds

Money is available and for unpredictable investments .

Spreadsheet creation (2)

Did somebody try to create his own spreasheet ?

I actually own 30 stocks and invest every 2 months , with some exceptions . 

I do it only for Europe and US , and buy ETF for Asia - Emerging markets - commodities . 

My next time for investing will be the beginning of July .

My year to date performance at May 1st was - 8,46% , vs -11,85 DJEurostoxx , - 11,96 DJEuro Select Dividend 30 , - 9,73 S&P500 (with USD depretiation not considered , of course) .

We have more than 1 month time to decide what to buy.

My first choice was based on ROA , but I didn't forget ROE because I didn't want to totally miss banks , insurance , utilities ......

As a matter of fact I have 6 worksheets :

- Euro - ROA

- Europe - ROA

- US - ROA

- Euro - ROE , etc. 

Financial Times - Appetite for risk

Click on the header to read the news.

You can be made crazy with the indices : somebody says , supported by past data (which , as you know , cannot give you the assurance that the future will be in the way) tha when VIX becomes too much optimistic you should sell .

So what to do ? Wait and see until the end of june 

Financial Times

Click on the header to access the news.

The sharp deceleration of services , eurozone inflation approaching 4 % , the composite eurozone purchasing managers index declining to 51,1 from 51,9 but still above 50 . 

Still doubts of a cut of ECB interest rates due to oil prices .

Wall Street Journal

Click on the header to access the news.

Interesting to see the acceleration of home price decline , the gloomier FED's forecast to be associate with the comments from Trichet , the demand for silver dollars and the cars demand drop to '90 levels

Banks and Hi-Tech

Interesting to see how much banks have lost ground .

Will Hi-Tech get the leadership ? Banks are very big H-T buyers .....

Spreadsheet creation

The sources where to find the data are mentioned on "preferred sources" .

I suggest to prepare some spreadsheets : 1 for EURO , another for Europe non Euro , 1 for US .

In each row : name ,  actual price ,  last yearly dividend ,  dividend yield ,  the last earning per share , P/E , ROE , ROA , forecasted EPS and following FP/E , ROE TTM , ROA TTM .  

Yahoo is more useful for european stocks , Bloomberg for US , Google provides with ROE and ROA actual and TTM .

Investment strategies (7)

Let's find the sources for our research.

Euronext : 308 components , more than 1 bn € capitalisation , listed in Paris , Bruxelles , Amsterdam , Lisbon ; otherwise we can choose the bigges firms listed in CAC40 , BEL20 , AEX , PSI20.

Dax30

S&PMIB

FTSE100

Eurostoxx50

Magic Formula Investing . For Europe the site is not ready . A blogger is doing a simulation job : look at www.investingeuro.blogspot.com .

Bloomberg for DJIndustial.

Stoxx for Select dividend 30 (Euro and non Euro) and Select dividend 40 (America) .

We need now to make some choice . Some criteria : a long history , a minimum dividend yield , a maximum Debt/Equity ratio , a minimum capitalisation .

Bloomberg news

It's interesting for several reasons : shows the performance of a "professional" , what's the average of the portfolio invested in stocks and that a big player started in early April to invest more in stocks . 

Investment strategies (6)

Let's start building our portfolio .

Let's say that we will invest the amount of money that we believe we won't need for next 3-5 years .

Let's suppose that we will have 500.000 € : 60% in EUROZONE , 20 % Europe non Euro , 20 % USA (I'm investing on Emerging Countries , as well as Commodities , thru ETF ).

If we plan to invest on 30 stocks every 2 months , each time we ' ll buy 3 EURO , 1 Europe , 1 USA.

For Europe we can find the candidates :

- EUROSTOXX50 , DAX , EURONEXT , S&PMIB 

- Magic formula investing for Europe 

- DJ EURO STOXX Select Dividend 30 , DJ STOXX Select Dividend 30

For USA :

- DJIndustrial

- Magic Formula Investing

- DJ Stoxx Americas Select Dividend 40

Let's establish some parameters for choice : maximum P/E (15) , maximum Debt/Equity ratio (50%) , minimum dividend yield (2%) . We're always free to make exceptions ..... 

Investment strategies (5)

We could also consider listing hystory of the stock . If you are to avoid too much stress , then look at Companies with a long and positive history .

Can we summarize ?

a ) Establish the number Companies you want to buy , the total amount you want to invest ; keep in mind that for every transaction you pay fees , and they influence the yield of your transactions.  

b) Divide this amount by four  or by six if you want to invest quarterly or every two months : if you want to invest 200.000 € every quarter and have a portfolio of 20 companies , you'd buy 5 per each qtr and spend 50.000 € each time .

c) Do you want to invest only in EURO or all over the world? Do you want to have a portfolio diversified by Geography , Currency , Industry ? If you want to operate with different currencies then you need to decide if you want to face the exhange rate fluctuations or not . If you focus only on a few industries you are more subject to economic trends .

d) After 1 year you'll sell the 5 stocks you boughtone year before and buy another five .

Said that , we can always tolerate exceptions ....

Investment strategies (4)

We are saying that for "ordinary" people it's better to invest in stocks that , even if dropping 2/3 , do not crete too much panic. 

Stocks with high ( and possibly growing) dividend yield are very reassuring for an anxious investor : at least he could get the dividend ( but remember that the European Nordic Countries , Switzerland and France  have a tax rate considerably higher than others). 

On the other side the "big payer" can have some weakness to take care of : could be that they don't have better way to invest the money they make , or that they  keep the yield high to  "artificially" sustain the stock price , etc.

Another important element is the profitability . Haugen and Grenblatt insist on this factor which can be measured in many ways : profit margin , ROE , ROA , ..... Keep in mind that the choice to use one instead of another index , drives the choice of the industry where you are going to buy : i.e. if you use ROA you're excluding financial services and most of utilities.

Which data you should use to make your choice ? I mean : let' s suppose that you use P/E and ROE , but they are based on the results of the previous year . If this could be "suitable" if you buy in the second or third quarter , is it the same when you are in the fourth quarter ? Would it be better if you look at the forecast P/E  and/or the ROE TTM ?

Investment strategies (3)

Many methods are available for choosing the right stock at the lowest price. No one of them makes all the details available : we know or can guess some of the parameters (as said in a previous post ) but the right combinatino is not available.

Haugen uses close to 70 parameters , Greenblatt only two ones . Both of them , like others claim to have achieved overperformances vs. the normal stock indices. And no one gives away the full detail of the formula . Even in that case , there would be some concerns about the results and the cost of trying the copy them : the databases you utililize can change the results and the costs of the databee , they way they treat the exceptions . At the end the same Greenblatt warns that you cannot be sure that the results achieved in the past can be replicated in the future . 

In his book , Greenblatt suggests , if the readers wants to "do it himself" , to use 2 indicators ("P/E" and "ROA") and how to invest . Some readers are trying to simulate the results with his methods : the outcomes I've seen are not so exciting .

I guess you should use the method , mixing it with a look at the graph of each stock you are going to choose .

 

investment strategies (2)

If we want to use a portfolio strategy we have   many alternatives , of which:

a)Dogs of the Dow ( the master) and its clones ( Dogs of Euronext , of DAX , of S&PMIB , ...) : you buy at the beginning of the year , the first (say) 10 stocks components of the list in (decreasing) order of dividend yield . You can also make a second step : put those 10 stocks in  price order and buy the cheapest 5 . 

b) You can use the Select Dividend Indices of STOXX . They are made of stocks that in past years have always given high and regular dividends . And are divided by zones : Euro , Europe non Euro , European Nordic Countries , USA , Asia , etc . Then you should choose which of the listed company you want to buy.

Stoxx provide also indices oriented to different strategies , i.e. Growth , that we mentioned in the first post .

It's interesting to look at the results of a couple these indices . Let's take the Euro area :

a) 1 year . All below zero with "growth index" = - 18% and "value index" =-21%

b) 3 years . "Value" above zero around 40%  while "Growth" 20 %

c) 5 years . + 110 % vs +75 %

"Value" better than "Growth" ? Look at the components : "Value" have a lot of financial institutions . If we make a comparison between the performance of Eurostoxx50 and DJ Euro Select Dividend in the last year we can notice that the first one lost 14% vs 21% of the second one ....

In any cas  we got at the point . We can choose "Value" stocks  , but their price can fluctuate during the year : we'd need to be able to buy them when they are cheap . But we have to find the way.

Investment strategies (1)

Every day the newspapers explains the basic strategies to invest in stocks : Growth or Value , even if sometimes they are not named in this way. 

Very shortly.

Growth : buy stocks with high growth expectations , they are not cheap but have a great potential.

Value : buy stocks undervalued and with high dividend yield .

In theory the second class should be less risky . But let's look at few cases .

Let's take Fabege , a real estate company based in Stockholm . If examined around 1 year ago it had P/E close to 10 , a yield of say 6 % and a P/BV near 1 : you'd buy it and now have a loss around 30 %! . 

Otherwise DSG , listed in London : more or less the same indicators and an actual loss (if bought 1 yr ago ) of 2/3!

Of course , if you trust the company , you keep the stocks and wait . 

Let's see another example : Outokumpu , based in Finland , same fundamentals as the two stocks abovementioned  , in one year has started from 30 landed to 18 and then arrived to 32 €.

So , how to choose what and when buy and how to decide what and when sell ?

You should have a method.