new thread, page-15

One more thing AKA et all.

The following article has been written by someone more knowledgeable than me. This article also talks about chartings as well, and part of it refers to chartist as well.

Obviously I am not only one of a few that don't belive in chart, as IMO all the information in a Chart therein, is only based on what happened in the past. A mathematical approach to investments if you ask me. Nothing more and nothing else. Something like studying the form for the horseraces, which most of the times, if not all of the time, it ends up with the bookys walking away from the races with their bags full.

Enjoy it.

"Is there too much fizz??

A couple of years ago I read an article about Coca-
Cola Amatil (CCL) in a popular Australian investment
magazine. It claimed to be utilizing techniques
which assisted in the “identification of investment
opportunities”.
But instead of providing a steer on whether to buy
or sell Coke it was simply a commentary on its share
price movements for the prior 30 years. There was
no mention of what I normally look upon as the 2
main drivers of the share price. That is its underlying
value combined with a strong dose of short-term
expectation – realistic or otherwise. The article was
laced with terms like “momentum divergence”,
“overspent momentum”, “reversal zones”, “triangular
patterns” and “pullbacks”. The only reference to
anything sounding like an economic force was the
brief mention of an equal struggle between supply
and demand due to the appearance of a “symmetrical
triangle”. The same article could have been written
by describing the path of an empty Coke can blowing
across the MCG.
What I wanted to know was whether any advice
could be drawn from all of this pattern recognition.
And there it was at the very end of the article. The
author expected the share price (then at $11.80) to
either fall to $7.50 or rise above $20. Anyone want
to toss a coin?
If there are any chartists still reading this article let
me now offend the fundamentalists. Because some
fool themselves they can come up with an exact
alternative price for a stock. Given the centuries-old
title of “intrinsic value” it is often quoted by Socratic
analysts with a degree of accuracy befitting a direct
descendant of Nostradamus. Let’s face facts. No one
can predict the future which means no one can derive
an exact value for stock prices. Full stop.
Despite this I remain a fundamentalist at heart. After
all, as another analyst once said to me, “You have to
use something”. So what I’d like to do is look at one
simple tool I use when making a value assessment.
And in doing so also have a look at Coca-Cola Amatil.
Testing built in Assumptions

There is a simple answer to the question - What is a
stock worth? It’s worth the sum total of the discounted
cash flows it delivers in the future. Easy to say, hard
to calculate. It means a company’s share price is built
on multiple assumptions - principally earnings growth,
dividend payout and the discount rate needed to
adjust for the combined impacts of risk and inflation.
Intrinsic value considerations can be looked at from
two directions. Either you come up with a set of
assumptions to derive your own intrinsic value or you
dissect the current market price to see what sort of
assumptions the market is building in. Then test them.
Is the market assuming excessive earnings growth,
the maintenance of an excessively high return on
equity or is it undervaluing risk? Enough preamble,
let’s look at Coke.


The above methodology is simplistic. It is based on
a number of underlying assumptions which are easily
challenged. It also assumes the use of an accounting
method called clean surplus accounting - one which
no company actually uses to construct its accounts.
But both of these issues are typically overlooked by
many writers and promoters of popular intrinsic value
formulas and systems.
So where does this leave us? With the undeniable truth
that picking stocks is about picking future business
success not about blindly plugging historical data into
formulae. Additionally it is important to understand
the dynamics between a company and the business
sector it operates in. It is not enough to simply predict
sector growth since growth within a sector can be
satisfied by new entrants with no net benefit to the
company under review.

As Warren Buffett likes to say:
Look for a business with an economic moat.""