philosophy of investing
By the way people, this is a really interesting conversation ... this is my 2 cents worth (hey, that buys 3 Kalrez shares *grin*)
Because I believe that markets get it right only in the long term (and sometimes not even then), I believe in fundamentals investing where I have an information advantage over other buyers and sellers in the market.
If I have an information advantage, I am more likely to get it right when I make a judgement whether the company is over-, under- or correctly valued by the markets.
Given that, in this country, the "serious players" in the investment funds spend 90% of their time and resources on the top 50 stocks, and 90% of whats left on the next 250, I believe that this means you need to go to the small end of the market, because there you are less likely to run into serious players who have invested a great deal of research into a target.
AMP is an example ; I dont know what AMP's operations are worth, and it would take a lot of work to get my knowledge up to a level equal to that of, say, your average JB Were broker.
On the other hand, I know a lot more about the position, cash flow, prospects and probable future actions of the Cooper Basin junior oil companies (BPT, STU, COE, GOG) than they do ; I have an information advantage on that end of the market.
Oil is a good industry for this, as the estimated future price of oil is freely available, and by cross-referencing different companies in the same field, you can get a good guess on the estimated value of any oil deposit, or the estimated cost of any well.
I look for oil companies with positive cash flow, close to no debt, producing assets and prospective fields with a fundable exploration plan. I then see if their share price has boomed.
If it has, I go "cool, so I missed that one" - for example, I wont invest in Petsec right now, because it's had it's run.
Then I go read everything I can get my hands on about the company.
If I think it's badly managed - including admin costs being too high, and especially if payments to directors and associates thereof are too high - then I stay the hell away from it. If the current management ever told fibs about earnings, or other shonkiness, then it's a sell.
If I'm happy with it, I buy.
As some of you may know from AussieOilers, I bailed into Stuart Petroleum a couple of months ago, when it was 28c, and got out in the mid-40s (I think it's correctly priced at about 35-40 cents, at least until Worrior gets drilled).
Currently, I am into CUE and Beach options, as those companies fit my profile.
Once I'm happy with the money I've made - and my personal 'I'm out of here' rule is 50% - then I'll assess and see if my opinion is still that they are undervalued.
If I think they are, then I'll start looking at other targets.
Ian Whitchurch
PSA Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
