Building our Value Portfolio - Fatcats Finance Club

Worldwide debt at unprecedented levels

2012-01-28T21:22:00.000-08:00

We are in unprecedented times in case there's any doubt the amount of debt the world has right now has never been this much, ever. Public debt is very high in the euro zone, Japan and the US and private debt is at record levels all around the world.

Public Debt
Back in August 04 2011 Fox News published an article explaining that the US public debt was then $14.58 trillion which is equal to the GDP of the entire US economy and approximately 1/3 of the global GDP.

How big is the debt per head?
14.58 trillion dollars (100% of US GDP )equates to approximately 47k per US citizen or 135k per US taxpayer. source http://www.usdebtclock.org/

How does this compare Worldwide?

Looking at the Public debt in comparison to other countries from wikipedia. There is also another site with a view of some this information over time by country

How Does it compare over time?
Looking at the debt over time the graph below ends in 2009 but if you drew it out to 2012 with a GDP to debt percentage of 100% you would see that the US debt is the largest it has been since WW2. From wikipedia.

How does the debt compare to other Countries?

UK
Current UK debt is running at about 70% of GDP which is the highest it has been since 1965. source http://www.ukpublicspending.co.uk/debt_brief.php

Australia
Currently the debt is running at $112 billion (16k per person). source http://www.debtclock.com.au/.
2011 GDP is $925 US bn which equals 27% of GDP

Others
Greece's debt is 143% of GDP
Ireland 's debt is 112% of GDP
EU (2010) debt is 82.31% source wikipedia
Japan 205%

What About Private Debt?
Private debt is otherwise known as consumer or personal debt and is very significant.

United States
US government debt is at its highest it has been since the second world war. Private debt has never been as large as it is today

source http://www.incrediblecharts.com/economy/keen_debt_gdp.php

The chart above shows that public debt in the US is 320% of GDP in 2011. According to wikipedia in 2011 US private debt was $50.2 trillion (The global GDP). This means that in total US debt is around 420% of US GDP. As far as other countries go private debt is not as high as the US but in most cases it is an all time high.

100% of the GDP in 2011. source the Telegraph

This figure was around 400bn in 1993 it is now 150bn

Others

Below is a chart that gives personal debt to income by country

source from chartporn

Global Debt

So in conclusion debt levels have never been this large, ever.

Meeting 41 Cochlear

2011-12-13T12:18:00.000-08:00

COCHCLEAR Website

Google finance

Cochlear Limited (Cochlear) operates in the implantable hearing device industry. The Company operates in three geographic segments:

Americas,
Europe
Asia Pacific.

Cochlear has established special purpose entities (SPEs) for trading and investment purposes. The Company’s Cochlear Nucleus 5 system includes a cochlear implant, a sound processor, including an automatic phone detection feature.

Annual Reports

Our Analysis - Read Only (use link I emailed to edit)

Meeting #40 Valuation Invocare

2011-10-06T13:38:00.000-07:00

INVOCARE WEBSITE

" InvoCare owns and operates funeral homes, cemeteries and crematoria around Australia, New Zealand and Singapore. InvoCare is well known for its commitment to family care, community engagement and investor value."

Valuations can be found here

For date of meeting see the calendar at the top

Meeting #39 IRI

2011-09-01T04:36:00.000-07:00

http://www.prognosis.com/

Data from Reuters

IR is a leading global provider of high-definition performance monitoring, diagnostics and reporting software. IR is the the creator of award-winning Prognosis® and PowerMinder®

Design, development and sale of systems and applications management computer software for business-critical computing and Internet protocol (IP) telephony networks.

The Company’s PROGNOSIS product range is an integrated suite of monitoring and management software, designed to give an organization’s technical personnel operational insight into their HP NonStop, Windows, uniplexed information and computing system (UNIX) and Linux servers, and IP telephony environments and the business applications that runs on computer software. PROGNOSIS is used in automated teller machine (ATM) and Electronic Funds Transfer at Point of Sale (EFTPOS) transaction systems, Web applications and telecommunications systems. It services customers in more than 50 countries. The Company generates the majority of its revenue from upfront license fees, recurring maintenance and recurring license fees.

The Meeting
Thanks for Gilles, Tom,Mark, Cameron and Camerons Brother for coming on Wednesday.

Overview
The company routinely has a high profit margin and return on capital in the mid 20's it has no long term debt and consistent earnings there is also very little share dilution and little options. The MD has been with the company for along time and he hold a good chunk of shares and also the company is in a space (IP telephony) that could make it a takeover target in future. On the negative side the earnings are flat (falling just short of inflation). The dividend payout is routinely 90% of the yearly earnings.

Valuation
Special thanks to Cameron for driving a truck through my incorrect valuation method! My flawed valuation came up with a valuation of $1.05, both Cameron and Mark came up with around 18 cents. Tom came up with more (about 60 cents - I think)

Valuations spreadsheet will be found here

Next Meeting
We will be submitting valuations of Invocare

Meeting #38 - MTU

2011-08-24T14:41:00.000-07:00

M2 Telecommunications Group Limited is engaged in the supplying of fixed line voice, mobile telecommunications and broadband data services within the Australian and New Zealand markets through its retail and wholesale operating divisions. Retail business segment offers unique packaged telecommunications services, targeted particularly to small and medium sized enterprises, offering fixed line voice services, including line rental services, mobile voice and data services, information technology (IT), terrestrial dial-up and broadband Internet services, as well as mobile telephone hardware. Wholesale business segment offers a full suite of fixed-line voice services, including line rental services, mobile voice and data services, terrestrial dial-up and high speed broadband Internet services, and mobile telephone hardware. On August 3, 2010, People Telecommunications Pty Ltd, wholly owned subsidiary, acquired Bell Networks Voice ; Data Pty Ltd (Bell Networks).

Results Of Our Analysis

Find Our Valuations here

Notes about the Meeting

We should look into Excel functions that automatically calculate an initial price from an final price & interest rate, instead of implementing an iterative solution (ALL);
We should look into implementing checks to ensure our calculated growths are feasible. Possible things to include on checks are the current size of the sector (or whole economy), factored over 10 years for typical population growth & inflation. This needs to be dicsussed further if we are to come up with a workable check we all agree on (ALL);
We should also look at whether or not a company has previously grown by acquisition. If this is the case, there may be a limit on future growth. We should flag this in future calculations, and should certainly be implemented in Point 2, above. (ALL)
Roys should evaluate gearing as Gearing=Debt/Assets, which is preferable to my current system of years to pay off debt (ROY)
Roy should include Interest Coverage Ratio (ROY)
Roy shouldn't calcualate growth as an average value, but use at Growth Rate =(final - initial)/No. years (ROY)
Roy should divide EBITDA by the net assets to evaluate the amount of assets in the business that are being used to generate profits (ROY)
Next Meeting: Present analysus of IRI & Discuss the assessment of many companies. (ALL)

Meeting #37 Evaluating Cardno

2011-07-09T20:09:00.000-07:00

Cardno

"Cardno Limited is a provider of professional services in physical and social infrastructure. The Company has three business segments: Professional Services Australia and New Zealand, Professional Services Americas and Software, and International Development Assistance. Professional Services Australia and New Zealand provides consulting engineering, planning, surveying, landscape architecture, environmental services and geotechnical services. Professional Services Americas and Software provides services in the Americas and software sales globally. International Development Assistance manages aid projects on behalf of unilateral and multilateral government agencies and private clients."

is an interesting company with a soaring stock price

All our analysis can be found here

Meeting #36 ARB Deep dive

2011-06-02T02:46:00.000-07:00

We have previously analysed ARB and thought it was worthy of a second closer look. So our task for the next meeting is to really get under the hood with ARB and develop our understanding that we had from meeting 34

The Meeting
Attendees: Mark, Tom, Gilles and Paul

We basically confirmed our previous analysis that ARB is a stellar company. The question is this growth cannot continue like this forever. Priced at a 16 x multiple of earnings it is expensive compared to other engineering stocks. However it has shown extremely consistently high performance However we all do think it is a bit expensive right now we have bandied about prices of between 4.50 and 5.50

Analysis will be being put on the spreadsheet here

Next Meeting
We will be evaluating Cardno

Meeting # 35 SDI Valuation

2011-04-21T17:02:00.000-07:00

This meeting is due to occur in the future in May 2011 (see calendar above for exact date).

SDI is a company that operates in the research and development, manufacturing and marketing of dental restorative materials. SDI’s products include alloys, etchants, glass ionomers, sealants, cement, equipment, tooth whitening, composites. It operates in Australia, Europe, the United States and Brazil. The Company’s subsidiaries include SDI (North America), Inc, SDI Holdings Pty Ltd, Southern Dental Industries GmbH, SDI Brasil Industria e Comercio Ltda and SDI Dental Limited.

The share price has taken a hammering recently with the high price of silver and high Aussie dollar. At this time of wring the share price is 17 cents.

Discussion points prior to the meeting
In the last valuation we found some descepencies with what comsec claimed the debt levels were against what was in the annual report. For this valuation I did some cross verification and was supprised to see the cash in the annual report to be 875,000 but in comsec it was 3,406,000.

ThenI realized that the 3406 is for the consolidated entity not the company (we'll need to discuss this)

The Meeting
Attendees Paul, Mark, Justin, Tom and analysis was sent from Roy in the UK

Findings
As a value investment it was not good and the inconsistent earnings have made it a difficult company to value. Return on capital is also not good.

Click Here for our Valuations

Meeting # 34 ARB

2011-04-21T06:59:00.000-07:00

This meeting was to present our findings on ARB
Attendees
Thanks to Mark Justin for attending and Roy for sending in analysis (despite not being able to attend as he was in the UK.

Findings
Our analysis varied in values from $3.30 to $17 most of the reason for the difference was around the margin of safety we employed. Both Justin and Paul missed the high level of debt (%35 of total assets) from looking at the figures from commsec. Mark has calculated a more accurate earnings figure by basing his figures on a free cash flow. Mark and Paul got earnings growth at around 35%. Justin was around 8%.

Spreadsheet of our analysis can be found here

Tasks for next meeting
We will all analyse another very interesting company called SDI which is a dental company that has been hammered recently on the share price. Go Forth and Value!

For everyone could we please base our valuations on beating a 12% bank return. Roy asked me to do this so the valuations can be more easily compared

Where did the $9 trillion go?

2011-02-23T02:10:00.000-08:00

In the quite amazing videos from May - June 2009 being questioned around the 2009 bailouts and where the money went.

The Inspector General of the Federal Reserve
The Chairman of the Federal Reserve
The Chairman of the Federal Housing Committee

#1 Alan Grayson vs Elizabeth A Coleman
Inspector General of the Federal Reserve

She is asked where the $9 trillion went that has disappeared in the last 18 months. To put that in context the GDP of the US is about $12 trillion, the yearly US tax income base is about $3 trillion.

#2 Alan Grayson vs Ben Beranke
The Chairman of the Federal Reserve Bank of America
Ben Bernanke getting very nervous trying to explain a $550billion entry on the balance sheet

#3 Alan Grayson Vs James Lockhart
Chairman of the Oversight Board of the Federal Housing Finance Agency

James has some very nervous looking body language trying to explain how $1 trillion of derivatives were used to hedge a $200 bad million loans and ultimately resulted in a $100 billion bailout.

Where did the 9trillion dollars go?
Those videos above were made 2 years ago and since then there have been actions that have taken place to start to get to the bottom of the situation

Nov 2008 Obama Elected
Feb 2009 Obama signed American Recovery and Reinvestment Act of 2009 (Economic Stimulus package)
June 2009 the you tube videos were posted on youtube
Nov 2009 The Federal Reserve Transparency Act of 2009 (H.R. 1207) was passed

After the passing of Federal Reserve Transparency Act of 2009 (H.R. 1207)

The Federal Reserve was forced to publish where the money went and did so in December 2010

Article source http://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm

[when I find the actual data I will put it here]

Meeting #33

2011-01-31T12:31:00.000-08:00

The meeting was to present our further analysis of JBHIFI
It was a very interesting meeting thanks to Roy , Justin and Mark for coming. A few items were discussed that I found very interesting

How significant the stock options value are
Margin of Safety
Using 6 monthly financial reports

Stock options can cost 50% of the Annual Gross profit
If you look at a companies annual share volume and it steadily increases by a small number each year then the directors are probably giving themselves stock options. The value of these options is often significant. In JBHIFI it was worth about 10% of the revenue. The value is often between 10 to 20% of the gross profit.

Margin of Safety (10-17%)
To calculate the return I was looking to calculate price for JBHIFI I used 10%. This resulted in a price of around $25 for JB. Mark used a figure of 17% which together with a discount for the value of the stock options resulted in a value of around $12.

We also discussed the benefit of using the 6 month data instead of just the 12 months data

Our Analysis of JBHIFI can be found here

For Next Meeting

We will tidy up our analysis for JBHIFI can be found here
We will start analysis of a new company 1300 SMILES
We present our analysis at our next meetup

Meeting # 32

2010-12-13T02:30:00.000-08:00

The meeting was to present our valuations of JB HI-FI.
We also had some good general conversations about JBHIFI as well. I thought it was a very effective meeting and feel we made some good progress.

Attendees

Roy
Olzhas
Paul
Jeffery had also kindly send us some documents that I brought along with some valuations he had got from a variety of sources.

I presented my workings to Roy and Olzhaz and they gave me feedback. My workings got so far as calculating a minimum share price and the earnings per share growth rate. The next step is to use these workings and apply the future predicted share price with a return of 10% per year to back calculate a maximum price which takes into account.

Key Learnings from the meeting

For the value calculations generally you are better off using EBIT (as it is closer to the actual earning engine of the business - like the free cash flow figure)
The calculations seemed fairly close to what we should be doing.

The calculations can be found on this spreadsheet valuation spreadsheet if you are on the mailing list you should have write access to it. This will be the place for all our calculations we produce about JBHIFI.

Next Steps

We plan to continue to deep dive into JBHIFI

Roy will attempt to finish my calculations
Olzhas will add some of his own valuation calculations to compare methods
Paul will put together a financial definition cheat sheet so we can quickly check financial terms etc
Anyone else Please read the spreadsheet and add anything you want in the blank spreadsheets. And have a go at valuing or adding to the analysis on JBHIFI

Meeting #31

2010-11-25T02:39:00.000-08:00

At the meeting today where Jeffery , Roy, Justin and I. Justin had been very busy and had some good tips for us to look into at a later date the companies were
[placeholder]

We all went through the numbers on JB and have decided that our task for the next meeting is to come up with a dollar value for the shares in the company. We will then present this and work through our numbers to the group.

JBHIF 10 year numbers can be found here [when I upload them - next week]

Interest Rates

2010-11-23T12:51:00.000-08:00

I spoke to my bank today to find that the interest rates were going up again to 7.5%. This is a big difference to 0.5% in the UK and 0.25% in the US.

Below is a chart of historical interest rates in the UK (In the last 20 years interest rates have been around 6%). You can see that 0.05% is a 20 year Low for the UK and nowhere near the mean value of about 6%. This low rates in the UK and US are just another indicator that both economies are in really bad shape and trying increasingly desperate measures to get the economies moving. I hope not too many people in the UK have bought recently thinking that a 1% mortgage is "normal".

One of the things I hear a lot is "If we get huge inflation then I'll pay off my house in double quick time" well maybe not. Countries can use inflation to pay off the national debt but for the like of you and me we cannot use inflation to easily pay off our house. The reason for this is that what often happens is interest rates can go up to match inflation. There are a few examples on Wikipedia along with more data on interest rates.

Investing in Lithium

2010-11-19T22:21:00.000-08:00

This is a bit off topic but I am interested in having some exposure to the likely commodities boom that I see on the horizon. The most interesting for me are phosphorous and lithium. A Chilean company SQM, listed in Santiago and in New York ADRD is a company with huge reserves of both - I would like to keep this as placeholder for further analysis. The price has recently shot up. Maybe its too expensive now. In 2010 an ETF was launch for lithium (I'm not really sure how this works though) - Paul

I found another interesting site on lithium investing here

Cash Reserves of Banks

2010-11-19T15:29:00.000-08:00

I went to my bank to get some money the other day. I needed $4000. They told me that officially I needed to give 24 hours notice for cash withdrawl over $2,000 however they had enough today so they could give me my $4000. Now my bank is probably a bit smaller than a big bank like ANZ but I found this quite startling. It got me wondering about how much money banks have in reserve.

A note about Reserve banking . Banks don't need $100 dollars to lend you $100. The US has a requirement that the banks have at least own equity worth 10% of the total loans outstanding. So if Citibank only actually owned $10 then the sum of all the loans they could make could not exceed $100.

So I did a little investigation and what I found (with a quick look on wikipedia) startled me somewhat. I knew that the US had a 10% requirement. I didn't know though that the UK and Australia does not require any reserve whatsoever. So they can make money loaning money they don't have. I wish I could do that! Below is taken from wikipedia

Country	Required reserve (in %)	Note
Australia	None	Statutory Reserve Deposits abolished in 1988, replaced with 1% Non-callable Deposits^[5]
Canada	None
Mexico	None
New Zealand	None	1999 [2]
Sweden	None
United Kingdom	None
Czech Republic	2.00	Since 7 October 2009
Eurozone	2.00	Since 1999^[6]
South Africa	2.50
Switzerland	2.50
Poland	3.00
Chile	4.50
India	6.00	as per RBI.
Bangladesh	5.50	Raised from 5.00. Effective from 15 May 2010
Lithuania	6.00
Pakistan	5.00	Since 1 November 2008
Taiwan	7.00	^[7]
Latvia	8.00
Jordan	8.00
Malawi	15.00
Zambia	8.00
Burundi	8.50
Hungary	2.0
Ghana	9.00
United States	10.00 If anyone believes there is something incorrect or misleading with this article then please add to the comments below or send me an email

Meeting #30

2010-11-18T01:50:00.000-08:00

Attendees
Olzhas
Paul
Justin
Roy (briefly by phone)

Short and sweet meeting. At the meeting Justin presented his work on Infomeadia.

Revenue was erratic and dividend behavior seemed out of line with profit. Roy also provided a little insight but we concluded that there financials were to erratic to make continuing evaluation worthwhile.

It was also great to see a new face ,Olzhas, who had some good input on Infomeadia as well as some good discussion about things warren buffet and more general economics.

Next Meeting
Paul Ayling, Roy, Justin , Mandy & Giselle to evaluate JBHIFI. Olzhas to present some analysis on a separate company and also provide a buffetolgy checklist and some information from morningstar. Because Christmas is coming up we made the decision to have another meeting next week to keep momentum.(see calendar)

Meeting #29 Go through The financial Review

2010-10-07T03:47:00.000-07:00

Another successful meeting in the Westin Hotel. Thanks to Roy and Justin for their hard work in between sips of beer. Condolences to Giselle who was unfortunately not well and could not attend. Regards to Mandy who hopefully is getting creative on holiday somewhere and could not attend.

We went through the financial Review and noted down any companies we recognized from all the companies in the ASX omitting any sector that were too hard. We hope by doing this we can work on the lowest hanging fruit first (easiest to understand).We each have 2 hours of homework to do before our next meetup.

Actions
So we have 3 weeks until the next meeting and we all have 2 hours of homework to do in 4 weeks. Thats 45 mins a week.

Paul

Complete - write up our selections amend to a spreadsheet and add market capitalization. See this link for the spreadsheet
Complete - Set calendar and document on this blog

Roy to Review Infomedia

Get 10 years worth of financial info
Read 1 Annual report
Compile a list of the key soft attribute about the company - consumer monopoly etc
Evaluate the overall performance of the company
Evaluate the Overall performance of the managers
Watch the crash course

Justin to Review Infomedia

Get 10 years worth of financial info
Read 1 Annual report
Compile a list of the key soft attribute about the company - consumer monopoly etc
Evaluate the overall performance of the company
Evaluate the Overall performance of the managers
Put the Documents on Definitions onto google documents

Giselle

Complete reading from last time
Watch the crash course

Mandy - Optional

Read "The warren buffet way or buffetology"

Economic Fundamentals - The Crash Course

2010-09-24T20:40:00.000-07:00

I was listening to an interview with Chris Martinson on the survival podcast.

Chris Materson is a really interesting, intelligent guy with scientific training and a thirst for numbers more details can be found about him here.

He has a free video course that you can watch on youtube (click on the image above to view it). It is very logical and well cited. I would recommend anyone who is investing at present to spend some time watching this so they can understand the major financial issues that will shape the economy in the future.

Meeting #28 - 9th September 2010

2010-09-08T15:11:00.000-07:00

We just had our meeting Justin had made good progress on Buffetology. Giselle still has quite a bit of reading to do.

Actions

All

All buy a financial review and bring along with highlighter
Select one company we think is of good quality according to Warrens criteria

Giselle

Read the parts of Buffetology related to selection of high quality companies

Next Agenda

Each of us Present why we selected the company we selected
Agree on three companies in the same market sector to analyse
Allocate a company each to then analyse to calculate a value range for the shares

Meeting #27

2010-07-23T05:19:00.000-07:00

Me to find a suitable stock to find for us to value - Straights Resources and to schedule

J&G To listen to the investor questions podcast and start analysis on the company
J to get his extra data on the company
Me to publish spreadsheet on the company to be the basis for calcs

Hyper Inflation - Again and hedging strategies

2010-02-11T23:23:00.000-08:00

It's a bit depressing but more people are now talking about the US and it's likelihood for having huge inflation.

Ron Paul (video above) is my favourite US politician (I only really like him and Ralph Nader). He serves on the House Financial Services Committee, the International Relations committee, and the Joint Economic Committee and on the Financial Services Committee, Rep. Paul serves as the vice-chairman of the Oversight and Investigations subcommittee.

There is another interesting article about the fed here all in all the more I understand about the subject the bleaker it looks.

As part of my investment strategy and as a hedge against hyperinflation I am looking into how I buy land with some of my superannuation. I will let you know how I get on

Tasks

2010-01-30T23:52:00.000-08:00

Ahh 2010 and we have all been on holiday! I think we all forgot what we were supposed to be working on so I thought to make things easier I'd add a sheet here so we can see what we commited to last time. At any time click "Current Tasks Assigned" toward the top of the screen.

Meeting #26

2009-11-13T13:33:00.000-08:00

There are now a few more members to the club and we are busily working on analysis of some companies. There will be 3 new spreadsheets going up when we have our next meeting (beginning of December)

Pauls Current Financial strategy

2009-10-02T16:18:00.000-07:00

As I am convinced we are entering a new inflationary time. (which in turn probably means higher interest rates)

We actually already have currency devaluation in Australia but not against the currencies of the world (at the moment we are looking pretty good and I think the AU dollar will only get stronger over the next 5 years against both the UK pound and US dollar).

The AU dollar has devalued (along with all the major international currencies) against commodities. This makes perfect sense as all the major economies of the world have been busy printing money (in huge volumes in the case of the US approx 4 x the US GDP [this figure will be disputed - I have discussed this in an earlier post]).

As a result of this my current strategy with regards to my DIY superfund is

1. Invest in companies like warren buffet (this is a natrual hedge against inflation because I will be looking for companies with a consumer monopoly and therefore the ability to easily raise prices with inflation and low debt)

2. Invest in rural agricultural land (as food prices will be a good hedge against inflation and also in the long term is likely to continue to become more expensive - In the last 6 out of 9 years the world has not produced enough food for it's population.

3. Invest in gold and silver as a hedge against inflation. Also as countries try to untie themselves from the US dollar countries will start to increase their gold reserves. China is currently doing this now - see article

Anyway this is just what I am thinking. I am allways open to any feedback on anything and welcome you to comment on this article below

Workings on How much I'd pay for cabcharge

2009-10-02T15:57:00.000-07:00

It's been a while!

I have made some progress and managed to do all the maths on Cabcharge ala Warren Buffet. I have imported the spreadsheet I have been working on (find it here, all the numbers are correct although the formulas didn't import).

the spreadsheet is here

If you have any advice or comments or questions about anything on the sheet then please drop me a line!

Paul

How bad is the credit crisis Part 2

2008-12-11T02:01:00.000-08:00

Warren Buffet has come to my aid (how very fitting)

The conclusion he was at in 2002 was that

"derivatives are financial weapons of mass destruction"

I thought the numbers in the last post were big - this just blows them away.The total value of all the derivatives in the market is $500 trillion
or
500,000 bn
or

200 times all the tax raised in the US in 2007
or

38 times US GDP

9 times the Global GDP (55,000bn)

Scary numbers when you start to read what derivatives are and how they work.

There is a good article on wikipeadia on this

Once you understand how they work in practice it starts to look like great big pyramid scheme. Its a house of cards what it does is amplify any problem massively. The spark that set fire to the trillion dollar crisis was 200 million bad loans and because of all of these derivatives based on these 200 billions can magnify into trillions of dollars in losses.

I think I now understand how this whole thing has come about and how bad it will be.

The answer to my origonal question

"How bad is the credit crisis"

Very bad
Very high inflation
Not sure on when it will get really bad though

I am unsure of how to deal with it. I have holdings in cash and shares (although most of mine were bought after the first large dip and are holding quite well). I also ave other investments and am continuing to contribute to my superannuation (which is currently 100% cash). The question is ...

Now I think I can see the future how do I use this information to assist me in my financial planning over the next 5-10 years?

If anyone has some good ideas I would love to hear from you

Reference

The World and US GDP

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

The value of derivatives

http://www.bis.org/statistics/derstats.htm

Credit Bail Out - How bad is it

2008-11-23T02:20:00.000-08:00

I'm no economist but I thought I should look into how big a problem is the credit crisis. I have done a few basic sums.

TOTALS FOR THE US IN $BILLIONS

Income

(Total value of all US taxes)

2600

This represents 18.8% of GDP since 1930 the highest tax rate has been 20.9 in 2000

Costs

(Bail out) 850

(Loans Liability) 2000

(Current US Debt) 10600

(War) 144

TOTAL 13,594 (Thats $48k per person)

US GDP 2007 13,810

So if the US government spends nothing on running the country and everything on paying off the debt they will take about 5 1/2 years to pay off this debt.

This puts the the US at about 1:1 debt to GDP which brings them from the 27th most in debt in 2007 to the 6th in the world now.

Below is a graph of debt to GDP before all this bail out stuff (taken from zfacts )

I've got a few movies here to looking at debt

Below is a movie by the that disputes the official government figures http://www.meetup.com/nyinvestingmeetup/

(anyone got opinion on this lot - a bit of research seemed to support thier claim that the figures are being modified optimistically.)

This sounds very scary to me.

Could anyone who knows a bit about this give me some explanation behind numbers that will give me some feeling that the US is OK?

Could we have currency devaluation and rampant inflation? An article here (Argentina Vs US) explains the similarities.

DEFINITIONS

US debt = All the current debt owed by the US government not to be confused with US deficit which is the yearly shortfall between taxed raised and money spent by the US government each year.

SOURCES

Total Tax raised in the US

http://en.wikipedia.org/wiki/Federal_tax_revenue_by_state

US War expenditure

http://en.wikipedia.org/wiki/Financial_cost_of_the_Iraq_War

Total US Government Debt

http://en.wikipedia.org/wiki/United_States_public_debt

http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm

US GDP 2007

http://en.wikipedia.org/wiki/US_GDP

US Taxes

http://www.whitehouse.gov/omb/budget/fy2007/pdf/07msr.pdf

Personal Share Portfolio

2008-11-07T13:41:00.000-08:00

I am still waiting for the superanuation to fully be rolled over to the DIY superfund. In the mean time I have purchased shares in the following companies in my personal portfolio.

ASX:Toll Holdings
Calculation Spreadsheet
ASX:Cabcharge
Calculation Spreadsheet)
ASX: Commonwealth Bank of Australia
I chose these because I thought I should have a bank. (I haven't a clue how to analyse a bank - I'll be honest I just put finger in the air and guessed on this one.)
NYSE:CBG CB Richard Ellis
(I did some research into this one and it looked like a good bet (low debt good return on captial - good earnings and I though I should get into the property sector).

I bought these shares in late September. I bought Toll and cabcharge because they both seemed like good companies in strong market positions have shown consistently high return on capital and the prices were good.

Times are turbulent and the CBE Richard Ellis shares have taken a pounding but the rest are, for the time being, at about what I paid for them. That said my strategy is buy and hold so I am not too concerned what happens to the share price in the next (rocky 12 months).

Free Stock Screeners

2008-09-25T05:07:00.000-07:00

I wondered on the internet and found this rather usefull page - I hope you find it helpfull. I will be looking at the screeners over the next few weeks and I'll let you know how I go

Stock Screeners

Those don't really do the job. I need a stock screener to screen aussie stocks and look at last 10 years consisten earnings growth.

Calculating the Intrinsic Value of Toll Holdings

2008-09-18T02:22:00.000-07:00

I have just bought shares based on my analysis of Toll holdings (for my own personal portfolio outside my superanuation fund). This is quite exciting for me because this is the first purchase I have made using some of the processes we have been reading about. I am quite sure its a bit crude but would love to hear opinions on my stab at calculation the Intrinsic Value of Toll.

Calculation Spreadsheet

I also listened to the MD of Toll on the latest asx podcast how gave me an idea of their strategic direction which I was quite Impressed with. They seem like they have had some solid performance with a good idea of where they are going and also a good competitive envioronment - they just recoently bought a msjor competitor in Australia.

I am open to any advice? Things I have missed? Errors I have made? Have I missed the point? What do you think? Anyone? All advice is welcome

Please have a look at my spreadsheet Intrinsic calculations and let me know what you think!

How do you roll out of a DIY Super fund

2008-09-10T01:56:00.000-07:00

Roy and I met up yesterday to discuss our progress.

He has quite a bit of stuff to look at to help improve my first stab at analysing a company from a warren buffet point of view. We have also made a few baby steps to actually putting our money in to our new superfund. One thing we weren’t sure about was what happens if or when one of us decides to roll out of the fund? We were seriously discussing whether we should match contributions to make things easier. I called esuperfund today and was advised that basically all the auditing that they do is per fund member so thereby meaning that each individual is treated as a separate account (just the same as a usual fund). I suppose this is a standard approach for a DIY super. So it should actually be a pretty straightforward process

I think this is a good time to mention that the guys at esuperfund have been very helpful so far. The documentation we received when setting it up made the whole process much easier and they have been very helpful in answering our questions. It’s refreshing to speak to someone on the phone that actually knows what they are talking about!

Value Investors Club

2008-09-06T00:15:00.000-07:00

I have just been looking online and I found the following website.

www.valueinvestorsclub.com/

On the site it states

"ONLY 250 MEMBERS WILL QUALIFY for acceptance. Membership is free, however, only a select few will be chosen to join based on their investment ability. Applications will be judged by an investment manager with one of the top long-term investment records........ Each member, once admitted, must post a minimum of 2 investment ideas per year ..."

It looks quite interesting the basic idea is that you submit a couple of good quality company reviews of companies that you like every year and then gain access to everyone elses reviews too. That way multiplying your good work by all the members of the club. Sounds like a good idea to me!

I have just been looking at some samples as I think they could be helpfull for us to get together a template so we can hit the main points when we review a company.

Has anyone had any experience with this club?

If you have I would love to hear your comments.

Value Investment Podcast Recommendations

2008-09-02T04:30:00.000-07:00

After my previous blog where (among other things I mentioned a podcast that I was listening to www.thevalueguys.com ).

I remembered that I should really also make a note of another podcast that is very good

http://www.gannononinvesting.com/ .

There are only 8 podcasts in total in the set but I found them all to be really usefull.

As ever if you have anything to add then please do!

Setting up our DIY superannuation fund

2008-07-08T00:08:00.000-07:00

When you setup up a self managed super fund you have the ability to invest the money how you see fit (within certain guidelines). However you must employ the services of a company to help set up your fund and to audit the fund every year. Below explains the process we went through. First some general information about super funds and then why we selected the company we did.

GENERAL INFORMATION
Firstily we looked at the fido website
http://fido.asic.gov.au/fido/fido.nsf/byheadline/Switching+to+DIY+super?openDocument

Key points
Setup costs around $1000
Yearly auditing costs around $1000-2000

They recommend you do not do it unless you have at least 200,000 in your super

LOOKING AT 2 COMPANIES TO SETUP AND AUDIT OUR FUND
I found a couple of companies that will do the work for a great deal less than the costs on the FIDO site. This is very import for the success of our fund as the costs could have a huge effect on the compounding return of our fund.

Company 1
I rang up this company and this was the result of the conversation

http://www.supereasy.com.au/welcome.asp?pg=admin

· $345 establishment fee
· $1095 per annum yearly fee
· same costs for 1 person or 4 in the fund

Company 2
This was a very good deal

http://www.esuperfund.com.au

$0 establishement fee
$599 p year Auditing fees
There are no costs in leaving or joining the fund - just a rollover form

CONCLUSION
This seems really good! The reason they are so well priced is that all transactions must be conducted through on online trading account with commsec. This means that there job of auditing is much easier and quicker for them. This does mean there are some limitations with what you can invest in at the moment no derivatives can be purchased (that doesn’t bother us) and purchases are limited to Australian companies only.

We decided to apply to set up our fund with them. We are now waiting the forms to arrive in the post.

Has anyone else used E-superfund or anyone have any advice for us along the lines of our choice of DIY auditors?

I would love to hear anyone thoughts

Why are we setting up our own DIY super fund

2008-07-07T01:07:00.000-07:00

In Australia we have a mandatory contribution scheme for or retirement. The fund is managed by one of number of companies who invest the money on your behalf. For this service they receive fees. I have been paying into one of these funds for a number of years.

I (like many other people) have pretty much ignored my superannuation for too long. A couple of months ago I thought it was high time I examined my fund with a fine tooth comb and what I found was pretty worrying.

I found discrepancies on their web site where they contradicted the return for the fund - after my pursuing this I was informed this was copy paste error. Hmm!

I then went through the accounts of my fund and found that the performance of the individual components of my fund (eg Australian shares 15%, International share 20%, cash 10% etc..)didn't seem to add up with what was the stated performance of those components on the superannuation companies website. I rang up and seemingly I am the first person to have asked for a breakdown of this information. After 6 weeks I got an answer t my question.

This I find very concerning not only was the information hard to come by to seems very few people are asking questions. This lack of transparency I find very worrying and I predict some of the superannualtion funds are going to get into trouble because no-one is asking questions. I decided that if a fund was to get into trouble it wasn't going to happen with my money. I presented my findings to the club (we allready had done work on value investment in the past) and this was what persuaded me and the other guys to go for a DIY super managed by value analysis principles.

Has anyone else tried to get information from there superannuation fund? What were your results?

Setting up the site

2008-07-04T18:02:00.000-07:00

In these blogs I intend to hold nothing back and explain our whole process we go through to make our decisions. There are a bunch of spreadsheets and other documents we are using currently that I would like to publish. I would also like to publish a comprehensive list of books / podcasts / websites we have used so far and include new sources as we use them. I hope to put all this up on the blog over the next few weeks.

Paul

Background

2008-07-04T15:21:00.000-07:00

A few years ago I got to my 30th birthday and I realized at my age I really should be taking my finance a bit more seriously. The problem with finance is that it is so deadly boring. To overcome this inertia I set up a club with some other friends in order to force myself to learn stuff about this wide ranging topic. In the club we have monthly meetings where we present to the group on topics of our choice. Luckily we all enjoy learning new things and it has worked out very well. We have covered a wide veriety of topics such as tax, reducing spending, buying property etc.

More recently investment strategy has become of more interest to us. We are based in Melbourne Australia and in Australia we have a mandatory pension scheme. These schemes are called superannuation funds and involve employee and employer contribution made to a private investment fund. You also have a choice to setup and manage your own fund. In earlier presentations we concluded that we had some deep concerns about managed super funds and have decided to manage our own.
We are currently embarking on setting up a self managed super fund where we are intending manage the investments by applying the principles of value investors such as Warren Buffet and Benjamin Graham.The purpose of this post and (hopefully the supporting podcasts) are to share our journey on this task.

We hope that this may assist other people who are on a similar journey. I also hope that we me benefit from the feedback of others to assist us on our journey.