Meeting #26

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

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

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

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

or 

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

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

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

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

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

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

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.