Monday, April 30, 2007

The Dhandho Investor - Book Review

The Dhandho Investor: The Low - Risk Value Method to High Returns

What Is It About?

The book describes fundamental investing as followed by the Graham-Buffett style of value investing. The book covers topics such as business analysis, developing a focused portfolio, and understanding the value of finding low risk-high probability of success investments. Overall, the book helps new investors achieve success in the stock market following a disciplined investing approach.

What Did I Get Out Of It As A New Investor?

Straight forward book on value investing. Using examples from his own work as a private fund manager the author helps the new investor understand how to use a focused fundamental style of investing in order to achieve success. Touching on such important topics as discounted cash flow analysis, competitive advantage, and margin of safety, the book educates the new investor on the basic principles that Warren Buffett and others encourage all investors to follow. Short and to the point, the book delivers a lot of value to the new investor.

The Good News

For those who are looking for a solid introduction to focused value investing this book does the job.

The Bad News

Great book for the new value investor, less so for the more experienced investor already adept at using the techniques of fundamental investing.

The Bottom Line

If you want a book to help you understand value investing, this book can help you accomplish your goal.

Other Related Reading:

Saturday, April 28, 2007

First Things First: Knowledge, Analysis, Trigger

Participating in the market can seem to be a daunting prospect for the non-professional. Having a simple system to help acclimate one to a whole new process can be helpful. When I want to learn anything new I employ a three step process. I describe the three steps as: Knowledge, Analysis, and Trigger (KAT). Here is how I go about that process to aid my development as a new investor and trading.


The obvious and most simple step in my KAT system is that one must first determine where one can gain knowledge. Will you use books from Benjamin Graham or Van Tharp’s Trade Your Way to Financial Freedom, or newspapers like the Wall Street Journal? Or perhaps you will rely exclusively on charts or company reports. Whatever the case, as a new investor or trader you must first figure out how and where you will gain your knowledge.


The second, and a more difficult step in the KAT system, is developing the ability to analyze the knowledge acquired. In other words, you must gain the ability to filter the useful from the useless. Then one must take the useful knowledge and determine what is actionable and what is not.

There are no shortcuts here at this step. The amount of information available is mind boggling and overwhelming. Without the development of a system of analysis to determine what knowledge you can use, the mere possession of that knowledge is worth nothing.


The third and most difficult final step in KAT is what I call the Trigger, as in pull the trigger. Once you have obtained your knowledge sources and once you have developed the ability to analyze what is useful, you must then develop the emotional ability to act on your analysis. This is why the trigger is the most difficult step to develop in KAT.

Acquiring knowledge and analyzing can be easily thought of as logical processes. Pulling the trigger and applying that knowledge and analysis is not. Taking ones knowledge and analysis and implementing it, is an affirmative (and emotional) declaration that you have the self confidence and belief to take action (or inaction) when other may disagree with your conclusion.

The decision to buy a stock (or sell it) is based on knowledge and analysis, but ultimately being able to implement that decision and pull the trigger comes down to emotional confidence in ones ability. If one does not have the ability to recognize and execute that which their knowledge and analysis dictates then mastery of the first two steps of KAT mean nothing

While all this may seem obvious, obvious information is not so obvious when you are unfamiliar with a subject. For those like me who are relatively new to investing and trading, discovering the obvious is a rewarding experience. That is why I think one must understand the above three important (but perhaps obvious) things when you begin to participate in the market.

Understanding that one must gain knowledge, develop the ability to analyze that knowledge, and maintain the emotional discipline to pull the trigger on that analysis is one of the most important and basics things I could understand. And I think you should too.

Thursday, April 26, 2007

Trade With Passion And Purpose - Book Review

Trade With Passion and Purpose: Spiritual, Psychological and Philosophical Keys to Becoming a Top Trader (Wiley Trading)

What Is It About?

This book explores looking within oneself to achieve greater trading success. Examining emotions such as fear, self-honesty, self-esteem, anxiety, and others, the author details how a trader must clarify their internal purpose before finding external market success. The book also discusses confronting external forces such as stress, relaxation, and self destructive behavior. The book concludes with a section on developing a trading plan.

What Did I Get Out Of It As A New Investor?

I enjoy reading trading books that focus on understanding and harnessing ones internal emotions. I say that because without an internal compass to guide the use of a trading system, that system becomes worthless. To that end, this book does a good job of providing tools to help an investor or trader understand that in the end we are the most important part of the equation when it comes to trading and investing.

To accomplish this goal the author in a comprehensive, but not boring, manner discusses those stresses, both internal and external, that market participants often face. Using interviews with other traders, sports professionals, and others, the author details how one can best harness and control those factors to a positive result. The concluding chapters also do a good job of explaining why every trading plan must have integrity to succeed.

The Good News

The book delivers a very powerful message on how trading with purposeful integrity drives success.

The Bad News

While engaging, the book does read like a college text. One may find it easier to read the book over several weeks, digesting pausing after each chapter for consideration of the material rather than reading straight through.

The Bottom Line

Solid text on not just controlling ones emotions but understanding why ones trading must have purpose and integrity.

Other Related Reading:

My Review

Wednesday, April 25, 2007

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms - Book Review

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms

What Is It About?

This book explores the nature of a bear market at its apex (although I suppose nadir more aptly describes). The book inspects four distinct bear market bottoms: August 1921, July 1932, June 1949, and August 1982. This book does not try to time when a bear market begins or ends; rather the book focuses on understanding when all excess in the market has been rung out, or in others words, trying to understand when the bear becomes satiated.

By examining events leading up to each bottom, the structure of the market during that time, and the state of the market and economy at the bottom of each bear, the author presents a balanced examination of similar factors present during all four periods. To do so the author makes the case that while each period has its uniqueness, certain characteristics present during each period examined such that one may develop an analytic process which may assist during a future bear period. Written well, the book presents the material in an interesting manner.

What Did I Get Out Of It As A New Investor?

Bear markets happen. Absent non-participation in the market, all are touched by the bear to some degree. While it is futile to predict when a bear may begin or end, enough similarity exists in the past among the great bear markets to signal opportunities to purchase stocks. This book helps a new investor or trader recognize when unwarranted and continued fear of the bear lacks justification. In short, if one cannot avoid the bear, one can at least hope to co-exist in a manner which does the least damage.

Whether one chooses to describe a market as fundamentally undervalued or technically oversold makes no difference. While it may be difficult to predict when a bear market will end, looking to past bear markets can be useful to discern when the continuing damage caused by the bear will abate. It is at this point when the purchase of equities must be considered. On this point the book is helpful in teaching an investor and trader what factors to examine.

The Good News

An accessible yet through examination of bear markets for the investor or trader which provides valuable information on the history of market bottoms.

The Bad News

Those seeking a simple buy or sell indicator to avoid bear markets may find disappointment with this book; rather, the book excels in helping the reader develop a thoughtful and broad understanding of market bottoms to aid in future analysis.

The Bottom Line

Written in a clear manner and to the point, this book covers the subject in a manner uncommon to the subject. Most works on bear markets focus on the damage a bear does, this book instead focuses on knowing when to take advantage of the positive buying opportunities a bear provides.

Other Related Reading:

Sunday, April 22, 2007

VIX and More - Blog Review

VIX and More

Another blog I enjoy reading is VIX and More. As the title of the blog indicates the author discusses the sentiment and volatility of the market as expressed through the VIX. For those unaware of what the VIX is, the author does an excellent job of introducing the VIX to a new investor or trader.

But the blog is not solely focused on discussing the VIX. The blog does a great job addressing the "and More" portion of its title. For example, the blog offers readers a model portfolio to consider, a discussion of time horizons, and general comments on the state of the market.

Overall, I enjoy reading VIX and More because it covers in detail a subject not well represented by other bloggers. Of course that was the author's intent when he started his blog earlier this year. I think he does a fine job filling this niche.

VIX and More

Friday, April 20, 2007

Stock Screen: Private Equity Buyout Candidates

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on the MSN website, so I thought I would share what I found.

This is a screen which looks for stocks that may appeal as buyout candidates.

Screening parameter:
Market Capitalization >= 1,000,000,000

Screening Parameter:
Market Capitalization <= 5,000,000,000 Screening parameter: Return on Equity >= 5

Screening parameter: Price/Cash Flow Ratio >= 1

Screening parameter: Price/Cash Flow Ratio <= 20 Screening parameter: Last Price <= 0.7 * Five-Year High Price

Screening parameter:
Last Price >= 0.40 * Five-Year High Price

Screening parameter: Price/Sales Ratio <=2 Screening parameter: Price/Sales Ratio <= Industry Average P/S

Screening parameter
: Mean Recommendation <= Moderate Buy

Screening parameter
: Mean Recommendation >= Hold

Screening parameter:
EPS Growth Next Five Years >= 10

Screening parameter:
EPS Growth Next Five Years <= 15 Screening Parameter: Debt to Equity Ratio <= 0.5 Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

Tuesday, April 17, 2007

Chairman Maoxian - Blog Review


Here is another great blog which is more than it seems. At first glance one may see the charts and discussion of short-term trades as an indication that the Maoxian blog is about short term technical trades. It is not. A deeper read reveals that, like all great stock market blogs, the Maoxian blog provides insight to all time frames and every style.

Since 2001, the blog author has been providing insightful market commentary for all investors and traders. For the short term technically inclined there is the original Trading for Dummies series of posts. For the more long term value oriented there are may posts like the one which reprints the Forbes interview with Warren Buffett in 1974. Read the blog long enough and you will see just how diverse, and helpful, the material is to either an investor or trader.

The best thing I can ever say about a blog is that I learn something new every time I visit. Chairman Maoxian's blog falls into that category. What did I learn today? Click on the following link to see what the Charmian had to say five years ago about the CBOE Volatility Index. Priceless.


Monday, April 16, 2007

Stock Screen: Strong Earnings and Price Momentum

I collected a lot of stock screens this past year. Most use the free deluxe screener available at the MSN Money website. The screens are sometimes hard to find on the MSN website, so I thought I would share them.

This is a screen that finds stocks with strong earnings and price momentum.

Screening parameter: 12-month Relative Strength >= 80

Screening parameter: 3-month Relative Strength >= 90

Screening parameter: Previous Day's Closing Price >= 1.2* 200-Day Moving Average

Screening parameter: % Price Change 1 Week <= 10 Screening parameter: Recent Qtr Surprise % >= 5

Screening parameter: Earnings Estimate Increased in the Last Quarter

Screening parameter: ROE: 5-Year Ave. >= 1

Here is a link to the MSN article by Harry Domash with a description of how and why the above parameters are used.

Thursday, April 12, 2007

The Focus Investor - Book Review

The Focus Investor

What Is It About?

The book synthesizes fundamental investing by reviewing the teachings of several well known investors. Using the works of Graham, Fisher, Buffett, and Munger, the author focuses on the strengths of each. The author describes the distillation of the approaches as “Focus Investing.”

What Did I Get Out Of It As A New Investor?

A quality summary of what Graham, Buffett, and others teach with respect to fundamental investing. Covering topics such as accounting red flags, valuation, investor psychology, and the role of diversification, the author presents a theory of investing which highlights the main concepts from prominent value investors. Overall, this book provides to the new investor a means to quickly grasp the main heart of investing as practiced by Graham, Buffett, and the others.

The Good News

An excellent starting point for the new investor seeking an introduction to fundamental investing or for those having difficulty grasping the concepts.

The Bad News

While the book does synthesis the works of several great investors in one volume, for those who have read Graham, Fisher, Buffett, and Munger, this book may have limited appeal.

The Bottom Line

Well written and helpful book for the new investor.

Other Related Reading:

Wednesday, April 11, 2007

Suria Investment Newsletter (SIN Letter) - Blog Review

Suria Investment Newsletter (SIN Letter)

Another website I enjoy reading is Asif Suria's SIN Letter website. Some websites discuss investing methods without reference to any particular situation others simply highlight stock picks without analysis. The better websites do both as a means of educating the reader. Asif's blog is one of the better ones.

Asif not only discusses what companies he likes but also why. As stated on his website:
Suria Investment Newsletter (SIN Letter) is a free stock investment newsletter with a focus on international investing that highlights two stocks each month. The objective of this newsletter is to provide you with unbiased initial research and basic facts about individual stocks so that you can then research them further before deciding to add them to your portfolio or not.
Each month Asif provides via email subscription a very lengthy and detailed newsletter on his current stock selections as contained in the portfolio, a discussion of general market conditions, and various ideas on the radar but not yet actionable. Here is a link to the most recent April SIN Letter. In between monthly letters Asif also comments via a blog on his website.

Overall, the Sin Letter website is well written and thoughtful website worth investigating.

Suria Investment Newsletter (SIN Letter)

Monday, April 09, 2007

Gauging Corporate Financial Results - Blog Review

It is my goal to review every one of the blogs I have linked to yet it seems as if I never have enough time to review the blogs I do find. Every once in a while I do run across a blog that so interests me that it jumps to the front of the line. Today that blog is Gauging Corporate Financial Results.

Normally the study of a corporations financial statements (the income statement, balance sheet, and cash flow) can be a real snoozer. Fortunately, the blog's author, Neil Carvin, came up with a process to make that study a bit more interesting.

He has constructed Four Financial Gauges that provide a quick visual read on a company's financials. The blog posts updates on specific companies evaluating recent filings using the aforementioned gauges. Here is a link to an update on King Pharmaceuticals (KG) as an example. Gauging Corporate Financial Results is doubly a worthwhile read both for the content and the manner it is presented.

Sunday, April 08, 2007

Free Cash Flow and Shareholder Yield - Book Review

Free Cash Flow and Shareholder Yield: New Priorities for the Global Investor

What Is It About?

This book emphasizes using shareholder yield when considering a stock investment. By examining how companies use their free cash flow the authors hope to identify a class of companies who will increase the value of the company for the benefit of shareholders. As defined by the authors, shareholder yield represents the use of free cash flow to pay cash dividends, buyback stock, reduce debt, make rational acquisitions, and reinvestment in capital projects. The book focus on the first three factors.

What Did I Get Out Of It As A New Investor?

An excellent book for a new investor looking for an intermediate text on performing security analysis. The book contends that in the coming years those companies which focus on and produce shareholder yield will produce the best return.

The book makes the simple point that over time a low interest and inflation rate environment helps elevate the P/E ratio. Consequently, because we currently have historically low rates of interest and inflation, from this point forward P/E ratios can only stay constant or decrease as rates stay the same or rise. Therefore, stock returns through expanding P/E ratios will prove elusive.

Instead, the book puts the focus on those companies which return value to shareholders. The authors define shareholder yield as the use of free cash flow to return value direct through dividends, buybacks, and debt reduction; or the return of value using indirect means through the rational use of capital. In the author’s opinion those companies which achieve the greatest shareholder yield will do best in the near future.

While one can argue with the book’s premise, that premise deserves consideration. After all, if a corporation exists to benefit shareholders, what better why to demonstrate the commitment to shareholders than through the rational use of the free cash flow in a manner which provides the greatest yield to shareholders? The book’s pointed discussion of this topic makes it attractive to the new investor hoping to develop a model to assist in evaluating companies as suitable investments.

The Good News

A thought provoking book which presents to the new investor a paradigm in which to perform security analysis.

The Bad News

The appendix provides various mathematical formulas which allow for a study of the quantitative model discussed in the book. While appreciated, those not proficient in statistical study may desire something simpler.

The Bottom Line

Written in a clear manner and to the point, this 150 page volume earns a place as one of the better books I have read. I recommend it for the investor looking to understand more about security analysis using shareholder yield.

Other Related Reading:

Wednesday, April 04, 2007

Blog Review: Update On The Trading Goddess

Value Blog Review has discovered the secret of the Trading Goddess' success as a high powered female trader in a male dominated arena. Those secrets are detailed in this new book:

The Corporate Dominatrix: Six Roles to Play to Get Your Way at Work

When asked to comment the Trading Goddess had this too say:

"There are many keys to success. Warren Buffett says the secret to success is not to forget that 'rule # 1 is don't lose money'. I on the other hand attribute my own success as a corporate dominatrix to an entirely different set of rules...starting with my own rule # can hurt them, but never leave any marks."

Tuesday, April 03, 2007

Online Trading - Book Review

SFO Personal Investor Series: Online Trading

What Is It About?

This book collects several articles on online trading from Stocks, Futures, & Options Magazine. This anthology contains articles from such trading luminaries as Linda Bradford Raschke, John Carter, Thomas Bulkowski, and Lawrence McMillan. The topics covered include understanding online trading, evaluating market opportunities, trading with a system, and an introduction to options trading.

What Did I Get Out Of It As A New Investor?

A solid overview on what it means to trade online. The editor of the book assembles the best articles to appear in the Stocks, Futures, & Options Magazine magazine in order to walk the new trader through the process of understanding how to trade online. Most if not all of my trading will take place online. This book helps understand what that means.

From taking advantage of opportunities in the market online to understanding how to begin to develop a trading system the book provides an introductory overview to many of the common themes online traders face. All the articles provide answers to the common questions new traders have about online trading. In short the book provides material most helpful to new traders wanting to learn online trading.

The Good News

Overall, a helpful book for a new trader looking for a basic introduction to issues regarding online trading.

The Bad News

While the book assembles many great articles into book form, which may have appeal to the experienced trader, it may have limited appeal to those who have moved beyond the introductory stage of online trading.

The Bottom Line

A solid informative book for the new trader looking for a comprehensive overview.

Other Related Reading:

      My Review