Navigating The Noise - Richard Bernstein

This book you would not call a investment masterpeice but still has some real hidden gems in it.

Bernstein is the top dog in Merril Lynch and this book comes highly recommended. I generally try to buy books from Investment professionals who actually have invested and have lot of insight. Stay away from CNBC talking heads who make money by teaching you how to invest but not have invested a penny.

Chapter 1. What Is Noise?

• Noise is more information without better information.
• Timely information isnt necessarily better information
• Noise Obscures insight
• Hype: Goals of information providers and information users are not necessarily same. Eg- Author clearly points out that CNBC heads most important task it to get max viewers and retain so they peddle the most entertaining but useless info to viewers.
  
• Noise is Expensive Eg- Basically people trade on the noise and lose thier well established positions and thus incur taxes, loss and transaction fees.
  

Chapter 2. The Risks of Do-It-Yourself Investing: What You Don't Know Could Hurt Your Performance.

• Data Mining: Eureka! or Fool's Gold - He goes into the field of how researchers datamine historical results and come out with new stratergies like low p/e or low p/s or even dog of the dow theories. Often these strtaergies end up being inadequate.
• Looking At a Stratergy- Look for out of sample testing- Instead of testing a stratergy for 30 years take an arbitrary number like 1975-1980 and start testing it.
• I'm a disciplines investor but my stratergy is not working- He begins to challenge the so called disciplned investors and say that they could have not been so disciplined. Also he cautions people to not change stratergies in the middle as the old one begins to start working. Finally people will be left with series of underperforming ones.
  

Chapter 3. Noise and Expectations: What Goes Around, Comes Around.

• The Earnings Expectations Life Cycle
• Contrarians
• Positive Earning Surprises
• Positive Earning Surprise Models
• Estimate Revisions
• Earnings Momentum
• Growth
• Torpedoed
• Negative Earning Surprise Model
• Negative Earning Surprises
• Dogs
• Neglect
• Go back to Contrarians on top
  

Chapter 4. Noise and Long-Term Investment Planning.

Chapter 5. Noise and Diversification.

Chapter 6. Noise, Risk, and Risk Assessment.

Chapter 7. Investment Losses, Time Horizon, and Risk.

Chapter 8. Don't Search for Good Companies, Search for Good Stocks.

Chapter 9. What Makes a Good Analysts?

Chapter 10. Growth and Value and Noise.

Chapter 11. A Preflight Checklist.

Common Stocks and UnCommon Profits- Philip A. Fisher

This blog is a review of this great book and we will go through some salient features.

I had read this book long back and had decided to buy it today. This book is probably one of the most fundamental books on stock Investing.
Warren Buffet had said his investing style is 85% Ben Graham and 15% Phil Fisher. I think it is the reverse. My opinion is most of Warren's suceess has come from following Phil Fisher.

Funny thing is, this book basically stresses common sensical fundamentals required for investing and I bet 90% of the investors overlook these rules.

15 Points to Look for in a Common Stock

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
   
   
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
   
   
3. How effective are the company's research and development efforts in relation to its size?
   
   
4. Does the company have an above-average sales organization?
   
   
5. Does the company have a worthwhile profit margin?
   
   
6. What is the company doing to maintain or improve profit margins?
   
   
7. Does the company have outstanding labor and personnel relations?
   
   
8. Does the company have outstanding executive relations?
   
   
9. Does the company have depth to its management?
   
   
10. How good are the company's cost analysis and accounting controls?
    
    
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company will be in relation to its competition?
    
    
12. Does the company have a short-range or long-range outlook in regard to profits?
    
    
13. In the foreseeable future, will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
    
    
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles or disappointments occur?
    
    
15. Does the company have a management of unquestionable integrity?

When to Sell Stocks?

1. Mistake was made on your investment selection. Stock does not meet the 15 points required for a good common stock. Eg- After you take position you find that the business has some serious issues.
   
2. Deterioration of the management or company and its markets. Basically company has reached its saturation phase and company cannot come out with new innovative products.
3. When a better oppurtunity exists and growth of the new company is far greater than the old one. Investor should approach this very high caution.
   
4. Never sell a stock because some experts predict a bear market. If a stock has a great story and will have newer highs when bull market returns then it is very stupid to sell. Investor will not know when to sell and when to buy it back. Eventually investor will have less shares than his orginal position and he will have to pay capital gains taxes.

Five Don'ts for Investors

1. Don't buy into promotional companies.
   
   
2. Don't ignore a good stock just because it is traded "over-the-counter."
   
   
3. Don't buy a stock just because you like the "tone" of its annual report. Eg- Annual reports are marketing pieces to sell the stock so dont make a decision just based on that.
   
   
4. Don't assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price.
   Eg-He argues that just because a stock is selling at higher p/e than its peers does not mean it is overvalued. Some great stocks always are sold with higher p/e because they always grow at a faster rate and maintain that advantage all throughout.
   
5. Don't quibble over eighths and quarters. Eg- When you are buying a stock and feel it is reasonble, just buy at the market.
   

Five More Don'ts for Investors

1. Done overstress diversification
2. Dont be afraid of buying on a war scare.
3. Dont forget your Gilbert and Sullivan.
4. Dont fail to consider time as well as price in buying a true growth stock.
5. Dont Follow the crowd.

PixelPlus pxpl is garbage!

I have not updated this blog for a long time.

Seriously Folks. I was lucky to get out alive. It reminds me of another SMD. Finally I averaged down to 1.73 and sold out at 2.1 a decent profit.

Situation with pxpl was I had purchased initially at 3.22 after a disastarous quarter and I sold it 2.15 when they came out with an awful guidance.

Stock started going on its tremendous downtrends and was able catch it at 1.3 and sold it at 2.00 thanks to the moron Thomas Ko of cnbc.

Got back in again 1.73 hoping that the company will turn around. If march was a dissapointment then you would think they could have fixed the problem by atleast june or even Sep. They say earliest is going to be Jan and with cash burning so fast it is ripe for BK.

On Nov 2nd company came with another crappy quarter and crappy forecast. I did not panic but was waiting for January to exit but luckily I had a decent exit out in Dec @ 2.1.

Moral of the story is never believe what management says they are paid to cheer lead the stock and you need to do your dd on your own.

Simple pxpl had a broken business model from day one. CMOS business is occupied by giants like MU, samsung and OVTI. MU has its fabs so it can get GM of 42% whereas pxpl has 28% GM and going lower. Unfortunately sector intricasies are apparent only after you have invested and followed the sector for a while. OVTI looks cheap but it has the same problems like having no fabs but it has cash to weather any downturn. I will buy OVTI at $9 if it gets there not before.


Now I can sleep at night.