investing help

I agree with you that if the amount of work you are willing to put into an investment after the initial decision to buy is zero, then the stock market is not a good place for you. If you do the math, the return on that sovereign was about 8% compounded. For much of the period, a bank CD would have done better with less risk. When you consider that the time period you choose was about the best long term period for gold in history, you should ask yourself if you think it will repeat this performance starting at today's prices.

 

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Just to clarify, "Value investing" is buying poor performing stocks cheap. There is no indication necessarily they are "growing". Maybe you are thinking of growth stocks. For growth stocks they have a high multiple, but the expectation is they will grow quickly and be worth the high multiple. Value stocks are slow or non-growing companies that the market likes to ignore, so you can buy them at low multiples.

Both can be losers of course, but I prefer value stocks as there is inherently less risk, in my opinion, than growth stocks. Growth stocks, if they miss a quarterly profit expectation, can fall quickly. Value stocks usually do not react much to earnings announcements, since not much is expected of them.

Like Cloud mentioned, looking at financial risk, levels of debt, free cash flow, all can minimize some of these risks. I also like to look at opacity. If I cannot understand their business model, and how they make money, I pass. An opaque business model leads to many problems, like Enron, etc.

 

I use a slightly different definition. I never buy a poor performing stock cheap. I try to buy quality at a discount. For example, my purchases in 2011 include XOM at $69, BDX at $69, and INTC at $19 [and change]. These are for illustrative purposes only and not recommendations. Growth is just part of the value calculation, and I prefer companies with growing dividends, low debt, free cash flow and a low price to earnings. When I buy something, I tend to hold it for several years to give it time for the value to be recognized in the stock price. This is what has worked for me.

 

How does one judge risk when we have a government that will not allow companies to fail and a stock market inflated by cheap (as in essentially free) debt. The Nortel example I gave earlier is a prime example. The Canadian government bailed that company out numerous times yet they went down anyway. If these bailouts had not happened the management would not have been as free to take on the risk they did. To the outsider there is no way to judge what was going on.

 

Never said it was the size of the management paychecks, but that was a symptom of the real problem. I was responding to your original contention they failed because they were not allowed to compete because of Canadian regulation.

 

This simply isn't true. It wasn't even true in the days of Ma Bell. Nortel is a primary example of an equipment supplier who supplied equipment over the indigenous in house supplier Western Electric/Bell Labs (now Acatel/Lucent) because they had a better product and numerous anti-trust and post MaBell legislation prevented it.

Almost all large corporations have internal rules about single source suppliers for critical components lest they get held hostage by those very companies.

 

I do not know about Nortel specifically, and stay away from foreign stocks with government intervention just for that reason. I was simply talking generically as to the nature of a value stock since Collect1966 was talking about growth and value in the same sentence.

I agree those things you mention can make it harder, but still having low debt and free cash flow can be seen from Financials, and these are something unaffected by government interventions. I still contend most troubled companies can be seen a mile away if one looks at debt levels, opacity of operations, and other tell tale signs. I can honestly state, (unless unknown to me in a mutual fund), I never invested in a dot com stock, or Enron type opaque business model firms. I wish to clearly see how a firm makes money before I think of investing.

Too many investors look at stock prices, price charts, "resistance levels" and the like, and never just sit down and understand the business, how they make money, and what their books look like. To me this is the beginning, before anything fancier can be thought of. I know I am old fashioned in this regard. Similar thought processes are what led me to the conclusion PM and farmland was undervalued when I bought. I simply like buying decent, desirable assets for less than they will eventually be worth.

Chris

 

Yes, you are right sir. I never meant to say buy a poorly performing company. I meant a company that not a lot is expected of it, but has a good business, and should either appreciate or return dividends to its holder, at below market value.

 

My original comment was in response to a statement that Nortel went bankrupt due to management greed. I'm not a fan of management greed, but I don't believe that was the cause.

 

Let me give you an example of what I mean. Verizon choose two companies to be its LTE base station provider - Ericsson and Alcatel-Lucent. It doesn't mean they won't buy components from anyone else, but without landing the big contracts like that, companies in the industry won't survive. In South America, Huiwei is cleaning up because they are the low cost provider and that is important to buyers in that region. So Nortel is no longer with us because they were neither the best nor the lowest cost, and I suspect that over the next few years the field will shrink, not expand. So I don't disagree with your comments, but there are and will continue to be a small number of winners in the industry.

 

2 companies is 100% more than when you just said this: "Most of the large companies that supply the last mile of service like AT&T and Verizon, etc... have one primary network equipment supplier.. Obviously this was incorrect as was the statement about Nortel failure due to business regulations in Canada. In fact, both examples you gave would not even be subject to that. So now two completely incorrect statements from you on this subject. You are making assumptions based on googling up results then misinterpreting them.

This is two mistakes you already made. Furthermore, you are now claiming that Huiwei is the best because it won a contract in S. Africa. This is a logical fallacy as you have not proved why they won the contract and ignore the fact they can't break into very price sensitive USA business.

If you are going to google up results, after the fact, at least try to interpret them correctly, or not at all.

 

Huawei is the low cost player in the sector. I did not call them "best" and it is an error on your part to say so. I also did not mention S. Africa, and that is a second error on your part to say so. If you want to change one to two, I have no objection to that change since it is irrelevant to the point made. Nortel did not have what it took to stay competitive in the industry compared to the other players. Their failure was not due to greed, and that is the only point I was making.

http://www.huawei.com/na/en/catalog.do?id=910

 

You said they failed because of the business regulation environment in Canada where they are located. This was done to dismiss the other points made. It's obvious this is wrong and the rest of what you have stated are distractions from that.

Furthermore, I said they failed due to incompetent management who didn't listen to their engineers.

 

If you understood anything about business, you would realize that there were multiple causes. Nortel failed because (1) they did not have the best technology, (2) they operated out of a relatively high cost country [compared to, say, China] so they could never be the low cost producer, and (3) management wasn't capable enough to solve either of those issues. If you don't have superior technology and/or aren't the low cost provider, there is little hope for survival in that industry. If your reading comprehension skills were higher, you would have realized that my original comment was intended to refute the assertion that Nortel failed due to management greed. You are the only one here expecting and intent on having a thorough and complete discussion on the reasons for the company's failure, which was never the purpose of the original post regardless of your imagination.

 

I was responding to what you said which was simply wrong. The rest of this post is irrelevant to that fact.

 

The CEO who walked away with 135 million, was in charge when Nortel bought 11 companies in the year 2000, totalling 19.7 billion US with shareholders funds. One of their many bad decisions to help led to their downfall.
Former CEO Frank Dunn was charged by the RCMP with fraud along with 3 others affecting the public securities market, falsification of accounts and documents, and involvement in issuing a false prospectus.
There was also a suit filed in New York which claims the four repeatedly engaged in accounting fraud to bridge gaps between Nortel’s true performance and its internal targets and Wall Street expectations.
Nortels downfall had nothing to do with bad products or being in Canada but more to do with the fact they were committing fraud to make themselves rich as well as making bad decisions with shareholders money.
You can call it what you want, but I call it greed.

 

If only those big, bad Canadian regulators had just gotten out of the way and let Nortel be Nortel, why gosh, Nortel could have soared like an eagle!

 

Like I said, I would never defend management greed. But the fact is that Nortel would have failed with or without the attempt to cover up their performance. They were neither the low cost producer nor technologically superior to their competition, so they aren't with us anymore.

 

The mistake this makes is that it assumes silver pricing is being set by physical demand and we know this not to be the case. It is being set by paper trading of futures. $10 pricing is very possible.

 

Any price is possible in the futures market for short periods of time, but a price below the marginal cost of production won't last long unless the world is satisfied to have no primary silver production. And what will the shorts do when folks start buying contracts for delivery at $10 and the holders of physical silver won't sell to them?