Book Review: How to Make Money in Value Stocks

I worked as a stockbroker during the rollercoaster period in Irish equities between 2004 and 2011. During that time I was armed with an array of pricey analytical supports including Bloomberg, Datastream and Factset. On my return to ‘civilian life’ (!) I was shocked by how few equivalent tools are available to support the average private investor.

 

My initial dip into the various bulletin boards revealed a high noise-to-signal ratio, with many of them seemingly over-run by a minority of prolific posters who were usually to be found promoting obscure penny stocks within the energy sector. This led me to turn initially to the blogosphere, where I found many UK and Irish based bloggers churning out detailed analysis on stocks, the quality of which would rival many broker reports, and then to Twitter, where I found dozens of canny investors and market insiders providing high-quality real time commentary on what was happening in the markets.

 

Of course, excellent as these resources may be, they have obvious limitations. Chief among these are the limited resources (of which the most obvious is time) available to individual bloggers, which reduces the number of stocks that they can reasonably analyse in any great detail, and a tendency for market watchers to focus on higher profile companies. In a universe of many thousands of stocks, this gives rise to a clear danger that investors could miss out on excellent opportunities.

 

To help address these risks, the likes of Stockopedia are proving to be an invaluable resource in equipping investors with tools to screen for ideas. One thing I like about Stockopedia in particular is its approach to investor education, which is a cause dear to my heart. On this front, the company recently sent me a copy of their book: ‘How to Make Money in Value Stocks’ [which can be downloaded for free, provided you sign up to their educational mailing list here, or by purchasing the Kindle version directly from here], which I feel is an excellent reference point for anyone looking to get to grips with analysing companies and picking winning investment strategies. The book offers a great introduction to the various investment tactics utilised by the world’s leading value investors, and I think readers will find the links at the end of each chapter to further reading on each topic quite helpful.

 

However, this is not just a book about how the world’s top value investors have become so successful. It is also about equipping readers with the right mix of both quantitative techniques and qualitative insights to ensure that they can make sense of company accounts and evaluate the merits of investing in each stock, which can be supported by using the screening tools on the Stockopedia website. In this regard, I was provided with a link to Stockopedia’s page on BHP Billiton and was impressed not only by the usability of the data, but also by the range of checks that the company was subjected to, including risk indicators such as the Piotroski F-score and the Altman Z-score that are so helpful in identifying potential ‘red flags’. Another advantage of the company pages on the website is the list of peer companies for each stock, which means that if you like a sector but the name you were initially tempted by scores poorly on whatever criteria you hang your investment hat on, there’s a good chance that one of its peers might better suit your investment screening process.

 

To return to the book, I like it a lot. It provides readers with a compact (seventy page) introduction to proven investment tactics, allied to plenty of useful links to help further your understanding of the markets. If you’re looking for some decent holiday reading this summer, I suggest you look no further!

Market Musings 5/6/2012

It’s been a very quiet few days as the Jubilee has seen UK markets shut for the first two days of this week, and with most Irish stocks dual-listed in London Ireland has offered little by way of business news also. However, what little there has been is quite significant. Let’s take a look at what’s been going on.

 

We got the latest Irish Exchequer Returns data, for the first five months of 2012, this evening. While at a headline level the deficit has narrowed to €6.5bn versus €10.2bn in the same period last year, as ever the devil is in the detail. Last year’s deficit was swelled by a promissory note payment of €3.1bn (2012 ytd: nil), while this year’s deficit is flattered by €1bn in Central Bank surplus income (versus zero in the same period last year) and negatively impacted by a €0.4bn ‘loan’ into the insurance compensation fund (again, zero in the same period last year). Adjusting for these three factors means that the underlying deficit for the first five months of 2012 is €7.1bn, which is unchanged from the €7.1bn ‘underlying’ deficit in the first five months of 2011. Drilling down deeper into the data, we see that voted government spending, which is day-to-day spending on schools, hospitals etc. and nothing whatsoever to do with bank recaps or interest payments on the national debt, is actually up 2% yoy, despite widespread talk of ‘austerity’ by many media pundits and politicians. Furthermore, we see that tax revenues have increased by some €1.6bn relative to year earlier levels, but €1.3bn of this has been eaten up by increased interest payments on the national debt. With the Irish government continuing to spend like a drunken sailor, it is inevitable that the cost of servicing the national debt will continue to spiral, so there is an sense of ‘running to stand still’ in these Exchequer Returns. Workers are being forced to shoulder increased tax burdens to part-fund (the balance covered by more debt) out of control government spending. With no political party courageous enough to take action to push through the necessary degree of fiscal consolidation it appears certain that taxes will continue to rise, which has the vicious circle effect of discouraging work and investment, thus leading to more pain down the road.

 

Irish-Swiss baked goods giant Aryzta issued its Q3 interim management statement today. Underlying revenue growth slowed sequentially across all key geographies, with Food Europe -2.6% (vs. -1.8% in Q2), Food North America +6.0% (vs. +8.9% in Q2) and Food Rest of World +11.8% (vs +14.2% in Q2). Interestingly, while Aryzta reaffirmed previous guidance of FY EPS of 338c in the year to end-July, there was no mention of the prospects for FY13 (in the H1 results release the company reaffirmed guidance of EPS of 400+ cents in FY13). On the outlook, management noted weak conditions in Europe, but also flagged the benefits of the ongoing ‘self-help’ measures from the ATI programme. The shares finished down 1.7% in Zurich (where the company has its primary listing) today.

 

Unfortunately, from a weather perspective if nothing else, The Diamond Jubilee of Queen Elizabeth II was a bit of a wash-out, which is bad news for UK listed pub groups, most (if not all) of whom were guiding that it would be one of three bumper events for sales this year (the others being Euro 2012 and the Olympics). I wouldn’t be surprised to see some of the pub groups’ share prices moving lower tomorrow (interestingly, cider maker C&C was -1.2% today in Dublin).

 

Hot on the heels of its recent investment in Aer Lingus, Etihad bought 4% of Virgin Australia.

 

The world’s largest yacht is reportedly under construction at a German shipyard.