Today is a pretty special day indeed. Friday the 2nd of November. A few things happened today and I am going to be talking about them.
1. VCE started today! Today marks the beginning of VCE for all year 12s in Victoria. A terribly nerve-wrecking yet exciting day for them. And as a tutor for a few year 12 students, I fel for you, my students, if you're reading this. I wish you all the best and I know you will do well! =)
2. Today is my close friend's birthday, Nicole Kee. This is the 2nd year in a row that her birthday has fallen on an exam date. This year she is not celebrating though, or so I think. I really hope she has a party. Then I'll have an excuse to go out and parteh, with friends!
3. Today I successfully completed Kenjisan Investments Share Valuation Model. I haven't yet actually given it a name, but can anyone help me think of a cool name to name it? The model looks complex but I stress again, it is really quite simple. And we can value shares with it! How cooler can that get?
4. Today a train crashed at Nunawading station, near Springvale Road causing many people to be stuck for remedial busses to come pick them up. There was a lot of queue and the Belgrave and Lilydale lines has not yet been rescheduled to open. Many people will be going home late tonight. How do I know that? Oh I watched the news.
5. Today ASX fell 130 points around there. The biggest drop since August. Is this just a one-day sell of or does this mark the beginning of something new? And next Tuesday the RBA is predicted to increase interest rates. Is that the beginning of a coming recession for Australia? What should I invest in? All these takes art and more experience than ever.
6. Today means two more days to exams! And I can't wait for exams to be over. Hooray exam is going to be over sooner because one day has passed. Exams over means I can do whatever I want and I can spend my time researching shares, going out with friends, going out for dates, whatever.
So this is it for the 2nd of November. Hope you all enjoy a good weekend.
Saturday, November 3, 2007
Wednesday, October 31, 2007
How do you measure the real worth of a company?
This dilemma has been following me for quite some time now. It is, how do you tell how much is the real worth of a company? Everyone can understand that a company has worth and that we should always buy a company based on its intrinsic value. But then, the next question comes, what is its intrinsic value and how do we find it?
Going back to basics, all companies has equity. When we are buying a company, we are actually buying its equity. But the price we are paying is not necessarily the worth of its equity. More often than not, we pay more for its equity than its worth. Take this situation, a company's equity is worth 10 dollars but we are paying 15 dollars for it. Is the 5 dollars extra premium or what the company's equity is really worth?
When I say what it is really worth, the idea I get in my head is all the profits of the company that it will earn until infinity discounted back to the present to get a value of what we should pay today.
To learn how to value a company, learning how to value bonds certainly helps. I have learnt that money has a time value. That is, money today is worth more than money tomorrow. That is why we don't pay for bonds at its face value but we pay for bonds at its present value. Its present value is the discounted value of its face value. I hope that makes sense, because you wouldn't want to pay 10 dollars today for a 10 dollars you will get in 100 days time.
For companies it gets a little more complex, because companies don't pay a fix dividend and can borrow to take on debt. That makes it more complicated. And there is also number of shares at different times of a company's life. What we really need to construct is a model that can value a company based on what it is really worth.
I still haven't yet hit the nail on the notion of what a company is really worth. Right now out there in the market, analysts are using popular valuation models ranging from simple ones such as Dividend streams, PE valuation to more complex ones such as Discounted Cash Flow and Relative Multiples. Are those models really what they say they can achieve? That is, find the true worth of a company.
At the time of writing, I am still a novice to this topic. But I publicly declare that I will try my very best to pin this matter down to its nail. I will find out the true way and best way to value a company's shares. Something tells me it is not going to be that difficult. May God help me. Good luck to all you investors out there in the market. Remember buy below intrinsic value.
Going back to basics, all companies has equity. When we are buying a company, we are actually buying its equity. But the price we are paying is not necessarily the worth of its equity. More often than not, we pay more for its equity than its worth. Take this situation, a company's equity is worth 10 dollars but we are paying 15 dollars for it. Is the 5 dollars extra premium or what the company's equity is really worth?
When I say what it is really worth, the idea I get in my head is all the profits of the company that it will earn until infinity discounted back to the present to get a value of what we should pay today.
To learn how to value a company, learning how to value bonds certainly helps. I have learnt that money has a time value. That is, money today is worth more than money tomorrow. That is why we don't pay for bonds at its face value but we pay for bonds at its present value. Its present value is the discounted value of its face value. I hope that makes sense, because you wouldn't want to pay 10 dollars today for a 10 dollars you will get in 100 days time.
For companies it gets a little more complex, because companies don't pay a fix dividend and can borrow to take on debt. That makes it more complicated. And there is also number of shares at different times of a company's life. What we really need to construct is a model that can value a company based on what it is really worth.
I still haven't yet hit the nail on the notion of what a company is really worth. Right now out there in the market, analysts are using popular valuation models ranging from simple ones such as Dividend streams, PE valuation to more complex ones such as Discounted Cash Flow and Relative Multiples. Are those models really what they say they can achieve? That is, find the true worth of a company.
At the time of writing, I am still a novice to this topic. But I publicly declare that I will try my very best to pin this matter down to its nail. I will find out the true way and best way to value a company's shares. Something tells me it is not going to be that difficult. May God help me. Good luck to all you investors out there in the market. Remember buy below intrinsic value.
Monday, October 29, 2007
A handy valuation technique
Hey my readers, I decided this time to treat you all with a valuation technique that I have just learnt. Hopefully you all are able to apply it to shares and start seeing which type of shares are undervalued or overvalued. I learnt this formula while reading and soon had it all worked out, or so I hope.
The formula is as follows:-
The intrinsic value of a share = Return on Equity/Pre-tax Required Rate of Return * Equity per share
Lets try to break it down further. The intrinsic value of share, some of you might be asking what is that? The intrinsic value means the face value of a share that is worth today for that particular company. This is how much the share is really worth today, irrespective of what the market thinks of its price. So, when the intrinsic value of a share is higher than the market price, we should buy the share. If the intrinsic value of a share is lower than the market price, now there is a difference, we shouldn't sell the share just because the market is trading at a premium to its intrinsic value. We will talk about the topic of selling another day.
Return on Equity is the return on shareholder's funds from the company's profit. It is a measure of dollar for dollar. How much you would get back from the business by investing a dollar into it. The ROE figure cannot be looked alone, it must be looked for a few years' financial performance of a company. Looking back 3-5 years of data, we are able to gauge the company's ROE much better.
The pre-tax required rate of return is what you would want to pay for the share at today's price. If you want a rate of 15% pre-tax return on your money, then this figure should be 15%. I hear you saying then that the intrinsic value of a company depends on how much each person is willing to pay for the share, so it is different for different people. Absolutely right. The intrinsic value of a share depends on the person. This figure can also be obtained by looking at it via opportunity cost. What is the second highest return you can get from another asset? Then putting a risk premium for the shares of the company on top of the second highest opportunity, you can get your required rate of return realistically.
Remember that when we are buying a company, we are buying what is left over of its assets after taking over all liabilities, in other words we are buying the equity of the company. That is why I take equity per share. In other words, the whole formula shows how much is the equity of the company really worth. There are a few assumptions to this model though, that is, this assumes that the ROE of the company, the required rate of return and the equity of the company stays the same throughout the whole time. What you are paying today already takes into account the future worth of all that. All earnings are also paid out as dividends. So remember, using that formula takes into consideration all these.
But nevertheless, if its new to you, it might be fun experimenting with it on companies in the ASX, perhaps. This is one good way of how to value a company's shares. If you invest like Warren Buffett, you might even want to add a margin of safety. That is, only buy shares whose intrinsic value is at a certain discount to the market price. Good luck investing!
The formula is as follows:-
The intrinsic value of a share = Return on Equity/Pre-tax Required Rate of Return * Equity per share
Lets try to break it down further. The intrinsic value of share, some of you might be asking what is that? The intrinsic value means the face value of a share that is worth today for that particular company. This is how much the share is really worth today, irrespective of what the market thinks of its price. So, when the intrinsic value of a share is higher than the market price, we should buy the share. If the intrinsic value of a share is lower than the market price, now there is a difference, we shouldn't sell the share just because the market is trading at a premium to its intrinsic value. We will talk about the topic of selling another day.
Return on Equity is the return on shareholder's funds from the company's profit. It is a measure of dollar for dollar. How much you would get back from the business by investing a dollar into it. The ROE figure cannot be looked alone, it must be looked for a few years' financial performance of a company. Looking back 3-5 years of data, we are able to gauge the company's ROE much better.
The pre-tax required rate of return is what you would want to pay for the share at today's price. If you want a rate of 15% pre-tax return on your money, then this figure should be 15%. I hear you saying then that the intrinsic value of a company depends on how much each person is willing to pay for the share, so it is different for different people. Absolutely right. The intrinsic value of a share depends on the person. This figure can also be obtained by looking at it via opportunity cost. What is the second highest return you can get from another asset? Then putting a risk premium for the shares of the company on top of the second highest opportunity, you can get your required rate of return realistically.
Remember that when we are buying a company, we are buying what is left over of its assets after taking over all liabilities, in other words we are buying the equity of the company. That is why I take equity per share. In other words, the whole formula shows how much is the equity of the company really worth. There are a few assumptions to this model though, that is, this assumes that the ROE of the company, the required rate of return and the equity of the company stays the same throughout the whole time. What you are paying today already takes into account the future worth of all that. All earnings are also paid out as dividends. So remember, using that formula takes into consideration all these.
But nevertheless, if its new to you, it might be fun experimenting with it on companies in the ASX, perhaps. This is one good way of how to value a company's shares. If you invest like Warren Buffett, you might even want to add a margin of safety. That is, only buy shares whose intrinsic value is at a certain discount to the market price. Good luck investing!
Friday, October 26, 2007
The last day
Today, as some might know it, is the last day of university. How sad this is, well, for me especially. It is the time when the normal going ons and abouts in university ends. The usual meetups during lunches, club meetings, lectures and tutorials .. it is all for now ending. What a year it has been.
Some might not yet have found their first year at university productive, but I sure have. There are a whole bunch of events that just seemed to zoom through me as I have gone through this year. I shall list some of them out in chronological order, as a time to reflect on and remember time in university as precious.
1. My first enrolment into university, that is when I first met Singaporean friends, as I was placed into a Singaporean enrolment group to tour the university.
2. I got to know what a lecture was and what a tutorial was, I came to know a good Malaysian friend in acc tute class, Becky.
3. I started planning for my future, yet I was unsure of the end outcome, but I still planned and actually came up with something silly such as a 9 year plan.
4. I met Kelvin and Ken, with whom the three of us joined the UBS Investment Banking Challenge and got best first year team, an achievement I am so proud of.
5. I got work in Nando's and have been working there ever since and am also a tutor to a few Year 11 and 12 students.
6. My dad visited during the winter and we have travelled around Australia quite a bit. Now I feel Australia is already like my second home, I am no longer alien to it.
7. In second sem, I started getting busy with shares, and joined the EIC.
8. I got distracted away from studies with the business plan competition and share researches.
9. Jeremy, Chan, Kelvin and me started the investment partnership and we didn't do so well, but what a learning curve it was.
10. We expanded our partnership to incorporate 4 new members and made it more legal with introduction of documents.
11. I met memorable friends which I will have said have changed my 2007 year, they are people like Thean, Ming Fung, Merlin, Daniel Wong, Yang, Mel, Penny, Wei Yan, Sue Ann, Audrey, Kelvin, Ken, Wei Na.
12. But most of all, my two best friends Jerm and Chan contributed the most of all.
So this is it, the end of university, and I thank God for making it a memorable experience. A year well spent.
Some might not yet have found their first year at university productive, but I sure have. There are a whole bunch of events that just seemed to zoom through me as I have gone through this year. I shall list some of them out in chronological order, as a time to reflect on and remember time in university as precious.
1. My first enrolment into university, that is when I first met Singaporean friends, as I was placed into a Singaporean enrolment group to tour the university.
2. I got to know what a lecture was and what a tutorial was, I came to know a good Malaysian friend in acc tute class, Becky.
3. I started planning for my future, yet I was unsure of the end outcome, but I still planned and actually came up with something silly such as a 9 year plan.
4. I met Kelvin and Ken, with whom the three of us joined the UBS Investment Banking Challenge and got best first year team, an achievement I am so proud of.
5. I got work in Nando's and have been working there ever since and am also a tutor to a few Year 11 and 12 students.
6. My dad visited during the winter and we have travelled around Australia quite a bit. Now I feel Australia is already like my second home, I am no longer alien to it.
7. In second sem, I started getting busy with shares, and joined the EIC.
8. I got distracted away from studies with the business plan competition and share researches.
9. Jeremy, Chan, Kelvin and me started the investment partnership and we didn't do so well, but what a learning curve it was.
10. We expanded our partnership to incorporate 4 new members and made it more legal with introduction of documents.
11. I met memorable friends which I will have said have changed my 2007 year, they are people like Thean, Ming Fung, Merlin, Daniel Wong, Yang, Mel, Penny, Wei Yan, Sue Ann, Audrey, Kelvin, Ken, Wei Na.
12. But most of all, my two best friends Jerm and Chan contributed the most of all.
So this is it, the end of university, and I thank God for making it a memorable experience. A year well spent.
Friday, October 19, 2007
The Joshua Tree
I am hearing one of the best songs right now, With or Without You. And this song is from an album called "The Joshua Tree" Now, you don't hear that everyday, do you? But the Joshua Tree, why?
Maybe you can help me with that.
Today is one of the best days of EIC. We had almost a 3 hour meeting. And so many turned up, that was great! We also saw many interesting presentations including one by me. Wendy also turned up, my new friend whose this is her first time coming for EIC. She is 2nd year doing Commerce, and wow, what an accomplishment she has already done. She had started up businesses before, but sadly, they went bancrupt.
During EIC, Edward, one of the main founders today asked me whether my investment partnership, Kenjisan Investments, can team up with EIC to do an interview by the Age. The reason they asked us is because we actually have a fund where we pool money together to invest. Whereas they have the actual investment club with all the things a cool club would have. The Age wants to do an article about investment clubs in Australia. How interesting is that! So I agreed, and I can't wait to see what is the outcome.
Also, exams are nearing pretty soon. Study, study, study. But I find myself blogging here. Isn't blogging fun? I do enjoy writing about personal stuff. I have a question to ask my readers out there, what is the best way to ask a person out? Leave your comments and I will see the credibility of it!
Good luck to everyone who has exams. 4 more weeks till its over! Hooray.
Maybe you can help me with that.
Today is one of the best days of EIC. We had almost a 3 hour meeting. And so many turned up, that was great! We also saw many interesting presentations including one by me. Wendy also turned up, my new friend whose this is her first time coming for EIC. She is 2nd year doing Commerce, and wow, what an accomplishment she has already done. She had started up businesses before, but sadly, they went bancrupt.
During EIC, Edward, one of the main founders today asked me whether my investment partnership, Kenjisan Investments, can team up with EIC to do an interview by the Age. The reason they asked us is because we actually have a fund where we pool money together to invest. Whereas they have the actual investment club with all the things a cool club would have. The Age wants to do an article about investment clubs in Australia. How interesting is that! So I agreed, and I can't wait to see what is the outcome.
Also, exams are nearing pretty soon. Study, study, study. But I find myself blogging here. Isn't blogging fun? I do enjoy writing about personal stuff. I have a question to ask my readers out there, what is the best way to ask a person out? Leave your comments and I will see the credibility of it!
Good luck to everyone who has exams. 4 more weeks till its over! Hooray.
Thursday, October 18, 2007
So much things has happened
As you can see fromt he broken english of the title, so much things have happened, since I blogged!
It was ages ago since I have blogged. Just cannot believe it. A whole series of events has occurred which I shall relate to you one by one slowly.
Business plan competition update first of all! The business plan is almost complete now. Just the financials left, which will be undertaken by Kelvin. He is already doing his best and I really appreciate that in him. The competition is looking good for us, I have to say. But who knows whether we will make it through. We propose but in the end it is still God who dispose.
Social life update. I have made some new friends, two girls who are in 2nd year, a guy who is in my church who does postgrad medicine and another girl who is the same year as me, but doing commerce & media. It is always interesting to know new friends. You meet up with them once somewhere, but when it comes to second time, shy lah. I am always thinking oh what are we going to talk after the first time, now nothing more to talk already. Everything we finished talking about when we met the first time. But this is a 'flaw' I have to get over with =) As with my old, most valuable, friends, I still keep them. My old friends are the most valuable, with each year adding a million dollars to their worth. You can imagine who are the most valuable friends to me.
Partnership update. Shares, shares, shares. You can't get enough of them. Now Thean has recommended a company called Copper Strike. It is an exploration company with production due in 2009. I also want to start recommending a new company, called St. Barbara. They are also a resources company with which I really want to do more research on. Partnership still undergoing registration, CDIA account not opened yet. Still alot of work to do my friends!
Exam update. Exams are so soon! Oh no. Luckily I started studying a leeeetle bit. But still, there is the main core of the subject still to be covered. Oh may God help me with this. I cannot wait till exam is over!
Fitness update. I must excercise! Who wants to go excercising with me? Someone please. Only then can I find the motivation to excercise. But not hectic excercise. A simple jog will be awesome.
Church update. I so love my church friends! They are like family to me. Especially also now some of them are in my partnership. Church has been quiet lately. Not much activities going on, and I wonder what will happen in the future.
I suddenly found the motivation to blog today. I miss blogging, you can say. It is a medium where I can express what is going on in my world. Only I know that, and it is always good to let someone into it, so that they know as well. God knows everything about us.
Malaysia is also coming soon to me. I will be flying back real soon, like in 1.25 months time! What am I going to do there? Well I will be working for a brokerage firm. Dont know exactly what I will be doing but I hope for the best. If not just make a few friends and pick up a few skills.
Life does get exhausting after a while doesnt it?
Attitude. It is very important. I start to value people more on their personality. But I still am attracted to looks. Nowadays, however, personality is starting to surface as the new 'thing' to go for. No substitute for a person you can really connect with. Hallelujah.
That's all for now. I want to express my thanks here to Jeu Ann who is my student for specialist mathematics. Today is the last day of tuition. VCE exams coming soon. Good luck Jeu!
It was ages ago since I have blogged. Just cannot believe it. A whole series of events has occurred which I shall relate to you one by one slowly.
Business plan competition update first of all! The business plan is almost complete now. Just the financials left, which will be undertaken by Kelvin. He is already doing his best and I really appreciate that in him. The competition is looking good for us, I have to say. But who knows whether we will make it through. We propose but in the end it is still God who dispose.
Social life update. I have made some new friends, two girls who are in 2nd year, a guy who is in my church who does postgrad medicine and another girl who is the same year as me, but doing commerce & media. It is always interesting to know new friends. You meet up with them once somewhere, but when it comes to second time, shy lah. I am always thinking oh what are we going to talk after the first time, now nothing more to talk already. Everything we finished talking about when we met the first time. But this is a 'flaw' I have to get over with =) As with my old, most valuable, friends, I still keep them. My old friends are the most valuable, with each year adding a million dollars to their worth. You can imagine who are the most valuable friends to me.
Partnership update. Shares, shares, shares. You can't get enough of them. Now Thean has recommended a company called Copper Strike. It is an exploration company with production due in 2009. I also want to start recommending a new company, called St. Barbara. They are also a resources company with which I really want to do more research on. Partnership still undergoing registration, CDIA account not opened yet. Still alot of work to do my friends!
Exam update. Exams are so soon! Oh no. Luckily I started studying a leeeetle bit. But still, there is the main core of the subject still to be covered. Oh may God help me with this. I cannot wait till exam is over!
Fitness update. I must excercise! Who wants to go excercising with me? Someone please. Only then can I find the motivation to excercise. But not hectic excercise. A simple jog will be awesome.
Church update. I so love my church friends! They are like family to me. Especially also now some of them are in my partnership. Church has been quiet lately. Not much activities going on, and I wonder what will happen in the future.
I suddenly found the motivation to blog today. I miss blogging, you can say. It is a medium where I can express what is going on in my world. Only I know that, and it is always good to let someone into it, so that they know as well. God knows everything about us.
Malaysia is also coming soon to me. I will be flying back real soon, like in 1.25 months time! What am I going to do there? Well I will be working for a brokerage firm. Dont know exactly what I will be doing but I hope for the best. If not just make a few friends and pick up a few skills.
Life does get exhausting after a while doesnt it?
Attitude. It is very important. I start to value people more on their personality. But I still am attracted to looks. Nowadays, however, personality is starting to surface as the new 'thing' to go for. No substitute for a person you can really connect with. Hallelujah.
That's all for now. I want to express my thanks here to Jeu Ann who is my student for specialist mathematics. Today is the last day of tuition. VCE exams coming soon. Good luck Jeu!
Wednesday, October 3, 2007
Business plan competition!
By the grace of God, we have made it to the next round! This round is going to be much tougher, with competition from MBS(Melbourne Business School) So the big question is, what chance does a first year have against graduates and students doing masters? Who knows, with God all things are possible.
It was a while since I have attented the graduate Melbourne University Entrepreneurial(MUEC) launch. It's been even longer since I have joined the competition. This business plan competition was orginally opened to undergraduates. Now it is open to graduates. So, effectively, the undergraduates had to go one round of qualification before they were on the same stage as the graduates. Not everyone made it through, my friend didn't, who was in another team. I am not sure about other teams. But I'm sure one team, TeaLife, made it through. I met a few other undergraduate teams in the launch and we had a fun time conversing and chatting.
Now, we are once again working hard for the competition. What a challenging competition this is! With exams coming up, bogged down by one last assignment, I cannot wait for this whole event to actually be over. Freedom once against. To be able to do whatever I want. Ah, doesn't everyone wish that. Suddenly, I have a craving for breaks. But not like a break where I don't get to meet friends. Breaks full of friends! But also the time and space to be on my own awhile. Honestly, that helps keep one's sanity.
Well, if my business plan team is reading this, good luck to you! We are definitely working hard and if God wills, we may just succeed again to the next round. Good luck to everyone out there who plans to or is in a competition at the moment! How more fast pacing life can be.
It was a while since I have attented the graduate Melbourne University Entrepreneurial(MUEC) launch. It's been even longer since I have joined the competition. This business plan competition was orginally opened to undergraduates. Now it is open to graduates. So, effectively, the undergraduates had to go one round of qualification before they were on the same stage as the graduates. Not everyone made it through, my friend didn't, who was in another team. I am not sure about other teams. But I'm sure one team, TeaLife, made it through. I met a few other undergraduate teams in the launch and we had a fun time conversing and chatting.
Now, we are once again working hard for the competition. What a challenging competition this is! With exams coming up, bogged down by one last assignment, I cannot wait for this whole event to actually be over. Freedom once against. To be able to do whatever I want. Ah, doesn't everyone wish that. Suddenly, I have a craving for breaks. But not like a break where I don't get to meet friends. Breaks full of friends! But also the time and space to be on my own awhile. Honestly, that helps keep one's sanity.
Well, if my business plan team is reading this, good luck to you! We are definitely working hard and if God wills, we may just succeed again to the next round. Good luck to everyone out there who plans to or is in a competition at the moment! How more fast pacing life can be.
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