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The courses covers 5 aspects of stock investing. It aims to help students in individual stock selection and evaluation as well as to uncover the market leaders of the industry. The course further covers the risk management and stock portfolio optimization as we build our stock portfolio. The course also covers market and investing psychology to enable students understand and appreciate the reality of the stock market,
This course is conducted mainly in screencast videos. An exercise or an activity will be given at the end of each section to enable students understand the course contents for each section. The main objective of the course is to help students attain cutting edge knowledge to becoming stock market winners.
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|Section 1: INTRODUCTION|
Introduction to coursePreview
|Section 2: KNOWING ABOUT THE COMPANY|
One of the important considerations as a stock investor is to look for businesses that are profitable. Most of us, usually have some stocks in mind when comes to stock investing. However, if you really do not know what stocks to buy or sell, then the internet or the newspaper can be a reliable source to tap from. Generally, we should focus on only profitable businesses, eg. the top 50 most profitable companies on the stock exchange. These stocks do not come cheap and they form the 'blue-chips' category. I am not saying that you should buy all the 50 companies. What I am saying is that if you run out of ideas or possibilities, then these sources could be of a great help. Even if we decide to choose stocks of the blue-chip companies, we are not expected to choose all the stocks of those companies. Just take the Singapore stock exchange for example, students and investors may wish to consider adding some of the profitable stocks to their portfolio over time for both capital appreciation and dividends because if they are not part of the considerations, then the other stocks would not even be considered from the profitability point of view.
All stocks have a stock trading price. However, the share price of profitable business tend to go up with time despite its volatility, By the same token, the share price of unprofitable tends to fall with time. So, if you hold the stocks of profitable companies, there is a lot less pressure to sell compare to when you are holding stocks of unprofitable companies. Many people buy penny stocks thinking that they are cheap. Yes, they are cheap for the key reason that they are unprofitable. Unless the management can do something to turn over the business, they can go cheaper over time! (I will illustrate this point with live examples in the next one or two videos.)
Of course, when we run through a list of stocks, we would come across companies with different profits and different market capitalisation. Market capitalisation tells us the company size, and of course big companies with big market capitalisation have big profit and small companies with small market capitalisation have small profit. So, to compare companies on an apple-to-apple basis, we need to put them into ratios and that is how Price to earning ratio is one of the useful tool for making such a comparison. PE can also be used in other circumstances, and more on PE will be discussed in the price to earning ratio section.
A company may be profitable, but still can fail. A company may simply run out of cash! Under such a circumstance, we do not expect the company to be de-listed straight away from the stock market, but we should see their share price dwindling in value over time. I shall cover more on cash flow topic in this section. I shall also show you an actual example why a company's share price fell so drastically with time. See you then.
The company XX illustrated in the video is Acma Ltd. For those who do not know these company, it used to make refrigerators and air-con systems. However, the business model keeps changing going into Russian oil projects, Russian fast food restaurants, modems, books stores, plastics injection. Year after year, Acma has been suffering losses after losses and the share price has been dropping from more than $2 per share in the nineties to less than 6 cents a few years ago before it consolidated 100 shares into one. In its peak, it was trading at $10 before they made a share split of 2:1. Even with the consolidation more than a year ago, the share price continues to drop because it has been suffering years and years of losses. The company paid no dividend for many years.
Company ZZ refers to Venture Corporation. For those who do not know about Venture Corporation, it is contract manufacturing who designs and manufacture component parts for equipment manufacturers. It has been able to secure profits year after year even though there wasn't really significant growth in the profit. The company did well, and was able to pay share holders good dividend. The share has been pretty stable except for some negative bleeps that cut across blue chip stocks on the stock exchange. As a result of its profitability and its ability to pay good dividends, the share price was pretty stable.
Cash flow refers to the general health of the company. When we say that a company has a good or positive cash flow, we are effectively saying that as a result of the company's operation, cash is coming into the company coffer. In the video, we made a simple illustration that a company may show positive profit, but still can have negative cash flow. This definitely is not sustainable in the long run, even though, in the short run, there is a possibility that a company can fund its working capital by borrowing from banks, from shareholders or from bond holders. It can also deep into its cash hoards or to use the returns from other investments. However, unless the company can show positive cash flow going forward, companies with negative operational cash flow is unsustainable.
In the example, the company CC refers to Cosco Corporation. For those who do not know Cosco Corporation, it is a shipping company who also has ship repair capabilities. Recently, it tried to move into oil rigs manufacture, but suffered losses. The problem has been compounded by the fact oil prices was dropping drastically in the last 1-2 years. Although the company's financial statements show positive profit (though dwindling), its operational cash flow has been negative in all these years. It has been a net borrower from banks year after year. Consequently, dropped from $2.40 about 5 years ago to $0.375 today. At its peak, the stock were trading at $8.00 per share.
To make the comparison effective, we brought n another company, YY corporation. YY refers to Yangzijiang (YZJ) and it is a ship repair company whose operation is in China. In the sector of ship repair and ship building, they are competitors. Thus the comparison between them is more effective. YZJ has been profitable all these years and the cash flow is very healthy (unlike Cosco). Consequently, YZJ's share price did not suffer very much despite that shipping sector has been in doldrums in these years.
Please download the financial statements so that you can work on the financial of the company
Answer to exercise
|Section 3: LOOKING FOR PROFIT LEADERS|
In this video, I shall share with you Gross Profit Margin, Operating Profit Margin and Net Profit Margin. To arrive at these profit margins, one just need to refer to the Income Statement or P&L statement. While they are relatively easy formulae to follow, it is important to know and appreciate the nature or the characteristics of the companies after obtaining the profit margins.
In this video, I will share with you expected numbers in those margins for high-tech companies such as Microsoft or Intel as well as the low-margins ones such as a trading company or a commodity company. This would help students appreciate the companies better especially when you need to make fresh analyses of companies. Furthermore, one can better appreciate and be able to explain if are any significant deviations.
Understanding price-to-earnings (PE) ratio
Price to earning (P/E) ratios
Building a stocks portfolio
|Lecture 13||4 pages|
In this activity, you are requird to find out which of the two companies is a profit leader, Company Y or Company C. Make use what you had learnt in this section..
Answer to quiz
|Section 4: RISK MANAGEMENT|
The 10% drop rule
|Section 5: BUILDING A STOCK PORTFOLIO|
Building a portfolio
Exercise - Building a stock portfolio
Suggested solution to exercise
|Section 6: INVESTING PSYCHOLOGY|
Five stock portfolio
Exercise for this section
Answers to exercise
|Section 7: CONCLUSION|
The course round-up
|Section 8: COURSE SUPPLEMENTS|
Course supplement #1 - update on 10 March 2016
Course supplement #2 - update on 10 March 2016
Brennen Pak has been investing in the stocks for the past 27 years. With a wealth of experience about stock investments, he started to teach stock investing and personal finance for the past 5 years. By today, he had already taught thousands of students. Brennen Pak's investing journey is not without setbacks. In fact, his stocks tanked 10 years after his start in stock investment. During 1998, his stock portfolio went into a tailspin at the peak of the asian financial crisis (AFC). He lost more than $100k as he sold stocks in a panic. What was more painful was that after he sold most of his stocks, the stock market went up 100% within a matter of 6 months and then another 75% in the year that followed. From that lesson, he learnt that picking up the essential financial skills is the mother of success to being a good investor. Knowing that Warren Buffet would not be what he is today without financial knowledge, Brennen Pak decided to use his financial skills that he learnt during his MBA to invest in stocks. Surely, major events such as dot-com bubble burst, terrorists attack on the World Trade Center in New York, the Severe Respiratory Syndrome (SARS), the global financial crisis and the euro-zone crisis, just to name a few, would have badly affected the stock markets. However, despite these crises, he turned around his battered assortment of stocks into a phenomenal stock portfolio by year 2009.