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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Rainmaker888 who wrote (39276)	9/15/2010 5:35:48 PM
From: Jurgis Bekepuris	Respond to of 78751

>>1. New management - how can you evaluate the goodness or badness of management? I never could and I think 99% of the people can't >You can evaluate this partly by looking at the management's track record (acquisition, growth, other capital allocation decisions) in the past. Perhaps the new CEO was previously successful and is making drastic changes...and the results are becoming positive. Maybe you can. Buffett presumably can. I can't. :) (Well, I made a good call on Aubrey, but then Aubrey is one-of-a-kind character... :P) >>2. Share buy-backs - it's somewhat OK, but IMHO it's never a deciding factor. Share dilution is bad though. Share buybacks at inflated price are common, bad, but almost unavoidable in Buffettology businesses (KO, PEP, etc.) >That's why you see past track record of share buy-backs and determine if current buyback price is reasonable. Nah. I don't like information where I have to micro-decide. Is 0.5% buyback at 10% overvaluation OK, while 1% buyback at 15% overvaluation a signal to bail? Is not buying back shares a deal breaker? Like Buffett said, I'd rather be approximately right than precisely wrong. If the company is good, I don't care if they buy back or not buy back. I don't even care if they overpay for buybacks. If a company is lousy, even best buy backs won't save it. ..... >>5. Change in corporate strategy - see comment on new management. >Company may jump unprofitable divisions, boosting the bottom line. Still see the comment on management. :) >>6. Activist investors - if company needs activist investors, it's an avoid for me. Most of the time. >Activist investors such can enforce good capital allocation decisions and force the company to avoid making bad ones. If the company needs activist investors to enforce good capital allocation decisions, the company is lousy by definition and not a buy. Yeah, you may make lots of money on the coattails of activist investors. You can also lose lot's of money. I don't invest in such situations. >>7. M&A activity - Don't invest in a company expecting M&A, it may never happen. >A purchase of a more profitable business can boost profits, a sale of unrelated division may allow the company to focus on core business, etc.... Maybe. Let's get back to concrete examples. IMHO, most of the things above are pretty rare (and mostly not exploitable by me) and I cannot build a portfolio on pretty rare. :) >>1. Industry consolidation - see note on M&A. how do you evaluate if this is good/bad? >Fewer competitor's = higher margins Grossly oversimplified. What about new entrants? What about industry that is dying (newspapers)? 10 companies in an industry can have as brutal price war as 25. See HDD or airline industries couple years back even after consolidation. >>2. Cyclicality - don't buy cyclicals or have cyclical-specific investment approach. >*Mr. Market often overreacts to negativity, pushing some cyclicals to ridiculous valuations IMHO, cyclicals are pure fantasy. People think that there is an easy determination of business cycle. But there isn't anymore. Last two recessions were not regular economic cycles but rather a sector-based collapses - first tech then RE/financials. So there is no way to say that autos are cyclical or steel is cyclical, since the next recession may not affect autos at all. Are commodities cyclical? Not really either. Yeah, oil went to $35 in 2008, but show me oil's previous cycle or predict the next one... ;)