Monday, March 30, 2015

Book Review: Education of a Value Investor

Hello my fellow investors!

Hope you're all having a great Monday morning thus far. 

Are you an avid reader? I personally read a lot. My reading habits have become even more prevalent since I finished graduate school and have more time to indulge in readings related to my passions. The pace in which I go through books, however, often exceeds the pace in which I write the reviews but I am trying to get better with this so please bare with me. 

If you missed the last couple of reviews, check them out here: Every Women should know her options and Elements of Investing.

Today I'd like to share my thoughts on a recent read recommended to me by a twitter follower, {thanks @JorgeGIA}.


Education of a Value Investor by Guy Spier.

I have to say the book was great. I would consider it a very educational, inspiring, yet straight to the point leisure read for all stock market investing fanatics out there. The book focuses on long term investing and the experiences lived by the author which have helped him become a successful value investor. 


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Mini Lesson:

Definition of Value Investing (per Investopedia): The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated. Typically, value investors select stocks with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields.
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Guy starts the book by talking about his beginnings in the investing world when he was employed by a company that ended up being closed down by the authorities due to some "illegal activities". The author uses what he learned during that "less than favorable" moment in his life  to catapult himself in to becoming a successful portfolio manager with his own fund. 

The author details his initial struggles and having to rebuild his reputation practically from scratch after his experience at the company that was closed down. He doesn't allow the negative experience deter him from his ambition. Instead, he "does the best he can, with what he has, where he is" and continues to move forward, placing himself in environments and situations that would allow him to connect with the the type of successful people he wanted to be associated with. 

After reading so many technical books with heavy content, this book was  really a breath of fresh air. I was able to finish it during my flight to and from the Dominican Republic last week. 

There is so much I enjoyed about this book but I'll try to summarize some of my favorite parts of the book (without giving much away):

  • The author makes a decision to move from a very busy city in the U.S to a quiet European country and creates a whole "ecosystem" in the privacy of his new home. He goes in to detail about how he created this new environment and how it helped him thrive as a portfolio manager.
  • Guy talks about the things he added to his "world" and the things he eliminated, significant changes that allowed him to become very successful: "...create the best environment for yourself: physically, intellectually, emotionally."
  • The strong connections he made with selected people and the importance of being surrounded by people that motivate you and allow you to move forward in every aspect of your life.
  • The mentors, motivators, and coaches that  also contributed to his success (and how).
  • His relationship and interactions with Warren Buffet and Charlie Munger and what he learned from them (there is a lot of this in the book and I loved it). One of my favorite quotes: "Hang out with people that are better than you, and you cannot help but improve". -W. Buffett
  • A chapter entitled "Investing Tools: Building a better process" where the author uses his own experiences to outline some of the best tips he can provide that can all help us choose better investments and eliminate a lot of the day-to-day clutter.  While I wasn't in full agreement with a couple of the points he made, most of the tips on the list made perfect sense. 
One of my favorite tips: "...gather investment research in the right order...start with the least biased and most objective sources. These are typically the company's public fillings, including the annual report, 10Q and proxy statements...then, turn to less objective corporate documents..." while this makes perfect sense in retrospect, I don't think I ever took the time to really notice the way in which I conduct my investment research nor the order in which I read the documents I gather. Enjoyed reading this tip and several more. 

Wish I could go on and on about this book but I wanted this review to be short and sweet. I encourage you to check out the book for yourself and would love to hear your thoughts. Verdict: Highly Recommend. 

I am always looking out for new reads. So, if you have anything you'd like to recommend please comment below or email me at teachmetoinvest@gmail.com.

Thank you for reading & cheers to profits!
Mabel






Friday, March 27, 2015

Interesting investing-related observations I made during a short trip to the Dominican Republic

I don't know if this comes with the territory of being an investing fanatic, but it doesn't matter where I go or the reasoning for my trip- I am constantly making observations regarding possible investments and/or the presence of U.S companies abroad. I recently spent four days in the Dominican Republic for a friend's wedding and did not miss a chance to keep my eyes open. I had the privilege of staying at two different resorts: Barcelo Dominican Beach and Now Larimar (the latter being the best one by far!).

Here are some of the things I noticed which I feel were quite interesting:



1. Delta (DAL) airlines now serves Starbucks coffee (SBUX) (what happened do Dunkin Donuts?): I cant remember the last time I flew Delta and this may or may not be old news but last time I checked, Dunkin Donuts (DNKN) was the 'dominant player' in terms of coffee being served in airplanes. As a Starbucks shareholder, I was pleasantly surprised when the flight attendant handed me a cup with the Starbucks logo on it. I wonder how long this contract has been going on.



2. Delta employees remain fairly happy despite the changes in employee benefits: I traveled with a Delta employee whom happens to be friends with the bride. We spoke a bit about her role at Delta and how she feels about the changes that were made in terms of whom can take advantage of her employee perks. Although she showed a bit of disappointment with the fact that she can no longer offer benefits to her close friends, etc. She seemed very excited that her entire family (kids, parents, husband) can pretty much travel for free anywhere around the world (they just pay the taxes).

She also pointed out that Delta employees only have to work a minimum of 20 hours per week to get such perks which I feel is pretty cool. Anyways, the point of this observation is the fact that is always good to notice that company employees are happy and satisfied with their compensation. A company with disgruntled employees who feel are compensated unfairly is probably not going to go very far. So, it was nice to see that Delta is doing a good job with its people. Hey Delta, are you hiring? ;)

3. Dominican Republic tourism is booming. So get this-- each person that gets off an international flight in DR needs to pay $10 for a "tourist visa" regardless of the length or reason for the stay. This so called 'visa' is nothing but a very thin piece of paper (see below) that only stays in your hand for about 20 minutes until you cross the customs line.



The $10 fee needs to get paid each time you visit the country (is not something you keep and reuse). I did a little research regarding the amount of tourists entering the Dominican Republic each year. According to this site about 4.7 million tourists visited in 2013. At $10 per "visa" that's $47,000,000 per year and that doesn't even include how much the visitors payed to stay at their respective resorts. Looks like the D.R has been gaining a strong reputation for the best quality vacation for your money, and I don't see any signs of this slowing down anytime soon. Speaking from personal experience, Its the best time I've had at a resort in a very long time. Top quality food and drinks all inclusive. Not to mention the gorgeous weather. I cant wait to go back.

I made a note to myself to research companies that benefit from this booming in D.R tourism. If you have any ideas on this please email me or comment below. However, I'll make sure to share any research with you all.

4. Coca Cola (KO) remains the dominant soft drink everywhere, including resorts abroad. Our fridge was well stocked with some coke products. My time was spent at two different resorts and both had coke products. No signs of Pepsi anywhere.


From what I can remember, the prevalence of Pepsi soft drinks has never been really strong in DR. I would say Pepsi's presence is stronger when it comes to their snack products (chips, etc.).

5. Free Wi-Fi is not yet the norm abroad: I cannot lie that it was nice to be completely disconnected from the world for 4 full days. First of all, I had no phone service in the Dominican republic which means I could not make any phone calls. For communication purposes, I did have the option of paying for the wi-fi ($25 dollars for 24 hours, the equivalent of about $1,050 pesos) and could have downloaded WhatsAapp but I choose not to. The company that managed the WiFi at the resort seemed to be a local telecommunications company called Claro (which I later found out is the dominant player in DR for said industry).

6. Speaking of WhatsApp, here is how they will start to monetize: I decided to download the app on my phone while I waited to depart my plane on Monday, just to have it available. Upon my download, I was notified of this interesting piece of news:


After one year of service, they'll start charging $1 per year. Did you know this?! Quite interesting to say the least. If people continue using the service, that will be a nice addition of income to Facebook's (FB) bottom line.

7. Last but not least: It is possible to find investing fanatics everywhere: During the wedding rehearsal all guests got to know each other in terms of what they do for a living and how they know the bride. Needless to say I was super excited when I found out one of the guest was also an investor and of course we started talking about different companies and the performance of various stocks. He gave me names for a couple of companies that he has done well with and I cannot wait to do some research. As always, will make sure to share with everyone here on the blog.


Tell me, have you ever been to the Dominican Republic? Are you an observant of possible investment opportunities when you travel?

As always, thanks for reading & cheers to profits!

Mabel

Friday, March 13, 2015

One of my favorite companies is splitting its stock {and why you should look in to this}

Hello fellow investors,

Hope everyone had a great week. Today I want to talk about an announcement that Visa (V) made a couple of months ago regarding a stock split. Visa is a portfolio favorite of mine. I bought shares back in late 2012 and haven't looked back since. The stock is up over 84% since my time of purchase. Had I known this was going to happen I would have put my entire portfolio in there. Well, maybe not. But is nice to dream.



This may sound familiar (as I say it a lot on the blog) but I wish I would have grabbed more shares than I did back in 2012. Nonetheless, I am grateful for what I do have and perhaps this new stock split may be a chance to add to my position. Speaking of which, lets get right to business.

Back in January 29th of this year, Visa reported earnings for their first fiscal quarter of 2015. Besides announcing solid year over year increases in important metrics such as  net income, net operating revenue, total processed transactions, and payment volume growth; the company also took the opportunity to announce a 4:1 stock split to take effect on March 19th, 2015 (Thursday of this coming week). If you wish to read the press release check it out here. 

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Mini Lesson:

For my beginner investors, just want to clarify what I mean by a split--

  • A 4:1 stock split means that the stock price will be split in 4; and the company will start trading at such stock price going forward. For example, if the stock is currently trading at $266; the new stock price as of 3/19 will be $66.50. If you are a new investor in the stock, you can get a full 4 shares of the company for $266 instead of just one share.
  • On the other hand, lets say you already own 10 shares of the company. After the split, you'll have 40 shares (the amount of shares multiplied by 4).

***

...not relevant to V but funny nonetheless :)


Now, let me just be clear in that a stock splitting doesn't change the value of the company or the stock. It doesn't mean that all of a sudden the company is worth less or more or that buying a stock when it splits will guarantee anything. While there will be more shares of the company outstanding, the market value remains the same.

Now, you may be asking yourself, why do companies do this? While there are many reasons why a company may want to pursue a stock split, here are two main ones:
  • To make the price more attractive to individual investors who may want to buy shares but refrain to do so due to a "high price". When the stock splits, the price appears more attractive 'psychologically speaking' even if nothing has changed.
  • Helps create a diversified shareholder base or a larger pool of various types of investors lessening the chances that one individual institution or group takes larger control of public shares. Gives the broader public the opportunity to also be a part-owner. 
if you have more reasons you'd like to share, please let me know in the comments.

Why should you care that Visa stock is splitting?

As previously mentioned, the company is one of my favorites. They have an incredibly profitable business model and are at the forefront of changing times as the percentage of people using credit/debit cards as opposed to cash continues to increase exponentially over time. Even with the new smart phone payment systems that are up and coming, people are still using the cards yet simply 'swiping' their phones as oppose to plastic. Either way, companies like visa are still getting their healthy cut for every single transaction that is made and maybe even more so now and in the future considering the popularity of smart phones.

I wrote an investment thesis for why I like companies like Visa and MasterCard on a previous post. You can check out the full analysis for Visa here. The post shows why I feel so strongly about these type of companies and why I am considering adding to my position after the stock split. Maybe this is something you'd consider for your own portfolio (as always, make sure you do your own due diligence).

Thank you for reading.

Tell me, has a stock split ever motivated you to add to a position or buy shares of a company?Or, is that something you don't necessarily care about?

Cheers to profits,

Mabel

I currently own shares of Visa (V) and MasterCard (MA).