< Why Peter will be a lifetime member of ShareAnalysis
“I’m planning to be a ShareAnalysis member till the day I die”
Find out how Peter uses ShareAnalysis and why he’s planning to be a member until the day he dies.
How would you describe your investment philosophy?
My process is made up of multiple steps within an investment framework. I start with valuations, followed by Quantitative, Technical and Market Psychology.
I have been investing since I was 18, a total of 40 years. I realised a long time ago that trading stocks was hard work. So now I buy great companies and let the very experienced and capable managers of those companies compound my wealth, often with the bonus of a growing dividend.
What criteria do you look for when researching stocks?
The value prospects of the company must be bright (Profit & Loss, Balance Sheet and Cash Flow statements need to be strong). I also read the company’s reports to ensure what the directors and management are saying in the reports, they actually do. It’s a great way to ensure the directors’ interests are aligned with their shareholders.
What is the one quality a stock must demonstrate to make it into your portfolio?
A history of growth in shareholder returns, in terms of price and valuation growth.
Why do you use ShareAnalysis to pick top stocks to buy?
In short, it saves a LOT of time. ShareAnalysis is my value compass.
When hunting for new opportunities, what ShareAnalysis Filter settings do you use?
I filter by ShareAnalysis Score, Net Debt/Equity, Safety Margin, Sectors, Funding Surplus and forecast change in Value. Here are my favourite ShareAnalysis filter settings.
|Market Cap Group||Micro, Small, Mid and Large||Nano cap stocks are excluded due to liquidity issues.|
|Zero Value Stocks||Show none||There’s no point investing in a business that doesn’t make any money!|
|Forecast Dividend Yield||More than 2%||Dividends are a nice bonus.|
|Forecast Return on Equity (ROE)||More than 15%||The more profitable the business is, the better.|
|Forecast metrics - trends|
|Forecast Change in Value||More than 5%||Future growth, that is higher than inflation growth, is good.|
|Forecast EPS Growth (1 Year)||More than 5%||I’m looking for growth stocks, right. This tells me how much growth the company is forecast to produce over the coming 12 months.|
|ShareAnalysis Score||A1, A2, A3, B1, B2||These scores capture the best stocks. I include A3 companies as they have very high quality balance sheets and could be on a growth path due to improving business performance.|
|Historical Change in Value||More than 5%||If a business has grown its value in the past it is probably well run and there is a reasonable chance this will continue into the future.|
|Return on Equity||More than 15%||A business that has a history of high profitability is in a good position to deliver strong performance move forward.|
|Net Debt / Equity||Less than 40%||Less debt is best.|
|Cash Interest Cover||More than 4||Its nice to know that a company has enough cash to cover its interest bill four times over, should things temporarily turn bad.|
|Funding Surplus (current)||Has Surplus||Cash is king. The more in the bank the better.|
|Dividend Yield||More than 2%||Indicates the company has a track record of paying dividends.|
How do you narrow ShareAnalysis’s filtered shortlist to the stocks that eventually make it into your portfolio?
I’m seeking value stocks. So no matter how top-notch the business is, I will only purchase shares when they’re trading at a 15 per cent discount to ShareAnalysis’s valuation.
Which ShareAnalysis Evaluate screens do you find the most useful and why?
For value, you can’t beat ShareAnalysis’s Value vs Price chart. The range of valuations presented on the Value vs Price chart is also really handy. It’s so easy to see if there are major differences in opinion, and therefore if the estimates are warranted.
I also like the Cash Flow and Capital History Evaluate screens. They present the company’s cash flow statement and balance sheets, saving me hours upon hours of time trawling through annual reports. Plus, the visualisations means I can instantly see how well the company is using/investing my funds and whether management are working for their bank manager (high debt/very little interest cover) or me, the shareholder.
How do you construct your portfolio?
Portfolio construction is very important to me. I approach portfolio construction as though I am building a winning sporting team.
My general portfolio construction rules are:
- I only want to own stocks that are outperforming the All Ords. It’s that simple.
- I can have no more than two like companies in the portfolio.
- When a company meets my investment criteria I take a three-stage purchase program with the initial purchase being no more than 2.5 per cent of the portfolio. The position is added to over time to a maximum portfolio weighting of 6 per cent. The holding is allowed to run up to 15 per cent before trimming of the holding is considered.
Peter’s Stock Tips
One last question for the viewers at home… what stocks are on your 2015 watch list?
I have up to 30 stocks on my watch list, which is fluid.
I can be watching a stock for up to 12 months or more, reading the ASX announcements, management reports etc, to ensure I have a good feel for the business before I will even consider buying it. Knowledge is power and power is money.
There always the gems in the market that are under-research by the big institutions and fund managers, which I can identify easily thanks to ShareAnalysis.