Identifying quality Swiss stocks and promoting them (6/6)

THE VALUATION STAGE

Once you have established whether you are looking at a quality company, the final step is to determine whether the current stock price is justified based on its fundamentals, which is done by comparing the stock's VALUATION to its INTRINSIC VALUE.

Le but étant de ne pas surpayer grossièrement : « Price is what you pay, value what you get » résume Warren Buffett.

I determine a price that I consider correct and that I am prepared to pay: I do not make any prediction, I do not say that this is the price at which the stock will trade over the next 12 months.

The action Nestle peut passer d'un PER de 25 à 15 en l'espace de quelques mois, non pas parce que cela correspond à sa valorisation correcte, mais uniquement parce que le marché est en mode correction et que l'humeur du public a radicalement changé.

Similarly, although Geberit shares are already overpriced with a PE ratio above 30, it is not impossible that the current stock market euphoria will continue and its PE ratio will reach 40.

By being careful not to overpay at the time of purchase, one ensures a certain margin of safety which was so dear to Benjamin Graham.

Là aussi, afin de calculer la valorisation de l’action, je recommande de faire simple. Choisissez une seule variable et tenez-y vous ! Ce n’est pas si important si l'on utilise par exemple le PER (price to earnings ratio), le PBR (price to book ratio) ou le PSR (price to sales ratio).

I use the PER (price/earnings ratio), which is the share price divided by the earnings per share. The higher the quality and the better the predictability, the more a high PER is justified. Remember our example with EMS Chemie and Schaffner!

For my part, I combine the 5 criteria presented above with my little home-made algorithm (I can't reveal all my secrets after all!), which tells me, for example, that EMS Chemie is currently overvalued by around 10% (thanks to the current stock market euphoria), but that's nothing compared to Schaffner which is around 30% too expensive.

Finally, I would qualify my remarks by saying that we should not give too much importance to timing at the risk of missing out on a great opportunity. Nestlé will be worth more than 100 francs in a few years and will pay a higher dividend each year between now and then than the previous year. From this point of view, buying it at 77 or 81 ultimately does not make such a difference.

PSYCHOLOGICAL AND EMOTIONAL ASPECTS

Once you have become the happy owner of a quality company, you have to be very patient, stick to your winning positions, not sell at the slightest correction (fear) or after a small gain that you want to quickly pocket (greed).

Charlie Munger says it so poetically: “Investigation is where you find a few great companies and then sit on your ass”.

A buy and hold strategy also helps to limit brokerage fees. Another problem when you have sold a high-quality stock is that it may continue to rise and you will never be able or want to buy it again. The train has left without you!

Don't forget to systematically reinvest your profits and dividends, in order to create a snowball effect. Better to let compound interest work for you than to work for the interests of others!

Il faut essayer d’éviter de se laisser distraire par la surabondance d'informations dont nous bombardent les médias. S'intéresser à ce que font les entreprises qu'on possède plutôt qu'à ce que font les indices boursiers. Suivre l'évolution de ses dividendes plutôt que celle de ses titres. Apprendre à vivre avec l'incertitude, apprivoiser la volatility. Accepter que le risque fait partie de la bourse comme de la vie. Avoir confiance en ses analyses et assumer les conséquences de ses décisions. Voir ses actions comme des participations dans des entreprises réelles plutôt que comme de simples pixels qui s’agitent sur un écran.

Investir dans des entreprises solides qui font des produits simples qu'elles vendront toujours dans 20 ans (compagnies traditionnelles, stables et matures) plutôt qu'essayer de dénicher la prochaine technologie qui révolutionnera le monde (en théorie, car en réalité vous ne dénicherez rien d'autre qu'une société qui dévastera votre compte en bank).

Diversify your stock portfolio well, unless your name is Warren Buffett.

A qualités égales, favoriser les actions à volatilité moindre (faible beta) et dont les « dividendes » sont exemptés d'impôts (p.ex. Cembra).

Stick with the winners and quickly get rid of the losers. Most investors do exactly the opposite, what Peter Lynch so aptly called “cutting the flowers and watering the weeds.”

 

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