Help! (Reading Financial Statement)

[PloutosNX]

Hello Jerome,

Having read your latest analyses on Amazon and Otec, I wanted to retrace the steps myself to put it into practice after reading various sites and books that you refer to.

I started by trying to set up the FT screener to see if it could suggest Otec Corp, but I think some of the conditions are still too restrictive… But the good news is that Amazon never showed up!
This is not a sticking point since the goal with the different screener parameters is to find rare pearls. If I compare your criteria with those of B. Graham, you are even more picky than him!

My greatest despair was to realize my inability to correctly interpret the company's data when I went to Yahoo Finance (because unfortunately their site is not in a language that I can read). I am unable to read financial results-balance sheets and put them together to deduce the different values!
What seemed to me to be a simpler part, because it is mathematical-numerical processing, confronts me with my ignorance and a great void.

To fill this void, do you have any reading you could recommend to me?

Otherwise, do you think that a small tutorial in addition to the valuation ratios and use of screener would be possible?
I don't think I've seen anything like it yet.

I also noticed that Yahoo gives a 4 year history and the current year. So maybe this is not ideal for finding all the necessary information regarding valuation and growth analysis?

My offer still stands when your liver is returned from the Valais Fair!

Looking forward to reading you,
Xavier

[Jerome]

Hello Xavier,

It's normal, you can't find everything with FT. It's still a free screener. On the other hand, the values I gave for the screener in my tutorial are not to be copied and pasted ad vitam eternam in a fixed way. You have to have fun, juggle with it, do tests. It's a good starting point, but it's not the universal truth forever. You have to experiment, search.

I came across Otec via the Quant Investing screener (paid). But you don't have to go through a paid screener, especially when you're starting out and have a portfolio to build from A to Z. FT's should be enough for you. Afterwards, when you have many stocks and you can't find anything on FT (which means the market is still high), then you can have fun testing paid screeners. And the good news is that if the market crashes, FT will be more than enough for you, because you'll be able to pick up the nuggets by the shovelful, as was the case in 2009 and the years just after.

And as you say, Amazon has not appeared…! 🙂 So you can't be wrong, unlike the great mass in madness!

If it's just the language of the financial statements that's causing you problems, I'd just like to point out that Yahoo is also available in French, for example for Otec:

https://fr.finance.yahoo.com/quote/1736.T/financials?p=1736.T

Personally, I have always been accustomed since the early days of the Internet to reading reports in English and I am almost more comfortable with it than in French. I have the impression that French is less serious or less evocative. Who knows why.

Afterwards, it can be English or French, the important thing is to understand what is behind it. And that is probably why you talk about a "great void".

So yes of course, obviously, I have an excellent book to recommend to learn how to read financial reports… Security Analysis by the master Ben Graham (see under Tutorial, reference books, other recommended books). It's the BIBLE. You will learn everything you need to know not only about stocks but also about bonds. However, I warn you, it is relatively heavy and technical. You have to hang in there, but if you hold on, it is very instructive. Some will say that it is dated, but in my opinion Graham's principles are more relevant than ever. Let's not forget that he lived through the 1929 crisis and that is what forged his approach as an extremely cautious investor. October 29, 1929… soon the 90th birthday with such crazy valuations… I'm just saying… His other book, The Intelligent Investor, is much easier to read and shorter. With the latter, you have the investment philosophy, with the former, the technique. So start with the intelligent investor if you haven't already. And thank you for the comparison, I obviously take it as a great honor, but I don't think I'm more picky than him. Of course, I always try to have a good margin of safety, but I know several investors who are even more "Grahamian" than me. But it's true that I feel much closer to him than to a Buffett for example.

Indeed a tutorial on financial reports is not a bad idea. I have to find the time because there is much more to say than on a simple screener. Or I could make inserts in the analyses explaining how to calculate certain ratios from the financial statements. Something to think about. Otherwise, if you tolerate a little English anyway, look at the investopedia site, it is quite informative and serious, start here …

https://www.investopedia.com/value-stocks-4689740

https://www.investopedia.com/dividend-stocks-4689744

and let yourself be rocked…

4 years of history is not bad. I recently saw that Yahoo also offers a paid subscription for up to 10 years. FT (paid subscription) offers 5 years. I find that to be sufficient. Only the history of increasing dividends over a longer period is useful.

What region are you in, by the way?

 

[PloutosNX]

Hello Jerome,

Thank you for your reply.

That's what I thought with FT, but I also changed your settings a bit to be less selective. Your article is a working basis, just like the various books I've read.

It's good to know that in 2009 it was a miraculous catch! I only have one regret, that I didn't take an interest in the markets at that time when I was finishing my studies...

It is certain that concerning the famous "GAMAF" many will have disillusionments, but the great mass of madness can push a little further I think, as in 2000 and the bubble of the "dotcom". The investment outside the value is also more subject to timing.

I think that the financial language is not the biggest problem, even if I sometimes have trouble making the connection between the French and English words, because as you say some words in French are less evocative or you need a whole sentence to describe a word in English (or in German it's the same thing from experience).
I am also more used to English terms, whatever the nature of the theme, but I tend to read works in French (B. Graham, W. Buffet, etc.) to understand better since it is an area that has never spoken to me or been clear to me.
My main problem is understanding what is behind the terms and as you say, that's where my "great void" comes from.

I have already read "The Intelligent Investor" and it is true that B. Graham's approach is very selective to ensure not to lose by investing at the wrong time. I also have the book "Security Analysis", but have not had time to read it yet. This is my main problem "time", between work and family, there is not much time and energy left. It is also very paradoxical to run after independence without being able to devote enough resources to do so...

You also mention that these works are dated, but it's in old pots that we make the best soups, right? The basis is always the same, whether it's crowd psychology or the search for yield, certain principles are timeless.

I think that understanding financial reports is the basis, because without this the different ratios and research tools do not allow for a correct approach.
I'm sure you'll find a great idea for the presentation and I'll be happy to read it. I'll also start the book "Security Analysis" since it's gathering dust at the moment.

Thanks for the two links, I'll check them out too. English or German doesn't bother me at all. I'll also be able to bounce back below to answer your last question.
I come from the canton which has more cows than inhabitants (there is a very good article if you don't know it yet on the region: https://desencyclopedie.org/wiki/Fribourg ), but I have been living for several years in the Zurich Oberland (Züri-Oberland in good local language)

Good day,
Xavier

[Jerome]

 Non-value investing is also more subject to timing.

That's all it is.

It is also very paradoxical to run after independence without being able to devote enough resources to do so...

This is the nature of the Rat Race. It locks you in a universe (Plato's cave), from which it is extremely difficult to escape. Consumption and work eat up all your energy, your time, your resources. It reminds me of The Matrix. We are like locked in a kind of virtual prison that uses us like raw material. The only way out is to disconnect, literally and figuratively. You have to cut the marketing cord, turn off the solicitations of work, stop being a sheep, in short, take a step back. A huge step back. Difficult to do when the entire world is conditioned in this way. But not impossible. And the more you succeed, the easier it becomes.

You also mention that these works are dated, but it's in old pots that we make the best soups, right?

Not me who will say the opposite!

I come from the canton which has more cows than inhabitants (there is a very good article if you don't know it yet on the region)

I don't know Fribourg very well, but I know the people of Fribourg a bit more, with whom I had the opportunity to drink a fair bit during my ER.

[PloutosNX]

Hello Jerome,

Yes, it is a fact that being able to disconnect from work is not always easy for me.

A question comes to mind, do you hedge your positions against currency risk? If so I think you need a margin account with IBKR.

Have a nice end of the day,
Xavier

[Jerome]

No, never. It is useless and even counterproductive. You may be surprised to learn that a very large number of stocks hedge their own currency risk.

More information on this subject:

Foreign currency actions and currency risk (1/4)

Protect yourself against exchange rate risk by investing globally

[PloutosNX]

Hello Jerome,

Thanks for the links, I will read them carefully. I had already read other documents but completely forgot! The only reason for coverage is for companies when signing a contract from what I remember, but I will delve into your explanations.

You are mostly focused on dividend stocks, but how would you analyze this company Xiaomi Corporation (1810.HK)? It also comes from the land of the rising sun and has been listed for a short time and has been losing since the beginning. I know the adage not to catch a falling knife, but I will be curious.

Good evening,
Xavier

[Jerome]

Analyzing a stock with or without a dividend is not much different. I particularly like companies that do not pay only a small part of its profits, so if we push to the extreme we arrive at zero dividend 😉

Be careful, this is not a Japanese company, but a Chinese one... nothing to do with it!

In short, without looking too much into detail, here is what jumps out at me and what I don't like:

- you said it, it's a falling knife

-the company has achieved two negative results in the last four years

– negative free cash flow

– expensive compared to book value (3 times)

– EBIT represents only 0.66% of the enterprise value

– the company issues a lot of shares

– it’s a big capitalization

 

 

 

[PloutosNX]

Hello Jerome,

Yes yes, I forgot to mention that it was not Japan, but China.

If I come back to China, I read that bonds would also be a possibility there.
Have you already looked at this side to diversify those of the US Treasury (the TLT ETF)?

Good day,
Xavier

[Jerome]

Hello

I have to say that I don't have much confidence in the Chinese government! There is a lot of manipulation going on there, especially on the yuan. I've already had mixed results on stocks alone, so I don't dare imagine on government bonds.

[PloutosNX]

Hi,

I'm going to digress from the basic topic, apart from the manipulations that certainly take place "internally", the risk also exists with the USA? China holds a large percentage of US bonds, right?

This reminds me of a movie (which I haven't seen yet - there are always only 24 hours in a day, to my great despair -) but which seems to be very interesting and related to the financial subject. I don't know if you've seen it yet, but the title is "The China Hustle" ( https://en.wikipedia.org/wiki/The_China_Hustle )

Good day,
Xavier

[Jerome]

I don't know this film, to watch on occasion indeed.

I still think that the Fed is sufficiently independent. It is already more or less standing up to Trump! But it is true that the Chinese own a good part of the USA...

 

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