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Sugen på att lära dig mer om värdering?
Under kommande veckor kommer vi köra gratis webinars på 9 Valuation Mistakes. Varje webinar kommer fokusera på ett vanligt misstag inom värdering, vad det kan leda till, samt hur du kan undvika att begå misstaget. Vi har schemalagt de två första och de kommer vara kl 12:00 svensk tid.
Du kan registrera dig på länkarna nedan:
Tisdag, 21 Augusti: https://events.genndi.com/register/818182175026320312/bdbeaf346e
Torsdag, 23 Augusti: https://events.genndi.com/register/818182175026320312/5521f4b53b
Hoppas vi ses där!
Dålig tajming kan ta mer än ett deceniumm att återhämta i Asien
Föreställ dig att du lyckats investera på den absoluta marknadstoppen i Asien ex Japan.
Hur lång tid skulle det ta innan du återhämtat dig och var över din initiala investering?
Om du investerade på toppen i december 1993, hade du behövt vänta genom både den asiatiska finanskrisen och Dotcom-bubblan.
Först i mars 2006 skulle du börja se någon avkastning på din investering.
147 månader = 12,3 år!
Om du investerat på toppen strax innan den globala finanskrisen i oktober 2007 skulle det ha tagit 90 månader att återhämta dig.
Men, så fort du återhämtat dig i april 2015 föll marknaden omedelbart igen och du hade fått vänta till juni 2017.
Om du hade investerat i Asien ex Japan på en marknadstopp hade det kunnat ta mer än ett decennium tills din investering började ge någon avkastning.
Det finns en hel del invändningar att göra här och nu, den mest uppenbara frågan är: "Hur sannolikt är det att du bara skulle göra en investering och att lyckas göra den på den absoluta marknadstoppen?" Förmodligen inte så troligt...
I stället för att fortsätta dividera om det här, rekommenderar jag dig att läsa Part I: Buy and Hold Can Be Hazardous To Your Wealth som diskuterar mer i detalj om ämnet och vad man bör tänka på när marknaden är högt värderad.
This post was originally published here.
In equity analysis, there are those who prefer the data and those who prefer the story. The logicians, the storytellers, and then people in the middle.
Two Types of Equity Analysts
There are equity analysts who let the data show them the way. They read charts and trends and decide what the story is based on what the numbers are telling them. They construct the narrative from the data.
And then there is the type of equity analyst who comes up with the narrative first and then finds the data to fit the story in their minds. They pick and choose the graphs that support their imagination. Or they rely on their industry insights or familiarity with company leadership that lies outside the realm of facts and figures. (Speaking of facts and figures, check out my post on the difference between stock value and stock price here.) Oftentimes this narrative is based on nothing but intuition, dreams, and imagination.)
But hey, that’s part of what makes the stock market so interesting, right? It is the analysis, unfolding, and reward of the dreams of humanity’s organizations. We wager on the rise and fall of companies — the great empires of our generation.
Equity Analysis: Looking into the Future
Equity analysts possess a vision of the future unseen by the market, and then they attempt to convince other people to make bets on that vision. When that vision becomes a reality, people get a large payoff for their imagination.
Imagination is something that lies beyond pure data. Science follows rules, like the laws of physics, which are mostly consistent over time. But the rules of finance? Well, there is only one that matters — that there are no rules.
Analysts try their hardest to develop frameworks for interpreting and predicting the financial system. The simple fact is that in equity analysis, it is impossible to be totally certain. It defies logic because the system is composed of individual buyers behaving in irrational ways.
Not to mention that financial markets are self-correcting. Somebody comes up with a framework that works, others find out, and the market corrects. This process changes the underlying assumptions on which that framework rests. It’s impossible to establish certainty inside a constantly shifting environment.
The Toss Up: Emotions or Objectivity
So, what should we prioritize as equity analysts? Facts, or imagination? Data, or gut instinct? Well, that’s a complicated question.
Obviously, we need to have an accurate system for interpreting the raw data. We need to have the analytical skills and insight to know what is actually happening in the company. We develop scientific methods for determining the objective value of a company so that we avoid operating only on our emotions and imagination. Sometimes the result is that many analysts totally reject the subjective elements of their day-to-day work.
Some equity analysts strive so hard to eliminate emotion and establish objectivity that they fail to cultivate the human elements that are necessary to succeed in this industry.
While Andrew was Head of Research at a large broker here in Thailand he once hired a young analyst that was strong in the scientific aspects of equity analysis, but he relied almost exclusively on data when he presented his ideas. He sold his ideas mathematically, not emotionally. The result was that when fund managers sat down to compare the ideas in front them, his ideas consistently paled in comparison to other more artfully presented options.
Two Sides of the Same Coin
Objective logic is important, but it does not reign supreme. The road to the top of equity analysis requires some “softer skills” as well.
Think of an artist. One must choose the scientific tools to value companies like a painter choosing his or her brush. The analyst’s artwork is composed of facts, figures, and charts. He or she uses the science of data analysis as the basis for an artistic narrative. They must paint a compelling picture of the value, momentum, direction, and risk of a company. This picture is the artistic vehicle that equity analysts use to sell their vision in the marketplace of ideas.
You must be capable of navigating the world of persuasion and influence. At the end of the day, your job is to present interesting investment ideas in a way that compels buy-side managers to risk their client’s money on them.
Your job is to enable someone to share your vision of the future. To give them a glimpse into a world that does not yet exist. This is a difficult task, and it takes your entire career to learn to do this effectively.
The Valuation Master Class
In the Valuation Master Class you'll be taught to combine the objective world of equity analysis with the subjective world of influence. You can learn the difficult analytical forecasting and valuation portion, as well as the soft persuasive skills you need to succeed.
For instance, Valuation Master Class students produce original equity analysis research reports just like you would in the professional world. They also engage in live debates with other students about whether to buy or sell a stock.
It truly is hands-on practice. As instructors, it warms our heart to see students nail an accurate valuation and then execute a perfect argument to sell me on the idea.
That is the skill that truly matters in the real world; it drives revenue for your client, it drives revenue for your organization, and it drives success for your career.
Develop it!
Don’t wait—sign up today.
Utav er som läser min blogg här på Trade Venue vet jag ej hur många som känner till att vi startade en Valuation Master Class online förra året. Valuation Master Class består av 5 moduler och ger praktisk erfarenhet i att värdera bolag. I nuläget har vi en bit över 200 medlemmar runtom i världen som befinner sig på modulerna 1-5.
Kommande veckor planerar jag att publicera några inlägg här som har med värdering och Valuation Master Class att göra. Tyvärr är jag ganska lat och har lite snålt om tid, så jag hoppas det går bra med engelska ;)
Har ni några frågor gällande Valuation Master Class är det bara att fråga i en kommentar eller skicka DM/email.
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This post was originally published here.
The Right Tools
When it comes to making crucial business and financial decisions, the savvy financial analyst wants the right tools on hand for performing equity valuations. The Valuation Master Class is a crucial first step to gaining these essential valuation tools for those looking to carry out their own due diligence on companies. Comprehensively assess the stock values of world-class businesses while avoiding market analyst bias. With the help of my team, we’ve applied our 25+ years experience to creating the Master Class. If you’re interested in breaking free from the traditional—and heavily theoretical—approach to studying business valuation, then this is the right place.
The Right Framework
Other post-graduation equity valuation courses will continue to throw theoretical models and books at you. What makes the A. Stotz Valuation Master Class so different to this dull, repetitive approach is that you gain the opportunity for real practical experience—from the very beginning. Rather than just examining theory and traditional valuation methods, the Valuation Master Class provides you with a proven ValueModel framework to help you master business valuations. From the start, you are in the driving seat discovering how to practically value real-world companies with professional confidence. Undertaking the class will provide you with the breadth of practical experience in equity valuation that no other prep course can. Upon graduating this course as a Master in Valuation, you will have successfully valued a whopping 56 companies. Theory doesn’t take a backseat, but the Valuation Master Class stands out as one of the few places you can be certain to put it into practice.
The Right Career Path
Driven, motivated, and hungry to make a name for yourself in the world of equity valuation? Does this sound like you too? The Valuation Master Class can set you on the right path to your coveted job in finance. Mastering the art of equity valuation can make and enhance your career in the finance world. Whether you’re seeking a role in the field of corporate finance, equity research or investment banking, you will have compiled a case-study portfolio of 56 real-world company valuations from the hands-on experience this course provides.
The Right Mentor
Not only do you receive the full support of the expert team here at A. Stotz Investment Research, but Andrew Stotz, PhD, CFA delivers all the accounting, finance, and forecasting related content, as well as provide individual feedback. Gain full access to his 25 years of practical knowledge and insights into equity valuation.
Want to learn more? Check out the online course details here and begin mastering the art of equity valuation today!
How to recognize recency bias
“The S&P 500 will gain 20% in the first year of the new Millennium!” said the yuppie analyst to an impressed journalist while sipping champagne and chewing on a lobster tail. Except, the yuppie analyst was dead wrong in this prediction; the S&P 500 fell 10% in the year 2000.
How could this, obviously well-paid, lobster-eating yuppie analyst be so wrong? Overconfidence is a likely candidate, but so is recency bias.
What is recency bias?
Recency bias is a cognitive error that tricks you into believing that what has happened recently will continue to happen again. Our yuppie analyst above thought the S&P 500 would gain 20% in the year 2000 because it had gained about 20% in 1999 and almost 30% in 1998.
By the same logic, as the S&P 500 returned about 20% in 2017 and roughly 10% in 2016, you’d be inclined to assume that the index will continue to gain in 2018. By something around 15% maybe (the average of the 2016 and 2017 returns) or even as much as 30% (in a continuation of the pattern 10%, 20%, etc.).
Your brain is wired in such a way that recent memories are easily accessible. Hence, it’s completely normal that you think the market will perform well when we’re in a bull market. Even though you, like most investors, are aware of the cyclical nature of the stock market.
Why is recency bias a problem?
Clouded judgment due to recency bias may make you hold onto stocks even though you acknowledge their high valuations or other warning signals. Conversely, it can also make you stay on the sidelines too, not buying stocks when they’re cheap and the market is depressed. Hence, you get the timing pretty much wrong both ways.
Furthermore, recency bias may lead you to invest in a fund that has had the best performance in the recent past or to allocate more capital to an asset class that performed strongly in the last few years. However, there’s a lot of research showing that this has been a losing strategy for many investors and that it is probably better to invest in recent losers rather than recent winners, De Bondt and Thaler (1985).
How to deal with recency bias
As with many cognitive biases, increased awareness takes you far when dealing with them. It’s unlikely though—and may even be suboptimal—that this will entirely change how your brain works, so you’re better off just making sure that the most recent events or performance are not the only data points you use to form a baseline for your decisions.
Another way to reduce the impact of recency bias is to use a “periodic table of investment returns” named and modeled after the periodic table of chemical elements. The Callan Periodic Table of Investment Returns seems to have been the first (feel free to correct me if I’m wrong in a comment below) where you can see annual returns of various asset classes over the past 20 years. Another take is Ben Carlson’s Asset Allocation Quilt. Have a look for yourself, and you’ll see that it’s not very often that the best performing asset class in one year is also the best performing in the next.