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Showing posts from January, 2021

Baby steps in maintaining a stock portfolio

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Fundamentals 06-2: There are two aspects in managing any stock portfolio - construction and maintenance.  This post focuses on the maintenance of a stock portfolio while the construction issues are covered in " Baby steps in constructing a stock portfolio ."  Imagine that you have purchased a group of stocks making up your initial stock portfolio. You have constructed your stock portfolio. Since you consider yourself as a long-term value investor, do you hold onto the stocks forever? There are also a host of other questions that come to mind as you manage the stock portfolio: How do you grow wealth with the stock portfolio? What do you do with the dividends you receive? How do you assess the portfolio performance when you put in more funds? Constructing the stock portfolio is the first step. You now have to address these and other questions as a part of the management process.  I will share my views on maintaining the stock portfolio. This is from a bottom-up, stock-picking,

Baby steps in constructing a stock portfolio

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Fundamentals 06-1: There are two aspects in managing any stock portfolio - construction and maintenance.  This post focuses on the construction of a stock portfolio while maintenance issues are covered in " Baby steps in maintaining a stock portfolio ". Generally, when portfolio construction is mentioned, it is with reference to asset allocation.  For example: “Asset allocation is a broad strategy that determines the mix of assets to hold in a portfolio...Security selection is the process of identifying individual securities within a certain asset class...” Investopedia The Oxford dictionary has defined a portfolio as a range of investments held by a person or organization.   What is a stock portfolio then?  A stock portfolio is a collection of stocks that an investor has selected. This then raises the following questions when it comes to constructing the stock portfolio: How do you select the stocks? How many stocks should you have? How much to invest in each stock? How

Is Steel Dynamics still a buying opportunity? (Part 2 of 2)

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Value Investing Case Study 08-2:  I drafted my Seeking Alpha article  Steel Dynamics: Wait for the coming price decline  in Dec 2020 based on the information in Part 1 and 2 of this case study. The valuation was based on the 2020 data set from Damodaran that was updated on 8 Jan 2021.  However, to ensure consistency between this case study and the Seeking Alpha article, I have maintained the 2020 valuation data for this case study. Steel Dynamics Inc (SDI or the Group) is a Nasdaq listed Group in the iron and steel industry that is trading at USD 36.87 per share (as of 31 Dec 2020) ie Price to Book value of 1.8. The US steel industry had an average Price to Book value of 1.4 (Source: Damodaran Jan 2020). Is SDI expensive? As a value investor, there are two key scenarios: The stock price is currently below the historical high or that it is cheap relative to the historical multiple.  The question then is whether this is a value trap or a bargain.   The stock currently looks expensiv

Is Steel Dynamics a reverse value trap? (Part 1 of 2)

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Value Investing Case Study 08-1:  This is my first case study of a US-listed company.  It is intended to demonstrate that the approach is also applicable to companies listed in other parts of the world.  Is there such a thing as a reverse value trap? A value trap is a stock that appears cheap relative to historical prices but is really overpriced. It is a value trap because the business is facing some insurmountable issue. What is a reverse value trap then?   It is a stock that appears expensive relative to historical price or historical multiples.  But the fundamentals show that the business is actually flourishing. While appearing expensive it is really a bargain. Nasdaq listed Steel Dynamics Inc (SDI or the Group) is an iron and steel Group with a market price of USD 36.87 per share (as of 31 Dec 2020). It is trading at a Price to Book value of 1.8 compared to the US steel industry average Price to Book value of 1.4 (Source: Damodaran Jan 2020). In the Malaysian context, any “b