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Hengfu Hsu

Jan 02 2017

Top Investing Quotes

    Warren Buffett :

  • I prefer to keep all my eggs in one basket and watch that basket closely.
  • Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.
  • Price is what you pay. Value is what you get.
  • Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.
  • Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
  • Risk comes from not knowing what you’re doing.
  • Be fearful when others are greedy. Be greedy when others are fearful.
  • Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
  • I’d be a bum on the street with a tin cup if the markets were always efficient.
  • The dumbest reason in the world to buy a stock is because it’s going up.
  • History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.
    Benjamin Graham :

  • In my nearly fifty years of experience on Wall Street, I’ve found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do; and that’s a pretty vital change in attitude. The first point is that the investor is required by the very insecurity ruling in the world of today to maintain at all times some division of his funds between bonds and stocks.
  • Individuals who cannot master their emotions are ill-suited to profit from the investment process.
  • The investor’s chief problem – and even his worst enemy – is likely to be himself.
  • Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.
    Seth A. Klarman :

  • The foibles of human nature that result in the mass pursuit of instant wealth and effortless gain seem certain to be with us forever. So long as people succumb to this aspect of their natures, value investing will remain, as it has been for 75 years, a sound and low-risk approach to successful long-term investing.
  • Speculators are obsessed with predicting–guessing–the direction of stock prices. Every morning on cable television, every afternoon on the stock market report, every weekend in Barron’s, every week in dozens of market newsletters, and whenever businesspeople get together, there is rampant conjecture on where the market is heading.
  • As Buffett has often observed, value investing is not a concept that can be learned and applied gradually over time. It is either absorbed and adopted at once, or it is never truly learned.
  • Investors believe that over the long run security prices tend to reflect fundamental developments involving the underlying businesses.
  • The real secret to investing is that there is no secret to investing.
  • Every important aspect of value investing has been made available to the public many times over, beginning in 1934 with the first edition of Security Analysis.
    Sir John Marks Templeton :

  • It is impossible to produce a superior performance unless you do something different from the majority.
  • Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.
  • There’s only one reason a share goes to a bargain price: Because other people are selling. There is no other reason. To get a bargain price, you’ve got to look for where the public is most frightened and pessimistic.
  • People are always asking me where the outlook is good, but that’s the wrong question. The right question is: Where is the outlook most miserable? The obvious application of this concept in practice is to avoid following the crowd.

Written by Hengfu Hsu · Categorized: Financial Tips, Investment Literatures and Links

Dec 15 2014

A Boring 2015 Outlook – It’s All About Earnings!

Following is a slightly revised article first published on TheStreet on 12/12/2014.

The S&P 500 decidedly broke out resistance level in November and is continuing its upward trend. As of December 14, the S&P 500 is up over 12% year-to-date. Guess what? As the 2014 third quarter earnings report season comes to an end, the S&P 500 trailing 12-month earnings growth is exactly at 12%!

The U.S. stock market is boring since it simply follows the earnings growth rate, but there is a lot of excitement in Asia. Fueled by the Shanghai-Hong Kong exchange connect this year, after a lackluster year in 2013, the China Shanghai Stock Exchange A Share Index has rocketed 43% higher year-to-date. India BSE SENSEX Index also has a great run, rising 30% so far this year.

GOLDILOCKS ECONOMY IN US

The U.S. economy is slowly hitting on all cylinders, and is expected to continue its stable upswing in 2015. Here are some indicators that illustrate why:

  • The Index of Consumer Sentiment from University of Michigan rose above its long term average of 80;
  • Weekly Initial Unemployment Claims are near 40-year lows;
  • Housing Starts are improving;
  • ISM Manufacturing PMI Composite Index is staying well above 50 level;
  • Low inflation expectations from falling oil prices and record expansion in solar utility industry.

Corporate earnings growth, the most reliable market gauge in the U.S., is forecasting 10% growth in 2015.

WHAT MATTERS IN MATURE BULL MARKET – EARNINGS

Investors should focus on companies that can increase the most earnings per share efficiently while maintaining low valuation and not be afraid to increase cash allocation. With the U.S. dollar strengthening, lower energy prices and higher consumer spending, the best bets would be on growth at reasonable priced stocks from consumer discretionary and information technology sectors. With 10,000 baby boomers turning 65 and eligible for Medicare per day and the costly implementation of Obamacare, demands and innovations in the healthcare sector will create tremendous investment opportunities.

In the large cap growth space, our Focus Growth computer model’s current favorable stock is Western Digital (NASDAQ: WDC) with a 5.8% allocation. WDC’s 1 year EPS growth rate is 64% and the dividend increased by 46% over one year ago, with P/E/G of only 0.76.

NO BEAR MARKET IN US

To quote Sir John Templeton, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Investor sentiment indicators, such as the AAII Investor Sentiment Survey, continue to show a narrow bull-bear spread, indicating that general investors are still skeptical about this five and a half-year-old bull market. Investors and traders continue to embrace momentum trades, creating volatile yet profitable market condition. Bears will probably come out of hibernation when broad-based investors turn to buy-and-hope strategies again and become euphoric about the stock market.

Until then, as Warren Buffett said, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

Disclaimer

Investing in the financial markets involves risk, including the risk of principal loss. Don’t invest with money you can’t afford to lose. Information in this report is in no way intended as personalized investment advice and should not be interpreted as such.

Written by Hengfu Hsu · Categorized: Focus Growth, Market Update, Portfolio, Stocks · Tagged: Focus Growth, market, stocks

Jul 31 2013

Proven Stock Investment Methods

Here we collect powerful techniques for anyone interesting in systematic and emotionless stock investment portfolios through number crunching.

Classic Papers

Just copy and paste to Google search box to locate the paper.

  • A Conversation with Benjamin Graham, Financial Analysts Journal, 1976.
  • Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis, S. Basu, The Journal of Finance, 1977.
  • The Relationship Between Return and Market Value of Common Stocks, Rolf W. Banz, Journal of Financial Economics, 1981.
  • The Cross-Section of Expected Stocks Returns, Eugene F. Fama and Kenneth R. French, The Journal of Finance, 1992.
  • Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, Joseph D. Piotroski, Journal of Accounting Research, 2000.

Books

Click the image to go to Amazon to review the book.

Written by Hengfu Hsu · Categorized: Investment Literatures and Links · Tagged: stocks, value investing

Dec 12 2012

Focus Growth AAPL Trades

This article uses live trading records of our Focus Growth model from our brokerage account to illustrate how our sophisticated computer programs traded AAPL from September 2011 to August 2012. Focus Growth is our large cap growth portfolio that invests in large cap stocks using our proprietary computer algorithms. AAPL is the best known stock in the world and is widely held by institutional and individual investors.

Focus Growth made initial purchase of AAPL on September 02, 2011, then scaled in and out it a few times to take advantage of potential opportunities in other large cap stocks, and finally closed the AAPL position on August 22, 2012. The complete AAPL trade lasted almost one year.

Following chart marks the buy/sell entry points and transaction prices.

Following table explains the reason for each AAPL trade that the computer programs made:

Trade Sequence Buy or Sell Date Shares Transaction Price Reason for the Trade
1 Buy 2011/09/02 5 $373.41 AAPL is cheap relative to other large cap stocks.
2 Sell 2011/11/14 1 $383.48 BIIB has better potential. Sell 1 share AAPL to buy BIIB.
3 Sell 2011/12/19 1 $383.7 CELG has better potential. Sell 1 share AAPL to buy CELG.
4 Sell 2011/12/27 1 $407.31 ASML has better potential. Sell 1 share AAPL to buy ASML.
5 Buy 2012/01/30 1 $447.91 After Q1 report, AAPL has better growth rate. Sell other stocks to buy 1 share AAPL.
6 Buy 2012/02/21 1 $506.62 Continue selling other stocks to buy 1 share AAPL.
7 Sell 2012/04/09 1 $629.11 AAPL valuation becomes expensive relatively. Sell 1 share AAPL to buy LULU.
8 Sell 2012/08/22 3 $660.1 After Q2 reports, other large cap stocks have better growth rates, and AAPL price has gone up too much to make its valuation attractive. Close remaining 3 shares to buy other large cap stocks with better potentials.

For Focus Growth to invest in AAPL again in the future, one or more of the following things must happen:

  • Other large cap stocks appreciate significantly faster than AAPL, so that AAPL becomes relatively cheap comparing with others.
  • AAPL growth rates in future quarter reports go back to historical level and make valuation favorable again when comparing with other large cap stocks.
  • AAPL price has good correction from current level so that the valuation becomes attractive even at current growth rate.

We will patiently let our computer programs monitor and keep tracks of both price and financial statements of AAPL and all other large cap stocks, then decide whether/when to pull the trigger to invest in AAPL again.

Disclaimer

Investing in the financial markets involves risk, including the risk of principal loss. Don’t invest with money you can’t afford to lose. Information in this report is in no way intended as personalized investment advice and should not be interpreted as such. Past performance is not necessarily indicative of future results. Performance results do not take into account any tax consequences.

Written by Hengfu Hsu · Categorized: Focus Growth, Portfolio, Stocks

May 29 2012

Why does Focus Growth Model like MNST?

Our Focus Growth Model picks top ranked large cap growth stocks according to many fundamental factors published in the books by famous growth stock investors William O’Neil, Peter Lynch, Martin Zweig, and Louis Navellier. Through extensive research, we select and improve the best fundamental factors from their books. We have programmed these factors into computer codes and added proper position sizing algorithm, which enable us to invest in large cap growth stocks without human bias or emotion.

After sifting through and comparing massive amount of fundamental data of large cap stocks, Focus Growth Model currently (as of May 29, 2012) invests around 7.3% in Monster Beverage Corp (Nasdaq:MNST). MNST, through its subsidiaries, develops, markets, sells, and distributes alternative beverage category beverages in the United States and internationally.  Current MNST position is making good profit for Focus Growth Model, and our computer program will decide when it is the right time to take partial or full profit off the table to invest the proceeds into other large cap growth stocks with better profit potential.

The major obstacle that many investors face with growth stocks like MNST is these stocks always look artificially expensive, either from their parabolic move in price chart or their high P/E ratio, and most of these stocks never issue dividends.

However, our computer program has no emotion and it have been able to scratch beyond the surface. Sales and EPS of MNST have been growing consistently over the last 5 years and is ranked highest among its industry peers. Earnings growth of MNST is supported by strong sales growth, and its operating margins and return on equity are top-ranked. All these are important factors that O’Neil, Lynch, Zweig, and Navellier look for. Institutional sponsorship of MNST is rising, an interesting factor that O’Neil uses. However, P/E/G ratio (Lynch’s famous ratio) of MNST has been on the high side, and it is indeed a good fundamental factor to watch out for growth stocks based on our research, so MNST does not make it to our top 5 holdings of Focus Growth Model due to our position sizing algorithm.

Growth rate of all growth stocks will eventually slow down, therefore it is important to analyze their quarterly financial statements constantly, and be ready to move investment capital to the next better growth stocks whenever opportunities arise.

Disclosure

Long MNST in Focus Growth Model in our brokerage account since Sep 02, 2011.

Our computer program may increase or decrease MNST position in Focus Growth Model without notice any time after this article is published.

Disclaimer

Investing in the financial markets involves risk, including the risk of principal loss. Don’t invest with money you can’t afford to lose. Information in this report is in no way intended as personalized investment advice and should not be interpreted as such. Past performance is not necessarily indicative of future results. Performance results do not take into account any tax consequences.

Written by Hengfu Hsu · Categorized: Focus Growth, Portfolio, Stocks

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  • Top Investing Quotes
  • A Boring 2015 Outlook – It’s All About Earnings!
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  • Why does Focus Growth Model like MNST?

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