Edmond Jackson


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Edmond Jackson writes 'Taking Stock, the diary of a private investor' for The Sunday Telegraph , and a daily Notepad at www.Citywire.co.uk. He eschews formal investment systems - preferring to take a flexible and pragmatic approach to investing, with a particular focus on the processes of change. He regards a sense for dynamics - at the economic, company and stock market perception levels, and how they interrelate - as key. Business moves on, investment ideas must adapt.

General principles and intrinsic value of companies

  1. Weigh risk/reward to buy and sell astutely.

    Have a sense for the upside/downside parameters in a stock and try to quantify them, roughly . This basic ratio can be applied to almost any investment situation. If you can't get a grip on it, steer clear.

  2. Develop a rationale for sectors & stocks - keeping an open mind.

    Summarise the reaons why you are buying/holding selected stocks, and ask yourself if the course of events reinforces or detracts from that rationale. Things rarely turn out as one expects, so be ready to evolve your rationale in the light of new information.

  3. Look beneath the surface and identify key issues.

    A company's disclosure is liable to be coloured by the directors' agenda at the time of reporting, or the PR advisers doing a good job. When you are assimilating words and numbers in a company's releases, get quickly to the heart of the matter - and how it affects your rationale.

  4. Assess intrinsic value - a dynamic concept.

    Such a benchmark for a stock is the price at which it ought to trade if all relevant factors are considered : earning power, quality of management and assets, etc. Economic change means that intrinsic value needs regular re-appraisal.

  5. Identify market bias - when to back or buck it.

    It is hard to define intrinsic value objectively: every judgement in the stockmarket depends on the players' varying perspectives. There is nearly always some kind of bias, like an infectious trend in social psychology. Or just plain old greed and fear. Discerning when the trend has sense or nonsense , and its relation to underlying values, is vital .

  6. Growth stocks can deliver hefty gains and losses.

    A 'lockaway' growth stock, to hold and watch multiply, is the first choice of most investors. Yet rapid growth of a business introduces all manner of strains, especially competition. Acquisitions are a classic problem area. Add in the factor of stock market bias and you have a recipe for boom-to-bust.

  7. Turnarounds & cyclicals are valuable when your timing is right.

    The economic cycle can generate opportunities when the risk/reward ratio is particularly favourable in these stocks. There is also a steady supply of sound yet unexciting businesses where new management can be a catalyst for 'recovery-to-growth' - frequently a profitable theme.

  8. Takeovers and divestments offer special opportunities.

    Arbitraging market disparities in announced terms is one, conservative approach, in 'event driven' situations. Enterprising investors should keep a watch list of potential targets. Once an attractive risk/reward profile is perceived, dealing volumes and/or relevant news can be the necessary trigger for the stock to converge on intrinsic value.

  9. Re-appraise stocks in terms of opportunity cost.

    Besides company and market factors, there is the issue of 'what better choices for my money?' A stock may rate a satisfactory hold - yet selling down is logical if you find a better alternative. One's optimum level of portfolio activity needs to consider tax and transaction costs.

  10. Have the courage of your convictions - to deal effectively.

    With experience, an intuitive link develops between your ideas and actions - so that you balance a patient, disciplined approach, with courage to seize the day. Nurture and listen to your own intuition.

edmondj@msn.com



Global-Investor Book of Investing Rules(c) Invaluable Advice from 150 Master Investors
The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors
ISBN: 0130094013
EAN: 2147483647
Year: 2005
Pages: 164

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