The graphic below summarizes the checks used to generate the Snowflake. The remainder of this document explains each in detail and the analysis used in the Management screen.
Sources: https://github.com/SimplyWallSt/Company-Analysis-Model/blob/master/MODEL.markdown#value
I use this post for my memory, so I can review it from time to time.
SimplyWall.st have an indicator called: Share Price vs. Fair Value
I love it, it allows me to simplify so many things. It’s shown as (stock used Allianz (ALV)):
The important thing is how the Fair value is calculated.
Below are the data sources, inputs and calculation used to determine the intrinsic value for Allianz.
| Data Point | Source | Value |
|---|---|---|
| Valuation Model | Excess Returns Model | |
| Stable EPS | Weighted future Return on Equity estimates from 16 analysts. = Stable Book Value * Return on Equity = €183.66 * 0.1% | €23.33 |
| Book Value of Equity per Share | Weighted future Book Value estimates from 10 analysts. | €183.66 |
| Discount Rate (Cost of Equity) | See below | 5.7% |
| Perpetual Growth Rate | 10-Year DE Government Bond Rate | 0.2% |
An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.
| Data Point | Calculation/ Source | Result |
|---|---|---|
| Risk-Free Rate | 10-Year DE Govt Bond Rate | 0.2% |
| Equity Risk Premium | S&P Global | 6.0% |
| Insurance Unlevered Beta | Simply Wall St/ S&P Global | 0.67 |
| Re-levered Beta | = Unlevered beta (1 + (1- tax rate) (Debt/Equity)) = 0.667 (1 + (1 – 30.0%) (43.19%)) | 0.912 |
| Levered Beta | Levered Beta limited to 0.8 to 2.0 (practical range for a stable firm) | 0.91 |
| Discount Rate/ Cost of Equity | = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium) = 0.23% + (0.912 * 5.96%) | 5.66% |
Discounted Cash Flow Calculation for XTRA:ALV using Excess Returns Model Model
The calculations below outline how an intrinsic value for Allianz is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.
In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.
The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.
Note the calculations below are per share.
| Calculation | Result | |
|---|---|---|
| Excess Returns | = (Stable Return on equity – Cost of equity) x (Book Value of Equity per share) = (0.1% – 5.66%) x €183.66 | €12.93 |
| Terminal Value of Excess Returns | = Excess Returns / (Cost of Equity – Expected Growth Rate) = €12.93 / (5.66% – 0.23%) | €237.89 |
| Value of Equity |
= Book Value per share + Terminal Value of Excess Returns EUR183.66 + €237.89 | €421.55 |
| Calculation | Result | |
|---|---|---|
| Value per share (EUR) | From above. | €421.55 |
| Current discount | Discount to share price of €218.8 = -1 x (€218.8 – €421.55) / €421.55 | 48.1% |
Seedocumentationto learn about this calculation.
These 2 indexes have performed some changes the last 3 days that makes me think about the market momentum.
I just received an e-mail from a personal web hosting where they announce me that they are increasing 1$ a month the price as CPanel has changed their licensing structure.
Anyone is having the same issue? I mean, your webhosting is passing the price increase to you as end customer.
Dear Joaquin,
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The recent pricing change has forced us to increase the base cost of our hosting products.
Beginning December 1, 2019, the price of all new hosting orders will increase by $1/month. Additionally, any hosting renewal occurring after January 31, 2020 will renew at an increased rate of $1/month.
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Some links:
Some notes related to Red Electrica Española (REE)
Positive things found:
Negative things found:
Actions:
One of the most interesting things that I read on Systematic trading by Robert Carver is the tendency that a trader can have when doing his transactions.
Basically when you are completing a long-short action (completed transaction), ideally you will have positive outcomes and negative outcomes. If you accumulate all these results and you order it, you will have a Gaussian bell. This bell will not be perfect, it will have different shapes.
The trader with negative skew, will have:
The trader with positive skew, will have the opposite situation.
It’s important to understand the way you make decisions, the results they return and identify the pattern of behavior you have.
Once done, you can identify the weaknesses of your behavior and then include some habits on your trades to be able to improve your trading in a systematic way.
For a negative skewed trader, there are ways to minimize the negative skew. The main ones are:
And these times is when I use to manage better the capital that is involved in the trade.
I have just realized about this guy named Chowder. He has a guidance method to guide your investments and create habits that enable you to increase the value of your equity.
It starts with basic rules and they increase their complexity with respect you go in deep.
Use the Morning Star classification based on economic sensitivity and divide the equity as follows:
Chowder defines the concept of “high total return” that is calculated as follows:
High Quality Stock + High Current Yield + High Growth of Yield = High Total Return.
This total return you take the current yield, the minimum value of 3 years, 5 years or 10 years dividend growth and ideally the total return should be at least over 10%
Current Yield + Min(3 / 5 / 10) Year Dividend Growth = Total Return.
The 10% threshold is an initial threshold that can be increased depending on the market situation.
He uses this calculator to define objectives: https://investinganswers.com/calculators/return/compound-annual-growth-rate-cagr-calculator-1262
This is the basic classification that Morningstar propose depending on the economic sensitivity.
This is important for my buy and hold portfolio.
Some notes related to General Mills (GIS)
Positive things found
Negative things found
Actions:
I have sold it at 52,36$. Why? because the McClellan indicator and the AD line was telling me that a bearish market was coming and I made the short decision.
Bad move. Why? Because I had a clear plan and I have changed it. I should have waited till the value evolved some weeks more as it was expected.
Notes related to Texas Instruments (TXN)
Positive points founds
Negative points found
