The Value of Checklists

“Avoidable failures continue to plague us in health care, government, the law, the financial industry – in almost every realm of organised activity. It is the simple checklist that can bring about striking improvements in a variety of fields.”

This quote is taken from The Checklist Manifesto by Atul Gawande, a book that argues we can do better by using the simple method of checklists.

In the increasing complexity of life, it has become increasingly important to use checklists – building a skyscraper, performing surgery, servicing a car, flying a plane, all these things have lower error rates when utilising a well-constructed checklist.

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Good Management

Assessing the management of a company

Working out a company’s value can mean pouring over its financial statements, analysing the quality of its business operations, assessing competitive position, returns on equity, earnings growth, and the list goes on.

However, one thing  missing from this list is the importance of the quality of management in a business.

Management may make decisions that are, while in their best interests, not in the interests of the company. This is called agency risk.

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arcinvest | financial planner

Global Financial Crisis (GFC): 10 Years On

The date Lehmann Brothers filed for bankruptcy- September 15, 2008 – marked the worst of the GFC.

10 years is a long time. A decade in the markets is even longer.

New advisors and bankers who are at the beginning of their careers will have only experienced the low interest rates and liquidity that Governments around the world undertook to combat the effects of the GFC.Continue reading

Assessing Competitive Advantage

When we look for shares to buy or businesses to invest in, we look for profitable businesses with a good return on equity (that is increasing the value of your share in the business, as well as increasing shareholder’s equity).

If a business is making great profits, what we need to assess is if it can it continue to make and grow those profits, and for how long.Continue reading

Does Value Investing work?

Here are the most common questions I get asked about value investing.

Historical Evidence

Studies on value investing often take on the following form:

  • Sort out all the shares traded on a large exchange into groups ranked by a simple measure of value – either Price to Earnings (P/E) or Price to Book Value (P/B). The low P/E or P/B are the ‘value stocks’.
  • Record the share price at the start and end of the year, add in dividends, and compare the returns of the different groups.
  • Repeat the testing over many different years.

These studies have been tested across many different markets and countries and all found that the ‘value stocks’ will, on average, outperform the more highly priced “growth” stocks.Continue reading

The latest from the Value Investing and Search for Value Seminar

The seminar ran over five days with 30 other participants and was led by Dr George Athanassakos with the assistance of a number of graduates from Ivey Business School who acted as tutors during our breakout sessions.

The three and half days of lectures were followed by one and a half days of practical exercises in small break out groups where we applied what we learnt to real companies.

Here is a six-point summary of how to establish an intrinsic valuation of a company.Continue reading

investing and sport

Investing and Sport

I recently had the good fortune to be invited by Platinum Funds Management to attend a presentation by former Australian Rugby Union player, Ben Darwin.

Since his career ending neck injury, Ben has established a sports analytics company and his anecdotes had interesting correlations with investing.

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reasons to invest

What is Value Investing?

Value investing is an investment strategy where shares are selected for purchase that trade for less than their calculated or intrinsic value.

To value invest an investor needs to understand thoroughly the share or business they are investing in, to arrive at a calculated or (intrinsic) value and then buy the shares at LESS than what they calculate as their intrinsic value.Continue reading