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Difu Wu

 
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  • Graham's Stock Selection Criteria Revisited [View article]
    VISA actually happens to have the best current ratio among all 30 issues, at 3.46, so that is the least of problems with VISA (its poor earnings and dividend record and very high price are why it failed as a defensive investment). I wonder sometimes too if the requirement for at least 2:1 current ratio is a little too stringent/outdated today, given most companies fail this test. But then you almost always find companies improve their balance sheets dramatically and become financially conservative after a major market correction of previous speculative excesses, such as in 2003 and 2009. I think requiring 2:1 current ratio at a minimum is important to help provide sizable cushion of working capital to sustain a company through hard times that will inevitably come. People tend to forget that a bear market is even possible after 5 years of a bull market.

    Also, I would not put too much stock on S&P ratings. XOM's AAA rating is mainly based on high IC and low D/E. S&P is facing lawsuits from the Justice Dept for giving high ratings for mortgage securities that turned out to be junk and ignited the 2008 financial crisis.
    Dec 17, 2014. 01:23 PM | Likes Like |Link to Comment
  • Applying Graham's Stock Selection Criteria To Dow Jones Utilities [View article]
    Thanks for the correction! I meant to write "will not ONLY hurt bonds", but somehow the word "only" got lost. Unfortunately, this type of typo doesn't get picked up by spell check, so I have to be more careful proofreading next time. I glad you know what I meant to say though.
    Dec 17, 2014. 12:59 PM | Likes Like |Link to Comment
  • Graham's Stock Selection Criteria Revisited [View article]
    Thanks for your comment. Sorry the color coding failed to work. I'll try something else next time. You are right, meeting Graham's criteria doesn't guarantee survival, but it tends to increase chance of satisfactory return on investment when purchased at the time all criteria are met, as Graham's investment record has shown. Value stocks tend to get bought out, usually at a premium, and you can then reinvest the proceeds. On the other hand, survival does not guarantee satisfactory return. GE is the oldest component of the DJIA, but if you bought it at $60 in 2000, you are still looking at a 60% loss today, 14 years later, even though the company has survived.
    Dec 16, 2014. 06:39 PM | 1 Like Like |Link to Comment
  • After A Lost Decade And Now At 52-Week High, Microsoft Is Still A Buy [View article]
    Hi rr76012:

    Thanks for commenting. I agree today's market is on the high side, but valuations are not ridiculous so I would remain invested. I would overweight foreign stocks, especially emerging markets, which are still cheap.
    Mar 13, 2014. 03:05 PM | Likes Like |Link to Comment
  • Wal-Mart Is Undervalued And Should Double In 3 Years [View article]
    Hi muscat:

    Residual value, or terminal value, is how much the company is worth at the end of time period for which discounted cash flows are calculated, assuming a terminal growth rate of future cash flows and a discount rate.

    My math for calculating discount rate is correct. 0.02 + 0.35 * 0.06 = 0.0416, or 4.16%.

    Calculation for intrinsic value using DCF will vary greatly depending on the discount rate used. Feel free to use a higher discount rate if that suits you.

    Thanks for commenting.
    Feb 1, 2014. 11:39 AM | Likes Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    Managing: No one can predict future returns with any certainty. If so, he would soon have all the money in the world. You can't expect any list of stocks to outperform in any given year.
    Jan 4, 2014. 10:45 AM | Likes Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    Thank you all very much for commenting and adding valuable insights to the article. I agree that most of these stocks are cheap because they have been facing headwinds lately. How else will you be able to buy stocks cheaply? You will overpay if you buy only when all lights are flashing green. These are solid, large and prominent companies that are likely to survive the current difficulties and thrive. That said, don't necessary expect them to outperform in 2014, as catalysts can take time to happen, but it is worth the wait. Most of these will do ok, a few may disappoint, but some will turn out great, and the overall performance should be better than buying an overpriced P&G or Coke.
    Dec 29, 2013. 01:50 PM | Likes Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    If you don't trust the dollar, doesn't it make sense to diversify into foreign stocks?
    Dec 29, 2013. 01:35 PM | 1 Like Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    Thanks for your kind sentiments. I appreciate it.
    Dec 29, 2013. 01:32 PM | 1 Like Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    Thanks Lallemand for your insightful comments. With the current valuations, may I humbly suggest that much of risks you mentioned has been baked into the price already. Also, reversion of the mean suggests that natural gas prices will recover eventually. Dividend cut is a risk for E.on, though dividends are not as sacred for foreign stocks as they are for US stocks. More bad news when market expectations are low will drop the stock price but a little, but a positive surprise given low expectations will cause a big run.
    Dec 29, 2013. 01:30 PM | Likes Like |Link to Comment
  • 10 Best Stocks For 2014 [View article]
    Thanks for your comment and adding valuable insight to this article. All stocks are shorted by one guru or another. Accounting in emerging market companies can be problematic, and share dilution is a concern, though almost all banks partake in constant capital raising/dilution. Dilution is more concerning for some major US banks trading at higher price to book value.
    Dec 29, 2013. 01:17 PM | Likes Like |Link to Comment
  • Rob Arnott's RAFI 1000 Fundamental Index -- Not An Index At All (ETF: PRF) [View article]
    Your argument is fallacious. Fundamental indexes are true indices: they are indexed to the fundamental businesses, as opposed to the stock prices as for cap weighted indexes. And of course everyone can invest in fundamental index funds. The prices will simply adjust to the shift in demand and those invested early in fundamental index funds will enjoy a one time boost to performance, then the cap weighted index will be the same as the fundamental index. If you argue that an index must reflect the current investment opportunity set, then nothing is an index fund, because the current investment opportunity set includes not only all stocks around the globe, but also private equity, restricted non-float shares, commodities, preferred stocks, bonds, etc.
    Dec 29, 2013. 01:11 PM | Likes Like |Link to Comment
  • Lifecycle Investing: Good In Theory, Bad In Practice [View article]
    Thanks kenleezle for reading my article and your reply. With respect to market timing, if you don't invest all at once, then you are holding cash and thereby defeating the purpose of leveraging to 200% stock that A&N recommends. With respect to costs, 5% is way too high considering that total stock returns average about 10% per annum, so 5% effectively eats away half of your expected return. Even if the "borrowing cost" were lower, say 3%, it would still be too costly when the risks of leveraging is taken into account. Finally, with respect to rebalancing, there is no way to overcome this, naming buying high and selling low with every rebalancing act. That is the nature of the beast (leveraging that is). And that is exactly why leveraged ETFs are so toxic. Hope this helps.
    Jun 21, 2013. 10:37 AM | Likes Like |Link to Comment
  • 10 Stocks For 2013 [View article]
    Thanks for your comment, kolpin. Some picks from 2012 did not make it onto my 2013 list because they appear more fully valued now, such as HRS and HAS you cited, and are less attractive than my new picks for 2013. However, as I emphasize in this article, I believe all my 2012 picks are still suitable for holding and my 2013 recommendations are for new money only. If there is no new money, I would just recommend holding onto the old stock picks because of taxes and commissions. After paying 15% capital gains tax, reinvestment into a new pick would have to outperform the old by a huge margin just to break even (it is a good exercise to do the math yourself to make sure you understand this critical point), which is why I recommend a buy and hold strategy.
    Feb 17, 2013. 11:22 AM | Likes Like |Link to Comment
  • 10 Stocks For 2013 [View article]
    Cheese Head: Exactly, to calculate normalized PE, I simply divide the current price by the median EPS over the past 10 years.
    Jan 10, 2013. 11:01 AM | Likes Like |Link to Comment
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