Intransic value only concerns about the earning power of the business, not including the growth potential. Value investing is about buying at a bargin price (compared to intransic value) with enough margin of safety. Invest in certainty.
Investing in growth potential is speculation and add more factors on top of the intransic value and current price level (bargin or not). More factors, higher uncertainties.
Evaluation of An entities'ability to pay back debt
- The ability to service debt interest
Net Cash Inflow/Interest Payment
2. The ability to service debt principle
Net Income/Debt Principle
Maintaining a long-term short position should be avoided.
- As long-term short position does not offer possible dividend income and foregone the trend of long-term economic growth, it should be avoided.
Distinction Between Inflationary Debt Cycle and Deflationary Debt Cycle
Inflationary debt cycle and deflationary debt cycle diffes in the deleveraging phase. Inflationary debt cycle refers to a debt cycle with a deleveraging process that is inflationary. Deflationary debt cycle likewise.
The discount rate of intransic valuation based on future free cash flow should be based on the risk-free interest rate.
About Short Term Prediction
In most times we do not predict the short-term movement of the price of a specific stock, because it is impossible to make it right in a realible way. Not mention the general market. However, in extreme cases, short-term price movement can be attempted, especially when the stock experience a tremendous price jump (50% upward overnight), or extremely good news was released to the market.
Aside of the conditions mentioned above, the return of speculation on short-term movement either by news or price fluctuation depends on the timing of buy/sale and calculated guess.
Short Term Investment
- Short-term investment out of margin of safety
Short-term short sell = Event driven/News driven, it is very unlikely that the price will go upward in short term. = Margin of safety
利用市场的价格波动性来获利，即择时反向操作，利用价格波动的必然性，无论涨跌，股票价格的上下波动本身是一个恒定不变的模式。 对优质股来说，价格不会剧烈波动，从而保证了利用波动本身获利的交易策略具有一定的风险可控性。 ----> This is not a good strategy since both the timing and the amplitude of price movement cannot be reasonably assured.
Position Holding Term
Penny Stock (Less Than $5)
Very High Volatity, low average volume with sudden volume surge, Low Market Cap, Easy to manipulate.
Holding Period Should Be 1D to 30D
Normal Stock (More Than $15)
Moderate Volatity, medium average volume, Mid-to-Large Market Cap,
Holding Period Should Be 1D to 60D
Short Sell on Penny Stock
It is dangous to short sell penny stock since the potentional loss is huge given that the possible gain is limited (Price cannot fall under 0 dollar while penny stocks are usually around $1). Loss can be tremendous when the price of a penny stock doubled or trippled in short-term, since the price of penny stocks are easy to manipulate (relatively small market cap).
The Key to Successful Investment Strategy
Sustainable long-term profit relies on realiable investment/speculation strategy. The success of a realiable stragegy does not depend on minority successful bets, but on "small" gains realized in the majority of investments, results in an overall progress of net assets.
No matter how confidence a strategy is, the possibility of loss in any single one investment remains. Thus, no single investment should take up more than half of the portfolio. The investment should be spread into a series of opportunities.