Chroma Investing

Value Investing for beginning & small time investors and the value investing strategies of Graham & Klarman

Does a Risk Free Rate Really Exist?

I was perusing Musings on the Markets, Damodaran’s blog and came across a post entitled Thoughts on the Risk Free Rate. Perhaps, because I am not an academic, I usually reject ideas that seem contrary to logic or that seem designed for an academic and not practical use. The Risk Free rate is one of these notions.

Mistakes in Investing

As yesterdays post on TGAL shows you, we all make mistakes in investing. The question isn’t whether we will make mistakes but how we respond to the mistakes we make. My response was to sell by position in TGAL this morning. Yesterday’s press release with Q3 financials changed my valuation of the company substantially, from one having a comfortable margin of safety, to one with none. Given that TGAL was also losing money made selling at a loss a cinch. I sold at $1.20/share plus $4.95 commission for a loss of $85. Be clear. I am not saying the stock will continue to go down. But the valuation proposition changes so much that it no longer looked like a good investment. When that happens, even if it is only after a matter of days. I sell. I am not in market to hope a company recovers. I am about preservation of capital first, then appreciation of capital. The important thing is to move on.

Intrinsic Value – Beginning Investing Terms

Intrinsic value may be the most important concept in value investing. It is the foundation of everything else. Value Investors all agree that you start with the intrinsic value of a company. Now, how you arrive at that value is a different proposition, there you will have a lot of disagreement.

Montier Bitch Slaps Efficient Market Theory

As readers of my blog know I have never believed in Efficient Market Hypothesis. Here is a speech from the brilliant James Montier humiliating the idea, using cartoon characters in the process. Definitely check it out if you haven’t. I must thank Miguel at Simoleon Sense for leading me to this speech and James Montier in particular.

Ben Graham’s Stock Selection Criteria – Value Investing Series

I found this idea in Tweedy Browne’s What Has Worked in Investing. And after a little more research I have included it in my Value Investing Series. In a “Test of Ben Graham’s Stock selection Criteria,” Henry Oppenheimer studied whether or not a set of Ben Graham’s investing criteria actually worked. Toward the end of Graham’s life he espoused a different, although related criteria to what he espoused in his master works Security Analysis and the Intelligent Investor.

Beginning Investor Terms – Quick Ratio or Acid Test

The Quick Ratio, also known affectionately as the “Acid Test” is a metric used to measure short term solvency. In non jargon it is a formula used to figure out whether or not a company can meet its short term obligations.

What is Focus Investing?

The concept of Focus Investing is devilishly simple. Take the magnifying glass out and focus it on the very best investment ideas you have. Don’t pull the investment trigger unless you can say this is too good to pass up. It is the extreme opposite idea of diversifying your investments in the manner suggested by many financial advisors.

Dollar Cost Averaging (DCA) – Beginning Investor Terms

Dollar Cost averaging is one of those perennially stupid ideas like Efficient Market Theory, that is so dumb, that I wonder how anyone could buy into it. It is completely contrary to the logic of Value Investing. But my opinion aside, it is a popular idea among investmentadvisers, so good to know what it is.

Altman Z score Redux – Covering your back side better

Altman Z score has been around since the 1960’s and I have posted about it previously. Originally it was set up and measured the risk of bankruptcy among manufacturing firms. It turns out that in subsequent studies it was found that the original Altman Z score might be under reporting bankruptcies among non-manufacturing firms. Altman Z may be a great tool but it must be used correctly.

Beginning Investor Terms – Return on Assets (ROA)

This week’s Beginning Investor Term is Return on Assets (ROA). ROA is another investing concept, like last weeks ROE, that helps determine if Management is running a company effeciently. Or in this case specifically the assets it has at it disposable. Assets include both shareholder equity and debt.

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