Chroma Investing

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

Free Cash Flow – Beginning Value Investor Terms

This is the latest in my on going series of Beginning Investor Terms. Free Cash Flow (FCF) is a similar concept to Warren Buffett’s idea of “owner earnings.” It is an important concept in value investing largely because it is often a preferred bit of a financial data to Earnings.

Checking your data before you Invest – Valuation

If you are going to invest in a company you need to collect data about the financial workings of the company.For the Excel users on the PC platform I recommend Old School Value’s free spreadsheet for Net Net’s and his premium (read not free, although a good value) Discounted Cash Flow spreadsheet

Beware of Brokerage Costs

The more money you spend earning your money, the less you keep. This includes premium services, taxes, transaction costs, brokerage fees. Anything that keeps your dollars from compounding in the future. In general this concept is pretty easy to grasp but in particular small money and beginning investors need to know that there is a difference between paying $10/trade and $5/trade.

What not to believe for Beginning Investors

A lot of crap has become accepted in financial and academic circles. Some ideas also end up in investing circles and they are regularly recycled like the theory is fact. Sometimes the has already been discredited or is logically foolish, but they get pushed on the unsuspecting anyway. Remember if an idea seems illogical, it probably is. Let’s look at a couple these ideas and how they can help us anyway.

Beginning Investor Terms – Price Earnings Ratio (P/E)

P/E or Price Earnings Ratio is the single most discussed concept there is in stock investing. That doesn’t mean it is the most important. Because a mind numbing number of people discuss Paris Hilton doesn’t make her important. O.k. maybe I have gone too far. P/E is more important than Paris Hilton. It is just overused and its limitations are not always understood by novice investors.

How to Use online Forums for Beginning Investors

There are numerous online forums that you can join or skulk through to get a feel for a company before you invest in it. They can be very valuable and very dangerous. My standard disclaimer applies. Just because it is written down doesn’t make it true. That goes double for anything on the internet. I have spoken briefly about some online forums and I will discuss a couple more.

How Often do Investment Opportunities Arise?

even within the value investing community there are different notions of how often real investment opportunities arise. Buffett has said you should only swing at a “fat pitch.” I loathe baseball, but think the advice is smart nonetheless. To me investment opportunities should be Great investment opportunities. If you can’t find anything looks like a great opportunity, you shouldn’t invest in anything.

Sunday Beginning Investor Links

I am a little behind on my posts. We are moving and between my paying job and the move, I haven’t been able to post as much as usual. These are general investing sites and not specifically value blogs. But definitely all beginning investors should check them out at least once. Motley Fool- Tom and David Gardner used to have a radio show on national public radio that I listened to before I was investing. Mostly they sell investment newsletters. Google Finance – It is a good place to put stocks into a watch list or portfolio list to easily track all in one place.

Perplexing Stock Market

If you look at the current Price Earnings Ratio, the overall stock market is seriously overvalued. But the market keeps going up, closing today at an 11 month high. I am not complaining, really. I am long on some stocks, but I am gettting close to what I consider a fair value on my General Electric stock. But the common wisdom is that the market is pricing in an economic recovery. Really? With 10% unemployment. The consumer is 2/3 of the economy, so if we ain’t spending then there is no recovery on the topline growth. It seems to me that economists take a hit of marijuana and then issue their statements. There is no relationship to reality.

Beginning Investor Links

If you are just starting your investing these are good websites to check out for different reasons. They are also good for a small time investor.

American Association of Individual Investors – This is the website of the organization that is devoted to helping individual investors like you and I become better informed, and to make better investment decisions.For a small fee ($29) you can join. They have some interesting screeners that they have set up based on different investment strategies. Probably worth it just for that one feature. They also have lots of seminars and speakers if you become a member.

F Wall Street – I have commented on Joe Ponzio’s website before. He has an easy to navigate and elegant site that is full of information on valuations from a mostly Warren Buffett style investing approach.

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