K's Learning Diary

Great News! AJ Bell is Reducing Dealing Charges I've used AJ Bell to manage a part of my portfolio for several years, finding it to be a trusted brand with a reliable and generally user-friendly investment platform. However, I refrained from recommending it to readers due to its relatively high standard share-dealing charge of £9.95, compared to iWeb's £5 charge. This made it more suitable for frequent traders rather than long-term investors. I typically used it to manage shares that I traded more frequently, instead of keeping the entire portfolio on this platform. Fortunately, change is on the horizon. AJ Bell recently announced a reduction in share dealing costs effective April 1st, 2024, a move that significantly enhances its value proposition for investors. Alongside its comprehensive range of investment products, including ISAs, LISAs, SIPPs, and dealing accounts, AJ Bell now emerges as one of the best platforms for UK-based investors. A Quick Note About Popular No-Fee Pl...

For UK-based Investors #Dodl #AJBell #investing #trading  What is Dodl? Dodl, the user-friendly investment app, is brought to you by AJ Bell, a prominent name in the UK's investment landscape. Aimed at demystifying the world of investing, Dodl offers a straightforward and accessible platform for individuals looking to take control of their financial future. Low-Cost Investing Dodl boasts an affordable approach with a minimal 0.15% account charge, starting at just £1 per month. This low-cost structure makes investing within reach for individuals who may be new to the world of finance. Trustworthy Platform: A Part of AJ Bell Being a part of AJ Bell adds a layer of trust to Dodl. AJ Bell has been recognized as a Which?-recommended investment platform for five consecutive years, earning the confidence of over 490,000 investors. App-Based Convenience Dodl takes the hassle out of investing with its all-encompassing app. Offering a streamlined range of accounts and investments, Dodl makes...

If your money is invested in a good company that has good long-term prospects, one that grows year-on-year and offers you steady returns, there is really no reason for you to sell—regardless of the fluctuations in the stock price. (2024 update: I would add a caveat to this general rule. Sometimes the market can be overly optimistic to the extreme. And since we know the macro market can be cyclical, it does not hurt if you wish to sell a fraction of your shares to reduce exposure and take profit, if you think the valuation has diverged greatly from the fundamentals, which you can then buy back at a later date at a lower price when the market corrects itself. However, this takes patience and is only advisable if you intend to monitor market conditions over a long period of several years). However, sometimes things change and you might want to consider selling the shares if: The company's fundamentals change. Higher returns can be obtained by investing in another asset (taking into co...

Assuming that you invest in a stable/boring/predictable company, with consistent dividend payouts. Let's assume you keep the shares forever (or for a very long time), how much would all the future dividend payouts be worth to you today? If you can answer this question, you can then compare different companies to see which one's present value is higher to help you with an investment decision. Luckily, this has been worked out already. Here is the handy derivation for this very useful tool:

EBITDA stands for “earning before interest, taxes, depreciation, and amortization.” It is a financial indicator used by many companies to show their financial performance; however, it excludes depreciation and amortization.” Depreciation and amortization are also a measure of what the company is spending or needs to spend on capital expenditure to maintain or grow the business. So although EBITDA is used as a measurement of a company’s earning potential, it is somewhat misleading. I will give you a few quotes from Warren Buffett on this point that made a lot of sense to me: "It amazes me how widespread the use of EBITDA has become. People try to dress up financial statements with it.” “We won’t buy into companies where someone’s talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group. Look at companies like Wal-Mar...

This came through to my inbox this morning: The example showed how unrealistic it is to expect to get rich quickly by investing or in this case (trading) in the stock market.  Warren Buffet puts it succinctly: "The economy, as measured by gross domestic product, can be expected to grow about 3 percent a year in the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent. Stock prices would probably rise about the same and dividend payments will boost total returns to 6 percent to 7 percent a year." A sound investment strategy takes into account the long-term growth of the real economy, which is why investing in good businesses is a reasonable way to expect gradual and sustainable growth over several years. While it's possible to gamble and profit from market fluctuations through regular trading, this approach is essentially speculative and not true investing. For most people, the best approach to investing is to wait for a downturn in the economy,...

I had a frustrating experience today with my UK trading platform, IWEB. Upon logging in this morning, I was startled to see a message that my account was restricted and to call a provided number. I was perplexed about what could have triggered this. I called customer service, who speculated that an expired debit card on file may be the issue. After updating my details, I was told access would resume shortly. However, I remained unable to access my account the entire day, which was aggravating. While I understand technical problems occur, clearer communication and urgency from IWEB would have been appreciated in resolving this issue faster. IWEB is one of the ISA providers and shares dealing platforms in the UK, part of Lloyds Banking Group. I have been with them for several years. Customer service is usually friendly, and there is a web-chat service which I like. They offer the most competitive 'cost per trade' without a minimum number of trades per month (that I know of), and ...

Many of you may have heard about Preferred Shares which are different to the Common Shares that investors generally deal with. What is a Preferred Share? Important points: Preferred Shares are similar to bonds, it's a loan to the company that gives you fixed % payments. However, unlike bonds, Preferred Shares can have no maturity dates and investors can be trapped for a long time. This also means that Preferred Shares don't necessarily go back to the par value after some time like bonds. Go through the Certificate of Designation carefully. Preferred shares are not as liquid (not as easy to exit). Most individual investors won't come across Preferred Shares. Payments to Preffered Shares can be delayed (for Cumulative Preferred Shares) or not paid at all (non-cumulative Preferred Shares). Non-cumulative Preferred Shares therefore don't make much sense for most investors. Preferred Shares are Callable , and the company can pay you back your money to e...

Volume= the number of shares that exchanged hands in a single day. Key Words from this lesson: Volume , Shares Outstanding . Note: an exceptaionally large volume traded in a single day may indicate that the stock price is at a peak or a low point.

For a long term investor, it is important to know that the company that you are investing in is able to invest their profit back into the business well and deliver good Book Value growth (in addition to steady Dividends). Hence, another number to watch out for is the Return on Equity . Return on Equity = Net Income / Share Holder Equity or in term of pershare numbers Return on Equity = Earnings per Share / Book Value per share Notice that with bond investments, you always get back the par value plus all the interests over the years when the bond matures. However, when you invest in good companies, not only do you get dividend payments over the year, you can also benefit from Book Value growth as the company reinvest its earninings every year.

After we have determined that a company is Stable, Understandable, Predictable ,  and can manage debt well , how exactly do we figure out how much the company is worth? In other words, how do we calculate the Intrinsic Value of a business? You should also have some understanding of bonds before attempting these calculations. The idea is basically to judge how much of the Earnings (EPS) translates into Book Value growth and Dividend payout over future years (taking into consideration the amount of debt to pay off, future economic characteristic of the sector...etc), this is your expected gain.  On the other hand you have the expected gain of a fixed cash type investment (bonds or bank accounts that has negligible risk). You can then compare the two and work out for the same amount of money, how cheap the stock has to be in order to give you the same or better returns than the fixed dollar alternative- to make it worth while to invest in stocks rather than ...

Key Words from this lesson: FED (Federal Reserve), Market Condition & Interest Rate , Currency , Asset Valuation . What does the Fed do? - Maximize employment and stabilize prices. - Supervise and regulate banks. - Maintain stability of the Financial System. - Service debt for the US Government. Interesting Facts: - Before 1913, the US had over 30,000 currencies in circulation. - The FED is actually an independent institution, with government regulation and supervision. Market Conditions and Interest Rate: - In a bull market (leading to a greed cycle) the Fed can raise interest rate to try and calm the market. - In a bear market (a fear cycle) the Fed can cut interest rate to try  and stimulate the market. Market Condition and Investments: Typically investors can compare the relative yields of investing in bonds/stocks, to decide which offers more attractive returns. - When interest rate is high, it is advantageous to buy bonds. Bond Coupo...

Key Words from this lesson: Interest , Compound Interest , Coupon Yield , Current Yield , Yield to Maturity .

Key Words in this lesson: Corporate Bond , Par Value , Term , Coupon Rate , Underwriter's Fee , Government/ Treasury Bond , Local Government Bond , Inflation , Interest Rate . In the event of a bankruptcy, the order of equity distribution is: 1. Bond holders. 2. Preferred share holders. 3. Common share holders. Key Words in this lesson: Par Value , Coupon Rate , Term , Market Price , Basis Points . Long term bonds with good coupon rates become attractive when: - The stock market is overpriced and the yield is only similar or worse than bonds. - The interest rate is unsustainable high. When the interest rate is high, the market prices of bonds are low. When the interest rate falls, the bond prices rise with higher demand. (Note: There are some exceptions. For example, in recent years Governments have been purchasing bonds through Quantitative Easing programmes (i.e. printing money). This artificially suppresses bond yields whilst interest rates have al...

Key Words from this lesson: Market Cycles , Market Psychology , Greed & Fear human instincts. Worth noting ideas: - Invest based on knowledge rather than emotions. - Accumulate shares (based on Value and Price ) rather than trading regularly. - Be greedy when others are fearful and be fearful when others are greedy. - In longer term , value of a good business becomes absolute.

A stock must be stable and understandable if you were to have any chance of predicting its future earnings. And if you don't know how much money the business will generate, then you can't really make an investment decision. Key Words fro this lesson: Stable , Understandable , Predictable , Historical Data , Earnings Per Share (EPS) , Debt to Equity ratio .

There are tax advantages for holding on to your investments for longer periods of time. This is a good to know, but not the main focus of this series of blog posts. What's important is that by investing in a good business over a long term, not only do you get dividends along the way, there are often retained earnings that the company keeps and invests back into the business for growth - which in due course improves future earnings in a virtuous circle.  Keywords: Retained Earnings , Capital Gains Tax .

Instead of looking at how the market price of a stock is going up and down, a better indicator for your investment risk is how much debt a company has. Important Keywords from this lesson: Debt to Equity ratio tell you how much debt there is relative to net asset (typically <0.5 is acceptable). Current Ratio tell you the inflow and outflow of cash in the next 12 months, and if there is likely to be needs for new debts. This ratio is not normally shown on websites but is simply the Current Asset (asset likely to be sold in the next 12 months) / Current Liability (debt that has to be repaid in the next 12 months). Typically current ratio > 1.5 is a good sign,

Key Words from this lesson: Financial Risks , Debt , Price , Understanding of Value . Financial Risks in investments can arise from: - Too much debt . - Overpaying with a high inital price . - Lack of understanding of the asset's true value . Important Points: - Debt is borrowed capital to speed-up time (for expanding businesses, make big purchases...etc). - Volatility does not equal to risk for a long term investor, it presents buying opportunites when the price of an asset become undervalued. (It only become a risk if you are forced to sell at a bad price, which can be the case if there is excessive debt - for a person, a comapny, or a country). Great Quote: - Only when the tide goes out do you discover who's been swimming naked. - Price is what you pay, value is what you get.

Key Words from this lesson: Fundamentals , Market Price , Earnings , Bookvalue , Patience , Price to Earnings ratio , Price to Bookvalue ratio . Key Points from this lesson:  4 Rules when looking to buy a business : - pick a stable, understanable business . - pick a business with long term prospect/ enduring economic characteristics . - pick a business with good managers that can also handle debt well. - only buy a business if it's at a good/ reasonable price compared to it's intrinsic value.  Other points : - think for yourself. don't follow because "others are doing it". - typically a reasonable PE should be less than 15. - typically a reasonable PB should be less than 1.5.