Document 6506735

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Copyright Agency Limited (CAL) licenced copy
Brief: INVESTWISE
Page 1 0 f 2
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SundayMail(Brisbane) Sunday18n/2004
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July 18, 2004
Smart Money Section, Page 98
How to pick'a winner
By JAMES DUNN
E
VERY
ralian
veals
stocks,
year, when the AustStock Exchange
reits best-performing
investors apply ~hat
peerless investment tool - hmdsight
-
didn't
buy
Consider
and wonder
why
they
them.
the
a Ciaea we want to DUy It,
the stock to buy and tImmg the
purchas~
mvesto~
10 best
performers
of the All Ordinaries index in
2003-04:Dragon Mining (+392per
pSivida
per
. cent),
Equatorial
Mining(+377
(+340
per cent),
cent),
Virotec
.
we ve te hnical analysis to tell us
weuse ec
'"
when to bu~ It, he says.
,
Mr Shamieh says tha~ cI:°osmg
International
cent), Pan Australian
(+311per
Resou:ces
manager
OpiSapproaches
lJapital.
"Simplistic
to fundamental
data don't work. A
stock on a PIE of 20 times earnings can be a better investment
than a stock on a P IE of five.
is only the start of the"
s task,
"Makmg
~
money
on
the,
s~o~k
All of the fundamental
are
inputs
to
wouldn't
buy
a decision;
a
stock
data
l:?ut
we
wIthout
market c~mes froz:n,m:aximIsmg meeting the management and
your profits and mimmIsmg your deciding whether we can trust
losses,
to,have
a stopthem investor
- whichtoisdo,"
diffic~lt for a
loss (aYou've
pre-setgot
sellIng
level),
I!1 'small
place to get out of the stock If
goes wrong
-
~ecause
,\~
some, WI
Roger Montgomery, managing
director
of
Sydney-based
Clime
(+286per cent), Redflex Holdmgs
(+269per cent), Hard~an Re-
go wrong, But I~ one ~oes right,
Asset Management, places great
sources (+268 percent), KImberley
Diamond
Compa?y
(+263 per
cent), Aristocrat LeIsure (+261 per
cent) and EpiTan (+241 per cent),
As a winnIng
stock rIses, ~r
Shamieh says Inve~tment
WIse
keeps the stop-loss m pl~ce, act:justing it upward: ~ffectively, It
- the return that is generated on
the shareholders'
equity (what
the shareholders
actually own:
the difference
between
total
Just one of those turbo-charged
performers would have added
considerable oomph to a portfolio. But how do you pick the
star-performing stocks?
becomes a stop-profit,
"Profit is only profit ~I:en you
sell. Having a stop-profit m place
protects the profit you've made
on paper."
assets and total liabilities.)
"It's
the most important
measure of profitability," he says,
"You can have a company where
profit is rising, but ROE is going
Phillip
Shamieh,
head
strat-
egist at website newsletter I~vestment Wise, should know: hIS
newsletter recommended four of
the above list - and another
three in the Top,20. He say:spi~king good stocks IS a combmation
of quantitative, fundamental and
technical analysis,
"We try to identify stocks that
are outperforming
their pe~rs
and the index; then we look at ItS
fundamental data to see whether
it looks comparativel~ cheap;
then we assess the quality of the
mana~e~~n~; and then,. on?e
you'vegot to ~etIt run.
Investors
often think
,
there are
fundamental criteria to look for
to pick cheap stocks: for exa~ple,
a single-digit
pri<?e/ea,r~mgs
ratio a relatively hIgh dIvIdend
yield'or a share tradin~ at a discount to its net tang:Ible asset
backing- in effect, selling for less
than it would be worth if the company were broken up tomorrow,
Professional stock pickers say
numbers tell you only so much,
"Good stocks aren't cheap, and
nor are cheap stocks necessarily
good," says Dean Fergie, director
of Melbo~r~e-~as~d .investment
emphasison the return on equity
down
-
which means the value of
the business is going ~o,wn. Yo,u
can have a company lIftmg theIr
NT A by buying assets - but the
ROE tells you whether they can
earn money on those assets:'
Peter Constable of MMC As~et
management in Sydney, says mvestors "shouldn't trust accou~ting earnings" - which ~eans ct:ISregarding the P IE ,ratIo, WhIch
comes from net profit,
"It's the cash flow you want to
be sure you're buying cheaply,
not the profit," he says.
)
Ref: 12523813
~~___,i~~_-,",~~-
/ ~T ..\
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MEDIA
Copyright Agency Limited (CAL) licenced copy
Brief: INVESTWISE
MONITORS
Phone: 0293184000
Page2of2
Sunday Mail (Brisbane)
Sunday 18n/2004
Smart Money Page 98
Circulation: 613,669
Size: 348.89 sq.cms.
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STRA TEGIST: Phillip Shamieh of website newsletter Investment Wise
Ref: 12523813