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AS IRON SHARPENS IRON RSS Feed

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AS IRON SHARPENS IRON.....

"AS IRON SHARPENS IRON, SO ONE MAN SHARPENS ANOTHER."

This verse is found at Proverbs 27:17 and speaks of the way in which we are to challenge each other and together become more than we would individually.

A verse that applies similarly is Proverbs 15:22,

"WITHOUT COUNSEL, PLANS GO AWRY, BUT IN THE MULTITUDE OF COUNSELORS THEY ARE ESTABLISHED."

One of the main benefits I hope we gain through this board is to become better investors and thus see a better return in our investment choices. There is little doubt that we all view the companies we invest in from a limited and biased perspective. Of all the stocks out there, each of us are exposed to only a certain number of them. For the most part we all make decisions based on our perceptions, experiences and understanding. For the most part we have come to these from the available public information.

The goal of this board will be help each other more accurately evaluate the companies we are invested or are thinking about investing in. If it is truly a good investment, you should be able to convince others and adequately answer the questions others might have. If you are not able to convince others and/or answer their concerns, it should help you to make a more accurate appraisal of the company.

Now as this board is being started by a professing christian, I think it is important that one has a biblical or at least a moral view of investing as such. Fundamentally, investing is placing investment capital (money) at risk in exchange for equity (stock) in a business venture in hope of sharing in the company's eventual success and increase in value.

Part and parcel of this will be attempting to invest only in real companies that have real prospects for a bright future. While we may or may not see rapid appreciation, if we own part of a successful company, we will make money longterm 100% of the time (see Peter Lynch's Rule #5).


 


 

INVESTOR INFORMATION AND LEARNING BOARDS

I thought I would provide some links to a couple boards that are educational in nature and provide a helpful insights to understand the investment process:

MONEY 101
This board was started by lowman. He has hit many nails squarely on the head. If you read and remember what he has taught, you will be saved from making a bunch of mistakes.

http://investorshub.advfn.com/boards/board.aspx?board_id=7489

Charlatan's Learning Board
(Chad has been permanently banned, but his Ibox has good information.) I don't wholly agree philosophically with the "trading" nature of his advice, but there are clearly some wisdom in realizing profits when their available.

http://investorshub.advfn.com/boards/board.aspx?board_id=9884

CHRISTIAN AND INTEGRITY BASED BOARDS

BIBLE board is probably the most othodox Christian witness (at least from my perspective) on IHUB.  I've not had much opportunity to keep up and contribute to this board, but when I do it is always edifying.  Thanks to excel and tenac there is never a shortage of godly exposition and Scripture there.
http://investorshub.advfn.com/boards/board.aspx?board_id=424


ETERNITY This is a place to discuss and debate various questions about the Christian faith and Bible.
http://investorshub.advfn.com/boards/board.aspx?board_id=8534
 

H.I.S. Stock Chat/Ethics (Honesty, Integrity, Service) Copyrighted
This board is moderated by brentjanice and visited by a host of major IHUB players. If you have a question about a particular stock, post it here and someone will probably find you an answer. Plus each December there's a Stock Picking Contest that reveals which stocks people have the most confidence in for the coming year. I am actually the one who posts the monthly contest results. It has been intersting so far.
http://investorshub.advfn.com/boards/board.aspx?board_id=6256


 



HELPFUL LINKS

Managing Capital Gains to Maximize Profits
http://www.fairmark.com/capgain/index.htm

Free Level 2 Delayed Quotes (and other valuable links):  [ LINK HAS BEEN BROKEN---anyone have one that works????]
http://www.allstocks.com/html/free_level_2_pink_sheet_stock_.html


More Links coming!
 




FOUNDATIONAL PRINCIPLES USED ON THE "AS IRON SHARPENS IRON" BOARD

Among the general principles that I utilize as well as try to invest are those set forth by Bill Matthews of The Cheap Investor newletter and Peter Lynch, of Fidelity Investments fame. I don't plan to discuss their particular recommendations, but rather establish a discussion board to evaluate the sort of stock picks they would make.



Bill Matthews Cheap Investor Philosophy
1. An educated investor is a successful investor.
2. Invest in a company, not a market.
3. Don’t be a jack of all trades and master of none: specialize.
4. Don’t fall victim to the greed-fear trap.
5. Avoid high priced stocks.
6. Controlling larger amounts of shares will translate into higher profits.
7. Always look at the profits and losses in percentages, not in dollars and cents.
8. Buying a stock near its low is key to your profit.
9. Patience can pay off profitably.
10. Buy your stock when no one wants it, sell it when everyone wants to buy.
11. Never sell a stock in December in order to take a tax loss.
12. Don’t take anyone’s word for it. Investigate before you invest.
13. Follow your stock price so you don’t miss major profit opportunities.


FYI, my dad and I have subscribed to the CHEAP INVESTOR newsletter for many years. It has been rated as the #1 Investment Newsletter for the last Five Years (see link on his site). While he sometimes recommends buying a stock too early...in that it continues it's downward trend, he generally recommends sound companies, many of which do well over time. Upon request he will send you a sample copy of his newsletter. Here is a link to his website:

http://www.thecheapinvestor.com/

Here are two images from his site: an image of the first page of his newsletter and then one of his latest book, Making Big Money in Small Stocks: Beat the Street with stocks under $5.00.






PETER LYNCH'S 25 GOLDEN RULES:
Peter Lynch books were some of first ones that I read when I was trying to learn about investing. Many of the 25 Golden Rules are practical and logical. Much of so called investing, is not really investing. It is more like gambling....it is hoping for quick returns in a volitile market. Ideally, while it can include some of this, true investing is buying and holding equity in companies that are successful in carrying out their business plan, hopefully in a profitable manner. Here are a three books that I know about (published in 1990, 1993, and 2001 respectively):







Rule 1: Investing is fun and exciting but dangerous if you don't do any work.

Rule 2: Your investor's edge is not something you get from Wall Street experts. It's something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.

Rule 3: Over the past 3 decades, the stock market has come to be dominated by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.

Rule 4: Behind every stock is a company. Find out what it's doing.

Rule 5: Often, there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long-term, there is a 100% correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.

Rule 6: You have to know what you own, and why you own it. "This baby is a cinch to go up" doesn't count.

Rule 7: Long shots almost always miss the mark.

Rule 8: Owning stocks is like having children - don't get involved with more than you can handle. The part-time stockpicker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don't have to be more than 5 companies in the portfolio at any one time.

Rule 9: If you can't find any companies that you think are attractive, put your money in the bank until you discover some.

Rule 10: Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.

Rule 11: Avoid hot stocks in hot industries. Great companies in cold, non-growth industries are consistent big winners.

Rule 12: With small companies, you are better off to wait until they turn a profit before you invest.

Rule 13: If you are thinking of investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. Buggy whips and radio tubes were troubled industries that never came back.

Rule 14: If you invest $1000 in a stock, all you can lose is $1000, but you stand to gain $10,000 or even $50,000 over time if you are patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, you lose this advantage of concentration. It only takes a handful of big winners to make a lifetime of investing worthwhile.

Rule 15: In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them.

Rule 16: A stockmarket decline is as routine as a january blizzard in Colorado. If you are prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.

Rule 17: Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.

Rule 18: There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company's fundamentals deteriorate, not because the sky is falling.

Rule 19: Nobody can predict interest rates, the future direction of the economy, or the stock market, Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you have invested.

Rule 20: If you study 10 companies, you will find 1 for which the story is better than expected. If you study 50, you'll find 5. There are always pleasant surprises to be found in the stock market -- companies whose achievements are being overlooked on Wall Street.

Rule 21: If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.

Rule 22: Time is on your side when you own shares of superior companies. You can afford to be patient - even if you missed Wal-Mart in the first five years, it was a great stock to own in the next five years. Time is against you when you own options.

Rule 23: If you have the stomach for stocks, but neither the time nor the inclination to do the homework, invest in equity mutual funds. Here, it's a good idea to diversify. You should own a few different kinds of funds, with managers who pursue different styles of investing: growth, value small companies, large companies etc. Investing the six of the same kind of fund is not diversification.

Rule 24: Among the major stock markets of the world, the US market ranks 8th in total return over the past decade. You can take advantage of the faster-growing economies by investing some portion of your assets in an overseas fund with a good record.

Rule 25: In the long run, a portfolio of well-chosen stocks and/or equity mutual funds will always outperform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won't outperform the money left under the mattress.


 APPLYING INVESTMENT PRINCIPLES TO INDIVIDUAL STOCKS.


JOHN302's OTCBB Lessons Learned From the School of Hard Knocks

original post can be found here:  http://investorshub.advfn.com/boards/read_msg.aspx?message_id=30872866   These are my personal guidelines for determining how attractive a particular OTCBB security is. How does YOUR favorite OTCBB company stand up to these requirements? Compare it and let us know!

  • Under 100M A/S and preferably under 50M O/S. Fully reporting otcbb, NO PINKIES unless it is a stock trading simultaneously on a senior exchange in another country.
  • Insiders buying or have bought their own stock.
  • Actual (and growing) revenues, not just "plans" for revenues. If the company is not yet profitable, they must have a clear near term path to profitability.
  • No paid promotion.
  • The company has to have the potential to be substantially bigger than it is today. No tiny "niche" business...but a potential very large company. You can't uplist even if you are a real otcbb company, if you can't get the company big enough! Not to mention the whole advantage of investing in microcaps is the possibility they will become a large(r) cap.
  • Quality management with high insider ownership, 20% or more (preferably more). The management have to be experts in their fields, and have no history of managing now-defunct or bankrupt stocks.
  • Has to make sense macroeconomically. Has to be in an industry growing so fast that there is enough room for the company and its competitors to eat, or a new (small) growing industry where is is one of the bigger fish already.
  • Stock is not well known. While this can mean illiquidity, it lets you accumulate for the demand that will come when the company is bigger.

So what are my favorite OTCBB stocks? Of the ones I own as of 7/23/08, BOBS, DSNY, and CIWT. I don't own AYSI, but that stock looks attractive on any pullback. Do your own DD on any stock I mention, it doesn't constitute investment advice or reccomendation. I'm just an amateur private investor like you, and I'm completely fallible! What I do want to do here is share my lessons and mistakes so that you don't have to repeat them. I've had multibaggers and busts as well, as I'm sure many of you have. Together lets shift the ratio towards multibaggers and away from busts, as iron sharpens iron.


JOHN AND RANDY'S CRITERIA FOR MICROCAP STOCK EVALUATION

Each of these Criteria will be worth a maximum score of 10 points:

  1. SHARE STRUCTURE:  There are very few companies with over 100 Million Shares that will ever fundementally justify a higher stock price.   Revenue and earnings are what valuations are based upon.  P/E ratios are based on earned income.  ON the basis of Share Structure, various factors will enter in:  What is the authorized?  Issued?  Has company recently gone through a reverse split?  Upper limit: Under 100M A/S and preferably under 50M O/S.
  2. TRADING EXCHANGE: Fully reporting otcbb, NO PINKIES unless it is a stock trading simultaneously on a senior exchange in another country.  If management is serious about full disclosure and building a successful company the Nasdaq Bulletin Board is the bare minimum.   Is Company meeting the requirements of current or next indix?
  3. INSIDER ACTIVITY/OWNERSHIP: Are Insiders buying or have they bought their own stock? If insiders are not buying,  supporing, and holding shares of the company, why should investors?  We would like to see companies with insider ownership of at least 20%.
  4. DEBT STRUCTURE/DILUTION/CASH FLOW:  Minimal dilution. Companies that have diluted in the past will almost always dilute in the future.  If company has convertable debt, it should be clearly documented.  Ideally, the money raised by going public or the capital raised via a capitalizing Private Placements will have enabled the company to successfully carry out its business plan.  If it doesn't have a business plan that makes sense to you, don't invest in it.  I've added cash flow because so many small companies become necessarily dependent on new capital to continue their existence.  When this combines with a low stock price it can end with death spiral financing with no way out.
  5. REVENUE GENERATION/MARGINS/PROFITABILITY: Developmental stage companies are the most risky sort of companies to invest in.  It is much safer to invest in companies that have actual and increasing revenues, not just "plans" for big revenues somewhere in the future.  Next to revenue generation one has to examine margins, cash flows and profitabilty.  If any of these are compromised, we can anticipate trouble down the road.  While most small companies need to use whatever profits they can generate to grow, there has to be gross profits for this to happen.  If there net income, is it growing in pace with revenues?
  6. PROMOTION: We should probably call this NON-PROMOTION.  In at least some respects, no paid promotion is best. Penny pumpers might increase exposure, but ultimately hurt the stock.  If the company is giving away hundreds of thousands or millions of shares to promote their stock, you can be pretty certain that the share price will only go up so long as the promotors have shares to sell.  While getting their story out is important, how they do it is equally important.  Do they use objective means like Dutton Associates and Red Chip Companies, or biased paid for "expert" reports?  It is also worth noting how promotion is paid for.
  7. GROWTH POTENTIAL: The company has to have the potential to be substantially bigger than it is today. No tiny "niche" business...but a potential very large company. This is what it takes for a company to be truly successful in the business world.  Does it really have the potential to become a full NASDAQ or AMEX or even a NYSE stock?  Minimal sustained revenue is $50 Million.   And don't forget the minimum share price requirements of $2 of $5 per share.  You can't uplist even if you are a real otcbb company, if you can't get the company big enough!
     
  8. MANAGEMENT SKILL/HISTORY: Quality management generally has a track record.  Do they know what they're doing?  Are the leaders in their fields?  What have they accomplished in the past?  Are their results superior or at least comparable to peers in similar companies? The management should to be experts in their fields, and have no history of managing now-defunct or bankrupt stocks. 
  9. MACRO-ECONOMIC SENSE:  Has to make sense macro-economically. Has to be in an industry growing so fast that there is enough room for the company and its competitors to eat, or a new (small) growing industry where is one of the bigger fish already.  If company successful builds up revenues and earnings, will it likely become a buy-out target or will it be able to acquire other companies itself?
  10. TRADING VOLUME/RANGE:  Is the company well known or undiscovered?  While a thinly traded stock can mean illiquidity, it lets one accumulate for the demand that will come when the company is bigger.  I would also factor into this criteria trading history, volume, highs and lows.  Is upward stock movement likely?

 Randy's Favorite Stock:  Dynamic Response Group (DRGP.OB). 

John's Current Stocks:  BOBS, DSNY, and CIWT and  possibly AYSI

 Key: Randy/John

Grading Scale:      1                2                3                4               5                6              7               8                9                  10

                           Horrible       Poor                 Fair                 Average             Good               Impressive                  Exeptional

91-100   Strong Buy
81-90     Safe Buy
71-80     Worth Watching
=< 70     Not Worth Watching

 

Stocks Total Pts.
(Randy/John)

1. Share Structure 2. Trading Exchange 3. Insider Ownership 4. Debt Dilution/Cashflow 5. Revenue Gen/Profits 6. Promotion 7. Growth Potential 8. Managemt Skill, History 9. Macro Economy 10. Volume/ Trading /Price
DRGP.OB  84/    7/ 8/ 7/ 7/ 10/ 8/ 9/ 9/ 9/ 10/
GTEC.OB   85/ 5/ 8/ 10/ 5/ 10/ 10/ 10/ 9/ 9/ 9/
                     
BOBS.OB   90/ 10/   8/  10/  9/ 9/  10/  9/   9/  9/ 7/ 
DSNY.OB   76/ 7/   7/  8/ 5/   7/  10/  9/ 8/   8/  8/
CIWT.OB     80/  10/ 7/   7/ 8/   8/  9/  8/  8/  9/  6/
AYSI.OB    92/ 10/   9/  10/ 10/  10/   9/ 9/   9/ 10/   6/

 Randy's Assessments of BOBS, DSNY, CIWT and AYSI are somewhat cursury---based on impressions and data from Yahoo Finance and SEC Filings. 

 

 Historic Record of Recommendations

 

 

 

Stock Pick Rec'd  Price Current Price Change % Gain/Loss
DRGP  84/ .025 DRGP    
 DSNY 76 .38   DSNY    
         
         
         
         
         

 CUT AND PASTE STOCK EVALUATION GRID:

COMPANY XXXX.BB

1. SHARE STRUCTURE ----------------------------
2. TRADING EXCHANGE-----------------------------
3. INSIDER ACTIVITY/OWNERSHIP---------------
4. DEBT STRUCTURE/DILUTION/CASH FLOW--
5. REVENUE GENERATION-------------------------
6. PROMOTION---------------------------------------
7. GROWTH POTENTIAL-----------------------------
8. MANAGEMENT SKILL/HISTORY-----------------
9. MACRO-ECONOMIC SENSE---------------------
10. TRADING VOLUME/RANGE---------------------

Total -----------------------------------------------------

 

 

 

 

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