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23 December 2009
Dear Fellow Investor
I hope this mail finds you enjoying
well deserved rest after a year that was quite a roller-coaster ride.
In between all the all the friends,
family and eating I have started thinking of next year.
I am not big on forecasts of any nature
as there is s huge body of evidence that shows that forecasts are of
no use whatsoever.
What I do however do is look at what my
current thinking is and think of events what will surprise me.
This has allowed me to be prepared for
things that are outside my current investment view.
I think its an exercise you will also
find valuable....
Not just for investing but every aspect
of your life, as it stops you from becoming too focused on what your
current view on a subject is and forces you to expand it.
It is unlikely that things will develop
exactly as we think they would. But, having considered more options
allows us to assign probabilities to different outcomes and so better
prepares us for what eventually takes place.
Here are a view ideas for you to
consider.
|
Current View |
Surprise |
|
Lag in world economic activity as stimulus spending
declines |
World economic recovery continuing uninterrupted as stimulus
spending declines |
|
Earnings and margins stay low due to excess capacity and
lower demand |
Earnings and margins rebound to previous levels |
|
Country risk becomes a major theme with Japan and
Greece like problems popping up all over |
Country risk is a non-event |
|
Over-leveraged cyclical companies struggle with some not
surviving |
Cyclical companies recover along with the recovering world
economy |
|
Banks worldwide manage to escape extensive regulation
and breakup of “too big to fail” entities due to lobbying and
overstating their economic importance |
Public disgust and political pressure force a split between
bank lending and gambling activities as well as a break-up of “too
big to fail” banks |
|
The EU survives in its current form |
The EU breaks up as it it unwilling to bail out one or more
problem countries like Greece, Portugal, Spain, Ireland and maybe
Italy |
|
Cracks appear in China's economic miracle due to
over-stimulation of its economy, increased bank non- performing
loans and sluggish exports |
China continues to hollow out manufacturing around the world by
keeping its currency artificially low |
|
Oil price stays around $70 per barrel |
Oil over $100 |
|
The implosion of the commercial property market
continues with banks and landlords papering over the cracks while
hoping on a quick recovery |
The commercial property market recovers helped by economic
growth and increased demand for space raising rentals |
|
Due to world uncertainties the gold price remains at
around $1000 |
Huge drop in price because of global recovery |
As you can see I am still suspicious of
the worldwide economic recovery. Especially after the huge recovery
in just about all markets after the March lows.
Call me conservative, but I am more
worried about return of capital than return on capital.
In spite of me not believing fully in
the recovery, if you have followed my writing, buying undervalued,
well capitalised and profitable
companies that are not dependent on the capital markets you should be
fine.
And.....
Hopefully, like me
you still have ample liquidity to put to work should new
opportunities arise.
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At this point I do
not know if I will be able to put together another newsletter for you
before this year comes to an end so I would like to wish you...
A
really merry Christmas
and
a
Healthy
and Prosperous 2010
I appreciate your
continued support
Your counting his
blessings analyst
Tim du Toit
PS
If you have any questions about investment in general or if
my subscription service would be right for you, feel free ask me through my contact us page, it goes right to my personal
in-box.
I think you know by now that I'll give
you a straight answer. Your trust is worth infinitely more to me than
a sale ever could be.
P.S. A media company in the wrong country at the wrong time...
This month the company I found for subscribers is located in France.
In terms of the size of companies I look at its quite large with a market value of €1,72 billion.
The company owns the most popular television channel in one of the largest European countries but is also very active in new media channels including the internet, tablets and smart phones.
In spite of this, the market views it as an old media company that is soon going the way of the dinosaurs. However, when you look at its financial statements you will see what a great business it is.
Its balance sheet is solid with no debt, and it generates a high amount of free cash flow and profits. This enables it to pay a dividend of just under 7% that can easily be maintained and has room to increase.
When I recommended the company it was trading at 7 times free cash flow, 7,7 times 2010 earnings and 5,6 times EBIT to enterprise value.
I am sure you will agree this is undervalued.
To immediately get your hands on this value investment idea (for as little as €39) click here.
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