InvestRationale: My 2009 approach during the middle of the crisis

Top 5 market facts as we go in for fresh round of buying

• Financial/credit crunch impact uncertain – credit card and commercial porperty still to unfold in the US so also GM outfall

• Market rally surprising (early) as US fundamentals are not rosy – probably cash on sides coming in – to not miss rally

• Emerging countries market finaly moving ahead of the US

• European markets will be the slowest to come out

• The fall of the USD has begun – the substitute is yet to be found

“Call” on the economy and the world for next 12 months as we “sputter” here in the West

• The US consumer is not coming back to the mall for another long period – and when she comes back, she is not going to spend as much so the highs of the past for the market will be a much slower road to get to in the US

• Among emerging countries, the N-11 (Pak, Bangladesh, Viet, Eastern Europe etc) and export focussed smaller Asian countries will suffer as long as the US is down. Read atleast 9 months.

• Brazil, India and China will see run-up in the stock market but India's will be the 1^st to fade; if world economy picks up, Brazil will go on else it will soften too, China will have the longest run up

• USD has begun its fall but it wont be very sudden moving beyond May for a while as the substitute is not yet firmed up (In 12 months, Yuan won't go convertible; Asian currencies will doctor themselves to come back to the exporting ways so won't raise themselves against the $, multiple currency/commodities may start replacing the USD but slowly, Euro ain't getting stronger on its own unless China or mid East support it which China won't given the huge US papers it has; plus all economies are inflating themselves to some extent); but finally after the next forecast period, I will again look for the signs of the eventual collapse of the USD against commodity currencies (CAD, Rand, AS$) and emerging currencies .... US cannot get away without big taxes or hyper-inflation both of which will drive the USD down

So how do we play in next 12 months - buying

• More aggressive portfolio – combination of equity and property

• Only ETFs for equity for this period

• Pension fund gives exposure ot industrial countries, big to US and huge to Canada – no more deliberate investment here beyond pension and existing equity linked GICs – the continued pension investment will guarantee that we don't miss out on any “surprise” upside to these markets or if these advanced markets don' rise, atlesast we would have them at relative lower valuations

• Geo exposure increased for:

1. Gulf

2. Africa

3. Lat Am (already done with Brazil, so hold off)

4. India (already done so hold off)

5. China – through East Asia or small caps (when price more attractive)

• Invest in agriculture, water (at right levels)

• Add to Telco and IT (prefer in developing), energy incrementally

• Buy commodity (mixed) if it goes a bit low

• Monitor housing REITs – US homes, China and Asia property

• Start watching for transport, shipping if real economic good news starts coming in (refer to background on detecting US economic indicators)

• If good times come back, buy Global Consumer Staple ETF when people move money out and sector gets beaten and dividend payers such as Colgate, Nestle are attractive again

• Now, we buy property in India, and look for investing property in any but the US $ denominated US propert market

So how do we play in next 12 months - selling

• Stick to old Rules of selling

Our investment rules for equity market reiterated

• Shall not pay management fees to the extent possible – Indexes, ETFs or direct stocks (very rare) only

• Investments will be made with a mid to long term perspectives, not short

• Money will be lying in easy float in e-Trade to capture any panics (e.g. temporary fall) in markets or shares we believe in even if notional loss sensed

• We will not over-diversify our portfolio but we will buy “attractive” sectors and geos and keep acculmulating – sticking to a mximum of 7 themes – we may rotate choice of investments in accordance with business cycles and sentiments there will be a maximum of 20 individual ETFs and stocks at any given point

• For individual company buys, we will buy only if

  • We know something special about it – due to sectoral knowledge through our main profession

  • Company must be profitable for the past 2 years

  • Operating cash-flows are regularly rising

  • Something unique to offer to the market

  • We understand the market, customer needs and general direction of the company

  • There are no major know litigation challenges

  • After quantitative checks (see below)

  • If Hi-tech unproven companies (additional criteria): Uniqueness of model, Mgmt background - Israel, IIT, MIT, Entrepreneurial hunger, Makes life or business easy SIGNIFICANTLY

• Quantitative factors to consider while buying individual stocks

  • Price to cash flow (income – depreciation + amortization) very well rewarded in the market

  • Large caps with low Price to Sales do well

  • Dividend yielding large caps do well

  • Low price to book rewarded, not Price to earnings

  • Is there price momentum for a year or 2

  • Conservative ratios: debt to equity <= 1.55, CR >= 2, QR >= 1 ;

  • Safety net asset value = (CA – CAL – LTD) / Number of shares below 1/3 is a steal

  • Long term earnings over 5 years; average over 5 years versus current earnings

• Smart advice to keep in mind

  • EPS, EPG Growth > inflation, payroll/ revenue

  • Qualitative (ugly duckling, spin-off with low attention, Porter analysis, defensive, lower analyst coverage, faster growth in dull industry)

• When to sell

  • 25% upside within 2 years – if still good, come back when pull back occurs; if we believe in the continued grwoth story of the security, we will still sell 50 % of the security at the 25 % rise

  • Valuation has changed completely

  • Perspective for buying initially has changed to the negative

  • Too many analysts covering it as “hot tip”

• While picking individual stocks, additional criteria, heed Zell:

  • Company should have “staying power"--in other words, that there will be continuous future demand for their product.

  • He particularly likes situations where he does not have to spend any money on marketing because consumers already have a need for what is being offered.

  • Management must be aligned with shareholder interest. At its most basic, this means that management should own large positions in the company’s stock. Still, management that is obsessed with stock price is worrisome. I want them to obsess about the business.

  • Avoiding companies that have anti-takeover devices.

InvestRationale: My 2008 approach - mid year review

July 2008 analysis

Re-visited the portfolio and re-considered the market factors, altering the investment mix. At that time, in July 2008, view was:

Top 5 market facts as we go in for fresh round of buying

* Oil price uncertainty to continue – wide ranging estimates

* Financial/credit crunch impact uncertain – new revelations, bank crash speculation

* Emerging countries disentanglement with US not as good as previously thought on stocks, but economic disentanglement will be real

* Money fleeing equity market towards commodities, bonds and sitting in low interest cash

* USD has fallen but there is uncertainty as to how much bigger the fall will be

"Call” on the economy and the world as uncertainty continues

* Oil price will go down in the coming 2-3 quarters dramatically (go to 60) and come back after the fall. Factors that have driven up oil in my view from highest to lowest and my forecast for each:

1. Speculation and lack of alternative investments, so “hot money” chasing oil and commodities – this will move out the moment other modes of investment return to normalcy

2. Subsidies in Venezuela and Middle East drastically distort consumption especially as people feel rich – this wont change significantly hence the return to low 100s price after dramatic fall in oil price

3. Perception that demand is huge – this wont hold too long as subsidies in Emerging countries will get chopped due to inflation and huge subsidy loss currently undergone + my belief that US consumers will make real changes to reduce consumption

4. Mid-east tension especially Israel attacking Iran – this will reduce as reality of an attack diminishes

5. Perception that supply is constrained – this will continue to be a factor as we have no clear reality check on Mid East oil, the largest supplier and there is continued under-investment despite price rise in middle East

* The global financial crisis will ease in 2-3 quarters and the write-offs in the banks in reflection will look very large when people look back a year out

* The US consumer is not coming back to the mall for the next 12 months nor are they traveling or buying homes despite whatever happens. Period.

* Among emerging countries, the N-11 (Pak, Bangladesh, Viet, Eastern Europe etc) will suffer as long as the US is down. Read atleast 12 months.

* Amongst the BRICs, Brazil will continue its story of upward growth, Indian and Chinese stock markets will be pessimistic for another 2 to 3 quarters and can see negative trend too, not just flatness as inflation and probable interest rate hikes dents them (see backgrounder on inflation below that I believe in)

* USD wont see further significant erosion for next 18 months as Euro falls (economy set to tank there), Asian currencies are kept low and Commodity boom sizzles

So how do we play in next 12 months - buying

* Only ETFs for sectors + 2 stocks MAX

* Pick US Defence ETF – when average of top 5 P/E less than 15

* Pick as Financial ETF (global preferred?) – confirm P/E less than 12 for top 5 holdings

* Pick Middle East ETF

* Confirm time for Technology (Internet services, internet infrastructure or communication sector invested in tapping new world economy) ETF

* Transport – follow Warren or CP or CN – when things get hit due to slowdown

* One pure risky 10 K play - Water or alternative energy or both – narrow on ETF

* Pick a staple – Nestle or Lever (later), ETF NOW

* Narrow on Health theme to follow and pick ETF – Global ? Sub-sector

* Track Brazil ETF, at slightest respite or LatAm once commodity craze subsides

* Pick India, after 3 quarters and trip to India

* Pick Spanish ETF if LatAm component high and average P/E sensible (below 15)

* M&E play or travel play as stocks continue to get beaten

* Pick an India infrastructure play after India visit

* Pick A US and a European global infrastructure or engineering player if not ETF

* Pick luxury ETF after “forecast” murder in 2008

* Pick oily ETF (from Canada?) once price crashes

* Pick Agricultural ETF when price comes down

* Think about parking portion in Target Date funds

So how do we play in next 12 months - selling

* Sell China and Pacific Play at 1st rise back above 25%

* Sell anything that has increased by 30% for old holdings and 25% for any new buys

InvestRationale: My 2007 approach, corrective actions and tweaking the outlook

By mid 2007, it was time to re-look at the portfolio, adjust it and update the view on macro factors to consider. Here is my 2nd take at investment in my notes to my wife on the subject Analysis of our portfolio: over/under-exposure by sector/economy/type of companies - 2007

• Greater exposure to growth of emerging countries (especially of China) than of US, Europe and Japan
• Success of current portfolio dependent on China/Pacific – very high; Canada – very high; US – medium to high; India – medium; Latin America – low to medium; developed Europe – low to medium ; low to medium; Japan – low to medium; Eastern Europe – absent; Africa – minimal; middle east - absent
• Oil & gas play very significant; materials are a step behind; tech - 3rd and fin – 4th
• Good strong largely stable techs
• Minimal health; low on discretionary, consumer, staples, durables, low on pure infrastructure, no significant bets on cutting edge unproven tech, bio-sciences,
• Large caps play almost completely globally, in US or in Canada; Significant dividend play story except MDA, PD, TLM

Factors about the stock market to consider as we go in for a fresh round of buying – reflecting on analysis made earlier (most of which did very well)

• Bull run for 4 years currently on; typical runs are for 3-4 years; is market on last legs?
• Or is it a long run like the 1950s and the 1990s – that is the trillion $ question
• Bearish view– too many people chasing gains, making riskier bets, M&A frenzy, emerging and foreign markets becoming larger part of the portfolios in the US and Canada households, US Housing market in reverse, deficit at the highest; oil prices will kill consumer and emerging country confidence; credit risk will move from Housing to Private equity to full market and the credit squeeze will slaughter us; democrats will ruin market especially Defence, health, energy in the US; Democrats will bring up trade barriers slowing global economy; China will be punished and costs in world economy will again rise as China’s deflator goes away
• Bullish view – US no longer runs the world, China, India and Asia matter and will keep the world up as they grow; Lat Am in great shape unlike before; Europe and even Africa doing well; mid-east – too rich so lots of money for equity available; current consumer data in US still up
• Humans in investing generally gloss over bad news and take more risks in market than they would in any other aspect of life
• We are young and can make a few mistakes and suffer losses in the immediate to mid term as long as our bets are real
• Most investment to be made will be in USD so currency loss could be a factor and prevent locking on gains or aggravate losses till USD rises against CAD; question crucial to answer
• One thing is sure that the market is nervous and there will be crashes at the smallest bad news and that will present buying opportunities so we need our portfolio ready for that bad day – the prepared mind like the furrowed fields prospers

My view of the world economy as a backdrop to the investment approach, based on some reading, some listening and the gut feel – 2007 analysis

• US economy has shown amazing resilience in the face of the bursting in 2000-01 of the biggest stockmarket bubble in history, of terrorist attacks and of a tripling of oil prices; flexible wages and prices, rapid immigration, a sounder banking system and globalisation as factors that have made the economy more resilient to shocks.
• Part of America's current prosperity is based not on genuine gains in income, nor on high productivity growth, but on borrowing from the future.
• As a result of weaker job creation than usual and sluggish real wage growth, American incomes have increased much more slowly than in previous recoveries.
• Central banks in Asia and oil-producing countries have so far been happy to buy dollar assets in order to hold down their own currencies. However, there is a limit to their willingness to keep accumulating dollar reserves.
• Given that consumer spending and residential construction have accounted for 90% of GDP growth in recent years, it is getting difficult to see how this can occur without a sharp slowdown in the US economy.
• Last year, emerging countries’ GDP grew in current dollar terms by $1.6 trillion, more than the $1.4 trillion increase of developed economies. And there is more to this than just China and India: these two countries together accounted for only one-fifth of the total increase in emerging economies' GDP last year. Vietnam, Brazil Russia, Middle East, Easter Europe and even other Asian countries are joining in. People are now talking of BRIC plus N-11 which includes Pakistan, Vietnam, Bangladesh etc
• Emerging economies have also become increasingly important markets for companies from the rich world. Developed economies' trade with developing countries is growing twice as fast as their trade with one another. Over half of the total exports of America, the euro area and Japan now go to emerging economies. The EU exports twice as much to them as it does to America and Japan combined.
• Of course, with half the world's output but five-sixths of its population, emerging economies still have incomes per head far lower than the rich world. Their share of exports has more than doubled since the 1970s. Over the past five years, they have accounted for more than half of the growth in world exports. On the other hand, their stock-markets still account for less than 20% of global capitalisation.
• Unlike many previous booms, the emerging countries’ current expansion has been financed largely by domestic saving rather than debt: their average ratio of foreign debt to exports has fallen and they have built sizeable forex reserves.
• However, some of the recent boom in emerging economies is due to three factors that may be unsustainable. First, rising commodity prices have given a fillip to producing countries, such as Russia, Brazil and South Africa. Second, low interest rates have reduced debt-service costs—especially important for Latin America, where the debt-to-export ratio is twice as high as the average for emerging economies. And last, exports have been boosted by America's strong import demand. This favourable environment cannot last: interest rates are rising, and American consumers cannot keep spending more than they earn. Emerging economies' energy-intensive heavy industries are also vulnerable to high oil prices. A saving grace is that these risks partly offset each other. A slump in American demand would reduce both interest rates and oil prices.
• Perhaps the biggest risk is that the boom may encourage complacency and reform fatigue. Yet further action is needed, from greater fiscal discipline to more flexible exchange rates. India an China are still leading the fight to keep economies closed.
• The future expansion of emerging economies will not follow a straight line. It is unavoidable that emerging economies are more prone to economic ups and downs and financial bubbles, as America was during its entry on to the global stage in the late 19th century.
• My pet concern re emerging countries - local political challenges, fear in Western World and reaction possible (highly probable)
• However, the long-run prospects for emerging economies as a whole look excellent, so long as their move towards free and open markets and sound fiscal and monetary policies continues. Get these basics right, and developing countries ought to outpace advanced economies. Because they start with much less capital per worker than developed economies, there is huge scope for boosting productivity by importing western machines and know-how.
• Globalisation is causing the biggest shift in relative prices (of labour, capital, commodities and goods) for a century, and this in turn is causing a significant redistribution of income. Low-skilled workers in developed economies are losing out relative to skilled workers. And owners of capital are grabbing a bigger slice of the cake relative to workers as a whole.
• As a result of China, India and the former Soviet Union embracing market capitalism, the global labour force has doubled in size. To the extent that this has made labour more abundant, and capital relatively scarcer, it has put downward pressure on wages relative to the return on capital. Throughout the rich world, profits have surged to record levels as a share of national income, while the workers' slice has fallen. Hence western workers as a whole do not appear to have shared fully in the fruits of globalisation; many low-skilled ones may even be worse off. But this is only part of the story. Workers' wages may be squeezed, but as consumers they benefit from lower prices. And as shareholders and future pensioners, they stand to gain from a more efficient use of global capital. Competition from emerging economies should also help to spur rich-world productivity growth and thus average incomes.
• The profits boom has been fuelled by globalisation. The emergence of China and India, with their vast, cheap labour forces, has weighed on labour costs in the West, as well as keeping a lid on inflation and interest rates. But there is a flipside. The demand for raw materials from China and other fast-growing emerging economies is now posing a threat to profitability, as commodity prices rise.
• Russian, Indian and Chinese stockmarket subject to significant fraud and manipulation as well as regulatory crackdowns.
• Fire in the belly to do better in East Asia, India, China, Eastern Europe.
• Less wastage in middle east – education, health and infrastructure being recognized as focus areas.
• China rules: Even though China is investing at the staggering rate of 46% of GDP, it is still running a net saving surplus, and that surplus is still growing. Savings, commodity prices, cost of goods, manufactured goods demand driven by it.
• Americans now save less than 1% of their disposable income, compared with a euro-area average of 10%. America's budget moved sharply into deficit, whereas Europe's public finances have seen less change. As a result, America's national saving rate is now below 14% of GDP, compared with over 20% for the euro zone.
• Europe has, in fact, made significant progress on economic reform in recent years. Germany's labour market has become more flexible and the country's social benefits have been trimmed. France's pension system has been overhauled. The market is already reflecting this good news and optimism in Europe.
• A reason for unusually low interest rates is that a large chunk of those surplus savings has been under the control of central banks, particularly in Asia. Thus far, these banks have cared less about risk-adjusted returns than about stopping their currencies from rising. The sustainability of America's deficit and the risk of a hard landing depends on whether they will continue to do so.
• Africa seems to be progressing at grass-roots but Africa and Middle East story not yet captured the market. This is an untapped story.
• Decision making at consumer levels in household very much in control of women and younger people with new tastes will be the other prominent group – various new segments popping up – niches are to be served.
• Entertainment taking up larger part of time of consumers and soon wallet share too in developed countries; entertainment and communication expenses will be even more prominent as people “surge” upwards in developing countries – not education or health as much.
• Baby boomers will cause a need for specialized training, knowledge coaches, recreational needs, health care, religious products in the Americas.

InvestRationale: My 2006 approach and rules for investing

1st of my 5-series post on how I have been looking at investing in equity since Dec 2006, when I decided to put my money where my mouth was and start learning investment with real $$$. In Dec 2006, on a flight back to India, I created this note for my wife on how we need to put our money to work. Since then, I have tweaked the approach. Now, I have decided to put my experience and changes made to my investment outlook in this very public forum in keeping with the title of my blog "Nothing Held Back". In 2006, focused on a quick country and quick sector view, moved to a very ETF centric investment approach and evolved 13 rules of investing for our equity holdings. Here is how I laid it out then: Country/region specific view – Dec 2006 US o Pros: Most innovative economy, largest economy, huge company profitability of late, inventory exhausting, potential investment in capital by cash rich companies, developed financial markets o Cons: High deficit, high debt, currency fall risk, housing price collapse, consumer confidence may get hit Western Europe (non UK) o Pros: 2nd largest economy, good governance of companies, developed financial markets, Government will step in to prevent run-away losses, excellent infrastructure, European stock markets already moving up and economy getting better o Cons: Ageing population, slow growth, stagnant policies, Euro costly (currency risk big), general sense of unhappiness will impact growth, extensive social protection, high tax wedge on labour income reducing the incentive to work, high non-wage labour costs, rigid employment protection and persistently weak domestic demand depressed the demand for labour Japan o Pros: 3rd largest economy, excellent companies in some sectors, banks re-structured, its Government efforts to directly boost economy, currency will not go down but likely up, brilliant technical capability, hard working quality conscious people, huge trade surplus o Cons: Ageing population, slow growth, China/US/Taiwan/Korea taking away its existing areas of dominance, oil dependent economy, resource starved, immigration low therefore wage impact, bad relations with neighbours India o Pros: fast growing economy, IT and service driven economy, young population, driving hard, optimism, realization that infrastructure needs to be focus area, entrepreneurial, scientific man-power, highly educated manpower coming in droves, significant expansion in the production of durable consumer goods including cars, scooters, consumer electronics, computer systems and white goods, Services, including airlines, banks, construction and small-scale private traders, as well as the public sector, accounted for 49.4% of GDP in 2001/02; Indian companies gaining confidence and striding globally o Cons: Oil dependent economy, political wrangling with left, slow reforms, lop-sided growth, endemic poverty, pathetic industrial infrastructure, India’s trade deficit rising. Although exports performed strongly, rising by 31.3% to US$78bn, imports soared by 42% to US$97bn, Two-thirds of India’s labour force works in agriculture which, with forestry and fishing, accounts for around 25% of GDP and most are on subsistent basis, agriculture monsoon dependent; service sector wages rising very fast; hubris of corporate chieftains Latin America o Mexico still a commodities driven country, could not capitalize on US relations, excellent literate population, endemically weak? o Brazil is a commodities story again; but seems the seeds of economic growth are growing deeper; market friendly socialist government o Peru/Chile : tourism, commodities driven – difficult to find vehicles to invest in South Africa o South Africa, best known for its precious metals, fruit, and wine, has in fact moved from an economy historically dominated by mining and agriculture to one where manufacturing and financial services contributes the larger share of GDP. o Mining, nevertheless, remains an important foreign-exchange earner: gold accounts for over one-third of exports. The main mined products include manganese, chrome, platinum, gold, coal and diamonds. o Agriculture, together with mining, continues to be an important provider of both direct and indirect employment. o Manufacturing accounts for around one-fifth of total GDP, but has faced significant challenges since the opening up of the economy to global competition. o Metals and engineering, especially steel-related products, drive the sector. o Services is the most important contributor to GDP, ranging from an advanced financial sector to a developing tourism sector, which has significant employment potential, and an active retail sector. o Unemployment is a worrying structural feature of the economy. With the official unemployment rate at 29.4%, creating sufficient jobs for the estimated 4.7m currently without jobs remains the most critical economic challenge in South Africa. The high unemployment rate has contributed to South Africa’s ranking as one of the most unequal countries in the world judged by distribution of income. Canada o Pros: leading G8 economy, excellent infrastructure, commodity rich, services sector accounting for over two-thirds of the country's output and providing employment for nearly three-quarters of the working population, NAFTA, good peaceful relations with almost all, taxes (personal and company) should go down or worse case remain at the current levels; water can be next “white gold” o Cons: US dependent, highly taxed, greying population, weakening manufacturing prowess, socialist tendencies, Quebec separatism moves can result in pressures on costs, minority Government can be unstable and not good for economy, lack of ambition Industry/sectoral perspective - 2006 1) Bullish: alternative energy, refining, infrastructure builder, gas and petrol tech, engineering consulting, defence, biometrics, security equipment, ports, high end containers, US religion, US sports at good price, genetics, staples, high end retail, metals, materials, pilot training and simulators, manpower consultants in 3rd world, video & wireless equipment, aerospace, mid end hotels 2) Neutral/watch/confused: communication service, internet infrastructure, health, brokers (or banks), transportation, Web 2.0 3) Bearish: Airlines, auto, ancillaries, building, building supplies Our rules to be in the game 1. Be humble when making gains – they may be fleeting 2. We must always remember rationality and economics are just some factors in driving equity; fear, paranoia, herd mentality, psychology, mass hysteria, politics drive these markets, albeit in short to mid term, long term fundamentals will triumph 3. Shall not pay management fees to the greatest extent possible – look for lowest cost of investment 4. Investments will be made with a mid to long term perspectives, not short 5. Money will be lying in easy float in e-Trade to capture any panics (e.g. temporary fall) in markets or shares we believe in 6. We may go along with advice from pundits but we will always take a few contra or unique bets 7. We will not over-diversify our portfolio i.e. we will not spread across all sectors – we may rotate choice of investments in accordance with business cycles and sentiments and bulk of our investments will be in 5 to 7 industries or plays (sector, region, segment) with a maximum of 20 individual buys (shares plus ETFs plus indexes) 8. For ETFs, the general rule would be to buy from: o Vanguard for US exposure and global generic o iShares for different countries o Powershares for exotic global and US sector offerings o Claymore for exotic bets no one else wants to take 9. For individual company buys, we will buy o Check industry – bear or bull o Company must be profitable for the past 2 years o If operating cash-flows are regularly rising o It has uniqueness in market o We understand the market, customer needs and general direction of the company o There are no major know litigation challenges? o After P/E and PEG checks o For Hi-tech unproven companies (additional criteria): Uniqueness of model, Mgmt background - Israel, IIT, MIT, Entrepreneurial hunger, Makes life or business easy 10. Quantitative factors to consider while buying stocks o Price to cash flow (income – depreciation + amortization) very well rewarded in the market o Large caps with low Price to Sales do well o Dividend yielding large caps do well o Low price to book rewarded, not Price to earnings o Is there price momentum for a year or 2 o Conservative ratios: debt to equity <= 1.55, CR >= 2, QR >= 1 ; o Safety net asset value = (CA – CAL – LTD) / Number of shares below 1/3 is a steal o Long term earnings over 5 years; average over 5 years versus current earnings 11. Smart advice to consider from others o EPS, EPG Growth > inflation, payroll/ revenue o Qualitative (ugly duckling, spin-off with low attention, Porter analysis, defensive, lower analyst coverage, faster growth in dull industry) 12. When to sell o Sees too much upside – market has embraced the scrip – take off and then come back when pull back o Valuation has changed completely o Perspective for buying initially has changed to the negative o Too many analysts covering a “hot tip” 13. Low cost players are attractive when o Scale o Location advantage o Regulation specific advantage