Happy New Year

After a long break, not a lot to say about a panic crisis selling period that still last and that probably will last for some more months.

We remember that historically there is a sort of strong correlation between economic crisis and market reactions and that normally, in the past, equity markets have started to clib and re gain part of the losses about six month before the "official" END of each economic crisis.

Most economists forecast an end of the economic crisis at the beginning of 2010, that would mean a possible begin of the recovery of the stock markets in mid/end 2009.

A lot of money have been lost during last year and half. Value portfolio is reflecting the stock market, and so, it has lost a lot of money too.

This does not mean that we are scared or fearful face to the market, because we know, we trust in the cycles of the hisory and we have hope in the future.

It is not false retoric, it is what we have learnt about LONG TERM investment and what Buffet has always tought to us.

Be Greedy when the others have fear, and stay away when the others are greedy.

Now, it is out of any doubt, the "others" have a lot of fear.

During this 2009 Value Finance portfolio will keep investing in the market, finding good horses that in the future will run again, stronger than before because they will have survived at one of the worst economic and financial crisis.

Let me finish this post, a post of Hope, with my best wishes for a quick recovery to one of the Genious of the last century. I will finish with his most known and famous quote:

"Stay Hungry, Stay Foolish"

Steve Jobs

Looking around while the storm is running

As we've seen in previous post, there is a big storm out there in financial markets.

Now European's have injected their 'doping' into financial system and today everything is deeply Green.

Of course, it is not injecting enourmous amount of money in financial istitution that you save the world economy. You simply say: "Ok guys, you've done an enourmous amount of mistakes playing with you derivatives and subprimes, but now I give you money and everything will be fine".

Only a stupid can believe that everything will be fine and as before.

For next months, probably couple of years, industries will slow down for lack of credits and costumer confidence.

As example: last week I was walking with some friends on a big Parisian "Marché" and some of them said: "No but I cannot buy, there is the crisis".

Persons who doesn't invest in stock exchange and they don't have loans, where saying that, just because TV said that there was the crisis...

Sounds strange uh?

Well, back to our business, let's see the following things:

-US are in decline, full of debts, with an huge number of poors and with an unemployed rate increasing day by day. Furthermore the Oil they need to push their industry is well on the hands of States as Russia, Venezuela, Iran, ... that cannot be defined as "strategic allies".

-Europe governments can put more cash, but, where are they founding it? Europe has a little weight in World economy and this weight is going to became more and more little according to many studies

-Emerging markets are training the world economy and thanks to wide land and huge populations will be more and more important during next years. China and India for manufacturing and Russia and Brazil for commodities (just to talk inside of the BRIC) will put the rules of economic growth.

In order to define a good global porfolio, with long term view, is extremely important to not forget these previous points and look as much as possible to companies which will be able to look at the emerging markets in smarter way that the others.

For these reason I strongly advice, as Strong Buy opportunity, some of the companies already presented in this blog: Areva, E.On for energy, LVMH in luxury, Visa for electronic payments. All these companies are looking at east with strong, long and deep presence in these growing markets, solid assets and a great vision!

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A special thanks to Carlo (http://carlofromparis.blogspot.com/), that by this post in forward will give to our Blog some of his Comics Creations. Best luck for his carreer in Graphics!! Because everyone should have the opportunity to invest his most important asset, Life, in what He/She likes and believes!

The Perfect Storm

Everyone who is reading this blog is interested in Financial markets.

Everyone interested in Financial markets well know what it has happened during last weeks. Stock Exchanges have been oversold and the result is a deep loss worldwide with billions of euros of capitalisation burnt up. Of course Value Portfolio accused big losses too.

I think it is not over.

But I also think that every storm like this brings HUGE buying opportunities.

Why? all over the World there are a lot of excellent, highly performing companies that are now trading at P/E ratio very low. That's the famous 'margin of safety' so much loved by Benjamin Graham and by his bes fellow. Buffett, who else?

Now that the "massive destruction weapons" have hit the markets (as forecasted by Buffett long time ago when he was talking about subprimes, derivatives and other exotics things...), it will be time for the new rise up.

There will be some enterprises, excellent, that they will recover all the lost terrain that means, for example, that who has lost 33% could make a plus 50% to recover.

Of course: we do not know if the storm is already finished or not.

I think that the crisis is not finished yet, at all. Today the stock Exchanges are in 'green' thanks to the 'world rate cut', but tomorrow? No one can predict what will happen. For sure there is still a lot of companies at risk (insurances and still other banks maybe), the bank crisis reflects on lower fuel injection into enterprises that means low power to fight the recession.

I can just suggest to pay attention to all the great an good enterprises who are outof there, because they're trading in HUGE discount!

Some ideas? Well, you can read my past post: no one of the enterprises I suggested in the past are now in trouble, they're all safe, rich and powerful. Luckily for you, if you have a lot of cash, they're trading at an extremely attractive price!!

I remember a couple of years ago: a lot of analyst were saying that Buffett was crazy to hold 40bil $ in cash without using it to buy some assett. During last weeks, when all those analyst were probably loosing their jobs, the old Warren decided that his old friend called Market The Fool was giving away excellent stocks for very low prices and he decided to go for Shopping on Wall Street and he's not the only one doing that!

Better 10 minus 5% than one minus 10%, is it true?

Strange yet truth?!? If you make a simple calculation you’ll see that on a portfolio of 10 lines (each lines has the equal value of dollars or euros or whatever you prefer be gigamillionaire :D ) if everyone loose 5% that man s that your global value has lost 5%, on the other case if 9 stay flat and one looses 10% you’ll globally loose about 1%.
So, it would be better to loose only 1%, or not?

Let’s analyse the overall situation of 2008, it well represent Value Finance Portfolio, well no, to be honest 2008 has been much more worst than 5% :D

The key thing of this post is to say that when the market goes down, all together, more or less fast, probably your exit strategy won’t push you to sell any lins of your portfolio because probably your lines are still the great companies you’ve bought some time ago, just trading for sale in this period. Please note that in stock exchange Period could be a couple of years, not just a couple of weeks!

So the importanc of thinking in LONG TERM.

In these days stock markets are getting crazy and our portfolio well reflect the global situation, looking at the companies’ first semester report we can easily see excellent results and all our companies are still fitting all the list of our investing criteria that have brought us to buy them, so, my dear reader, why sould w sell? Ok if the market keeps going down we could sell now and then buy later, the same companies, when the market finally r start going up. The problem is that: we don’t know the day the market, this maniac depressive, we’ll start going up.

History has shown that if you were missing the most profitables singles days of trading, because you were out of the markets you’d loose the biggest profits.

If the companies keep fitting your investment criteria, don’t care about th crisis of Mr Fool (alias Stock Exchange), hold in your portfolio and in 5 years you’ll smile with 100 teeth!!

PS: when all the market is stable and one company is loosing 10% in few time, please feel free to check 10 financial newspaper and 20 financial web site in order to understand why and eventually, consider only if the “Because” is in your Exit Strategy list!

When to run to Emergency Exit

When you chose to invest in a company because it fits all your investment criteria you should never forget to define an exit policy too.

What is an exit policy?
It is the selling signal that tells you that is time to sell your stocks.

Why is it so important to well define the exit policy?
Because avoiding emotions in Stock Exchange is a key thing to be successful. And if you do not decide when to sell a stock at the exact moment you are buying it, you can risk to take decision in future that are linked to your feelings and to your emotions and not based on rational procedure.

Everyone should decide an own exit policy according to his own investment way and strictly follow these rules if you want to be a great investor. That does not mean that one winning policy exists, different persons have different investment attitudes and according to this attitude can design and set up the exit signal. For a technical trader the exit signal is as a buying signal the moment while some indicators make particular figures or crossing, for other types of investors could be macroeconomics signals or trends, for other are just the companies’ financial decisions.

The important is To Have an Exit Strategy. It’s up to you define your own.

After the last months Stock Exchange has been falling down, a lot of people have been selling stocks in fears.

At Value Finance we have just keep analysing the company we have stock in, looking at their management, their selling skill, their strategies, the indicators we are looking at when we buy them and if everything is keeping to be the same, why the hell we should sell? Are we going to sell the stocks in a wealthy company just because the stock exchange is in his depressive period? Will people stop use Visa’s credit card to buy food? Will people stop to use E.On energy to light on their house? Will E.On stop buying Areva’s reactors to feed energy demand?

I do not think so.

The depressive or excitement phases of the Stock Exchange do not mean anything for me.
Value Finance Portfolio has a long term value investment approach and focus on the companies’ value: assets, sales, goodwill, intangible advantages, management capability, etc. If something changes in these key figures: then the Selling signal can occur.

Visa’s financial fortress

We have seen the electronic transactions market appeal in previous post, with its fast growing up-trend. Let’s try now to see why Visa Inc is so interesting after its record IPO during last march.


On April 28 Visa Inc has announced its operational performance highlights including:

• Payments volume grew 19% over the prior year to $681 billion;
• Total volume, inclusive of cash volume was $1.1 trillion, an increase of 21% over the prior year;
• Total cards carrying the Visa brands rose 16% worldwide to 1.6 billion over the prior year; and
• Total payment transactions increased by 16% over the prior year to 11 billion.
For the fiscal second quarter 2008, service fees were $792 million, up 29% over the prior year on a pro forma basis, and were recognized based on payment volume in the prior quarter.

As for every new entry in Stock Exchange it is always hard to give a deep analysis on the financial statements because you cannot look behind in the last 5/10 years, but just the last couple of years. This is not true of course for auditors and professional analysts.

Visa’s balance sheet is showing an interesting Current Liabilities/Current Asset ratio equal to 0.58 that is quite good as good is the long term ratio with Total Liabilities/Total Asset ratio equals to 0.33%. The Company is in good health.
Cash Flow is showing the big figures resulting by the IPO’s stock placements, but it is hard to comment deeply this statement with the past results. Same speech for the Income statements: we can just appreciate the increasing revenues strongly correlated to the growing transactions all over the world.

It is quite interesting to have a look on the Visa's annual financial expected results over next three years:

-Net Revenue Growth: 11% to 15%

- Adjusted Operating Margin: Low 40% range

- EPS Growth 20%

- Free cash flow $1B

Visa's board has announced its policy about this huge free cash flow saying that it will fund growth and return cash to shareholders with dividends and buyback programs.
Words are just words. However I strongly believe that the management skill showed over the past years and the incredible goodwill represented by the Visa brand all over the world will guarantee these results. It's for that reason that Value Finance portfolio has in Visa one of its more representative lines of investment!

Long term: I trust in.

Long term.

This is one of the key point of the investing attitude that will characterize all this blog’s posts.

When I will indicate the name of a company or a fund, it will always be with a long term vision because for me the picture of the past, that you can easily read on balance sheets, cash flows and income statements, it is just one of the point where to look in order to find the “winning horse”.

I strongly believe that if you will be able to:
-understand a business model (you have to look for your own niche of competence);
-study the niche markets you understand and look for the most powerful companies, the castles with high walls and deep moats against competitors;
-identify managers with high level of ethics;
-be able to read the annual reports and find a short list of winners with a good margins of safety;

If you'd be able to make this three steps and then strongly BELIEVE in long-term-karma: at the end the market will pay you back.
At the end, the good enterprises with great management and great foreseen, will win.