Showing posts from September, 2017

Markets Take Time to be Efficient

In the main we accept that markets price in known information relatively efficiently. But... information in the public domain is not always widely digested or assimilated and understood. There is evidence showing stock prices react gradually rather than instantly to new information. This is the third excerpt from a brief paper Equitable Investors put together, " Seeking Advantage -  Focusing on the Underlying Drivers of Excess Returns Most Evident in Smaller Companies to Optimise Investment Portfolios for Return and Risk ". You can read the previous excerpts at  a nd you can find the paper itself at . While information may exist in the public domain, it may not have been widely disseminated; or it may be widely disseminated but a broad base of investors may not have the additional knowledge to understand the materiality of one piece of information among many. The smaller a company is, the less likely it is a

Alignment of Interest

Logic says that the managers and directors most aligned to maximising shareholder value will be those with a considerable portion of their wealth tied up in equity in the business they are involved in. This is the 2nd grab from a brief paper Equitable Investors put together, " Seeking Advantage -  Focusing on the Underlying Drivers of Excess Returns Most Evident in Smaller Companies to Optimise Investment Portfolios for Return and Risk ". You can find the first grab from that paper  here . And you can find the paper itself at . A recently published research paper reconfirmed historical studies that also showed managerial ownership leads to an improved performance. This January 2017 paper, Managerial Ownership, Board of Directors, Equity-based Compensation and Firm Performance: A Comparative Study Between France and the United States , by Bouras & Gallali, found that performance reached a maximum level at a managerial ownership le

Where was the EPS uplift?

Most of the top-down analysis of the ASX's August reporting season has focused on the surprises and changes in expectations for the S&P/ASX 200. But most of the real action, of course, could be found among stocks that don't have large enough free float market caps to make it in to this key index. Trying to make sense of the numbers and possibly identify an opportunity or two, we've run the numbers on changes in the consensus expectations among analysts for Earnings Per Share (EPS), using Thomson Reuters data. Starting where everyone else starts, we count 134 stocks that over the last month experienced upward revisions in EPS expectations for fiscal 2018, compared to 232 downward revisions. The weighted average revision over the last month for the largest 200 stocks (weighted by market capitalisation) was -0.2%. BUT much of the bad news was pre-warned - the weighted average decline over the past TWO months was -2.4%! Smaller stocks suffered larger negative revisi

Feel the Cash Burn as Profit Season Closes (or "In memory of Pocketmail")

Another crazy month of reporting financials has come to an end on the ASX, with the typical last minute dump of reports on the evening of August 31 (or the following morning) reflecting unfavourably on business models or financial robustness. "Have you heard if Company X has approached anyone about a convertible note or something like that", an investor peer asked me in passing on Friday. No, I hadn't. But I had looked at the financials Company X had just released and I know why he was asking. Cash on hand was equivalent to about 45% of its annual cash burn. Without fresh funding, Company X's brief life could soon come to an end. Too often founders or cornerstone investors choose to raise just enough funds to get to the next milestone, at which point they are sure investors will significantly revalue the business, allowing a less dilutive round of funding to get to the next milestone. Company X probably thought the same thing - the only problem is that its sha


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