Changes in valuation are a double-edged sword

Understanding the risks and opportunities that a company’s valuation might show is a crucial part of an investor’s toolkit.

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Phil looks at how investors can learn from changes in a company’s valuation over time.

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Valuation matters (eventually)

Great companies are not a buy at any price even if it feels like it. Phil repeats his concerns about the valuations of very good businesses and asks whether better opportunities now exist in cheaper shares.

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When I started my investing career nearly a quarter of a century ago, the prevailing wisdom was that to beat the market and get good results you had to buy cheap stocks. The problem with good stocks is that they were too highly priced and that the expectations of future performance were too rich and might not be met leading to disappointing returns.

The last decade or so has proved exactly the opposite.

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Is Wickes an unloved spin off?

Some simple techniques for analysing quarterly or half year reports can give investors valuable insights into a company’s performance and future prospects.

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In Joel Greenblatt’s excellent book “You can be a Stock Market Genius” one of his tips for finding potential winning stocks is to look at what are referred to as “spin offs".

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How to avoid cash flow slip ups

Investors are right to focus on cash flow analysis, but need to tread carefully

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For years, investors have been told to focus on a company’s cash flows rather than its profits. Profit has built up a bad name for itself as it is seen as easier to abuse and pull the wool over people’s eyes. It is argued that cash flows are much harder to fudge. This is not strictly true as we shall see shortly.

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Why you need to understand operational gearing

Operational gearing is one of the most important things for an investor to understand about any business before they put any money into it.

We hear alot said about operational gearing, but little of the nuances behind it. Put simply, it explains the relationship between the changes in a company’s revenues and changes in its profits. And it can work both ways for investors.

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