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Subject:  ACGL : A case study on security analysis Date:  8/25/2004  2:28 AM
Author:  DCFNewbie Number:  32778 of 46882

Hi everyone,

Being new to the Foolish Community I'm very interested in understanding some of the differences beetween the several value aproaches to analysing a security.

In a recent thread I was introduced to different strategies on determining value and it has become clearer to me that the quantification of growth will always be what makes a determination of value subjective (who can argue with the historical data?).

I know that there are several posts on this board stating several methods of making that kind of analysis, however I think that in light of the recent "101A: Equity Analysis basics" initiative, I and other newbies could harvest more information out of a more recent discussion.

That said I will take the liberty of sugesting Archer Capital Group Ltd.(ACGL) for a quick (or not) valuation analysis. However, to make things a bit more interesting I will focus more on the structure of the analysis that on the content. Obviously what I'm looking for is some "elderly" guidance on this.

DISCLAIMER: I currently own only a very small (negligble) amount of stock on ACGL, but will probably take a bigger plunge if, in the following weeks, my additional analysis prove my initial instints to be right.

One of the first inputs that I would like to receive is regarding the overall structure of an analysis.

Currently I'm going for something like:

1) Valuation

2) Operational Reality

3) Company History/Background

4) Operational Growth/Risk

5) Establishing Price Target and/or exit conditions

(the order ir important!)

In my opinion this captures some of the essence of what is advocated in most of the analysis done in MF articles, MF Newsletters (the ones I've read in past at least) and a great deal of people at the Foolish community boards. And I believe that it respects a lot of the KISS philosophy while being thorough regarding diligence.

Obviously the specific content of these categories is a lot more debatable, I currently would advocate something like:

1) Valuation

P/E - Although its extremelly temptative to bash P/E for its clear faults, I still believe that this should be the very first notion that someone new to investing should acquire. Why? Because for a beginner an expensive stock costs 100$/share while a cheap one costs 5$/share. Its absolutelly fundamental that that myth be debunked in the very first contact someone has with analysing an investment (any investment). It is also admittedly a very important first impression that any investor has regarding the nature of a stock. P/E is one of the many visual filters an investor uses.