- ~~'W'T ~~ . ", How10 ;. Copyright Agency Limited (CAL) licenced copy Brief: INVESTWISE Page 1 0 f 2 -..".'" . "I~ pick a wlaae, LrJ MEDIA MONITORS I ;-.cj! Phone: 0293184000 ; 1i;;;~:;~~f~ SundayMail(Brisbane) Sunday18n/2004 ] ~:~~:~~!:3~::e98 B!S July 18, 2004 Smart Money Section, Page 98 How to pick'a winner By JAMES DUNN E VERY ralian veals stocks, year, when the AustStock Exchange reits best-performing investors apply ~hat peerless investment tool - hmdsight - didn't buy Consider and wonder why they them. the a Ciaea we want to DUy It, the stock to buy and tImmg the purchas~ mvesto~ 10 best performers of the All Ordinaries index in 2003-04:Dragon Mining (+392per pSivida per . cent), Equatorial Mining(+377 (+340 per cent), cent), Virotec . we ve te hnical analysis to tell us weuse ec '" when to bu~ It, he says. , Mr Shamieh says tha~ cI:°osmg International cent), Pan Australian (+311per Resou:ces manager OpiSapproaches lJapital. "Simplistic to fundamental data don't work. A stock on a PIE of 20 times earnings can be a better investment than a stock on a P IE of five. is only the start of the" s task, "Makmg ~ money on the, s~o~k All of the fundamental are inputs to wouldn't buy a decision; a stock data l:?ut we wIthout market c~mes froz:n,m:aximIsmg meeting the management and your profits and mimmIsmg your deciding whether we can trust losses, to,have a stopthem investor - whichtoisdo," diffic~lt for a loss (aYou've pre-setgot sellIng level), I!1 'small place to get out of the stock If goes wrong - ~ecause ,\~ some, WI Roger Montgomery, managing director of Sydney-based Clime (+286per cent), Redflex Holdmgs (+269per cent), Hard~an Re- go wrong, But I~ one ~oes right, Asset Management, places great sources (+268 percent), KImberley Diamond Compa?y (+263 per cent), Aristocrat LeIsure (+261 per cent) and EpiTan (+241 per cent), As a winnIng stock rIses, ~r Shamieh says Inve~tment WIse keeps the stop-loss m pl~ce, act:justing it upward: ~ffectively, It - the return that is generated on the shareholders' equity (what the shareholders actually own: the difference between total Just one of those turbo-charged performers would have added considerable oomph to a portfolio. But how do you pick the star-performing stocks? becomes a stop-profit, "Profit is only profit ~I:en you sell. Having a stop-profit m place protects the profit you've made on paper." assets and total liabilities.) "It's the most important measure of profitability," he says, "You can have a company where profit is rising, but ROE is going Phillip Shamieh, head strat- egist at website newsletter I~vestment Wise, should know: hIS newsletter recommended four of the above list - and another three in the Top,20. He say:spi~king good stocks IS a combmation of quantitative, fundamental and technical analysis, "We try to identify stocks that are outperforming their pe~rs and the index; then we look at ItS fundamental data to see whether it looks comparativel~ cheap; then we assess the quality of the mana~e~~n~; and then,. on?e you'vegot to ~etIt run. Investors often think , there are fundamental criteria to look for to pick cheap stocks: for exa~ple, a single-digit pri<?e/ea,r~mgs ratio a relatively hIgh dIvIdend yield'or a share tradin~ at a discount to its net tang:Ible asset backing- in effect, selling for less than it would be worth if the company were broken up tomorrow, Professional stock pickers say numbers tell you only so much, "Good stocks aren't cheap, and nor are cheap stocks necessarily good," says Dean Fergie, director of Melbo~r~e-~as~d .investment emphasison the return on equity down - which means the value of the business is going ~o,wn. Yo,u can have a company lIftmg theIr NT A by buying assets - but the ROE tells you whether they can earn money on those assets:' Peter Constable of MMC As~et management in Sydney, says mvestors "shouldn't trust accou~ting earnings" - which ~eans ct:ISregarding the P IE ,ratIo, WhIch comes from net profit, "It's the cash flow you want to be sure you're buying cheaply, not the profit," he says. ) Ref: 12523813 ~~___,i~~_-,",~~- / ~T ..\ /.. - \ MEDIA Copyright Agency Limited (CAL) licenced copy Brief: INVESTWISE MONITORS Phone: 0293184000 Page2of2 Sunday Mail (Brisbane) Sunday 18n/2004 Smart Money Page 98 Circulation: 613,669 Size: 348.89 sq.cms. " ," 1 " " " " " " " , STRA TEGIST: Phillip Shamieh of website newsletter Investment Wise Ref: 12523813