Ferret Report Index

The Ferret Report!

For years I've been appointed the President of our family investing club, and have sat down about twice a year and browsed the entire main Valueline list of 1400 companies one by one, filtered it down to around 100-200 promising stocks, then kept track of their progress month by month in an email I sent out to the other club members. Now that I've learned how to transplant them here, you're welcome to have a look.

TinyURL: http://tinyurl.com/a2xbe Last updated 06/10/08

MONTHLY REPORTS What do all the weird numbers and symbols mean?
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2008
August 2008
June 2008
March 2008
February 11, 2008

(Sorry for being gone so long, been jugging full time and other things for a while, getting my time management in gear)

2006
July 27th, 2006
April 29th, 2006
March 24th, 2006
February 21st, 2006
January 15th, 2006

2005
December 24th, 2005
November 20th, 2005
October 17th, 2005
Septermber 26th, 2005
July 11th, 2005

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LIST LEGEND

Each company in the page has four lines, looking something like this one for Apollo Group 'A' (APOL)

Apollo G'A' 64.4 80.1 80.9 76.5 74.8 74.5 70.0 78.5 74.0 73.1 67.2 61.9
27% [32]     84   88   89   84   83   73   69   75   59 W 58 - 53 - 49
http://finance.yahoo.com/q?s=APOL Down *NEWS*

Let's break it down line by line

1) Apollo G'A' 64.4 80.1 80.9 76.5 74.8 74.5 70.0 78.5 74.0 73.1 67.2 61.9
^Company Name ^Stock price each of the last 12 months ^
Current Price|
2) 27% [32]     84   88   89   84   83   73   69   75   59 W 58 - 53 - 49
^ ^Estimated [Average P/E]    ^Monthly P/Es Current P/E ^
| Estimated company growth rate   ("W" & "-", Alert Symbols, see newest listings)

3) http://finance.yahoo.com/q?s=APOL Down *NEWS*
^News link for this company ^ ^ ^Alert to pay special attention to news
Company Symbol (APOL) | | Quick summary of the Moving Average

The info from last year is right next to the name, while the numbers get more recent to the right, with the last number on the line being the present company info (At the time the list was printed, the news links are there for a reason!)

The P/E of a stock is the Price-to-Earnings-Ratio, the company's price at the time divided by its per-share earnings. This is a measure of how valuable a share is, the value getting better the lower the ratio is.
In theory, an investor buys a share in a company to claim a portion of its profits. So if a company grows and starts generating more money, each of its shares becomes more valuable, and investors are willing to pay more to buy those shares, raising the stock price (or the stock splits, and they just get more shares at the same price instead, it adds up to the same thing).
In an ideal world, you would find that the price of a stock would then be tightly tied to any increase of decrease in it's P/E, one rising or falling with the other, so that a company growing at a steady 15% a year would have a 15% increase in price each year in a straight line, while it's P/E remained exactly the same number (since earnings were also growing at the same rate). The unchanging value of this P/E would be the [AVERAGE P/E] of the company, a value unique to that company.    (Fast-growing companies and industries tend to have high [AVE P/Es], while some industries like homebuilders have very low ones. Not sure anyone knows why, except that flashier stocks attract more attention and speculation, and a lot of investors blindly buy a company because other people are buying it, instead of checking the numbers themselves).
In the real world things aren't nearly this easy, because investors (and investing institutions, who are forced by a variety of laws to be very conservative with their choices, minimizing both risk and return) make their decisions for a variety of rational or irrational reasons. Some buy because they see the price chart going up and listen to analysts crow over blue chip, then buy in just before the stock peaks before a long downslide. Some freak out when the company lowers its earnings estimate by 0.5%, and join a selling spree that sends the price down 30%, then slap their foreheads as the price recovers the difference and starts rising again right after they jump ship. Some sell because other people are selling the stock of -another- company in the industry, even if that one is near bankrupt and -this- one is making record profits! But for whatever reason, the price graph of most companies looks more like a rollercoaster or heart monitor, changing and chaotic, and seemingly impossible to predict.
Fortunately, the sales and profit figures of most companies are far more stable and predictable, and you're much more likely to be right about charting the future growth of a company over the next year than guessing what's going to happen to its stock price this week (and if you find a company with a sales graph that looks like a rollercoaster, you're better off playing the slots). Once you look at the Valueline sheet for a company (take a look at Apollo's Valueline sheet and Earnings Graph here) and determine that it's in good financial health, has a reliable history of growth and no forseeble problems, and looks positioned to do just as well in the future, then you add it to your list of companies you'd consider buying if the chance arises. It's then a matter of just deciding which company, and when.
While a short-term look at just about any price graph will seem random, if you step back to view it over many years a pattern will usually develop where the average price of the company rose and fell like a huge, slow ocean wave (a Sine wave for you Trigonometry folks). If you check the average P/E of the company for each year on the Valueline sheet as well, you'll find the value is higher for the years (some companies go through a Buisness Cycle over several years, while others can turn over in months, again depends on how active the company is and how volatile the industry is) in the crest of the wave, and much lower during the downturn.
If the price of a company grows faster than its earnings, the true value of each share will start to decline because the shares will bring in fewer cents on the dollar, so while many investors might pile onto a stock because they see it's going up, at come point reality has to strike, and the wiser ones will start selling off, triggering an avalance. Similarly, if too many investors panic and drive a stock's price way down, it becomes a highly valuable bargain, attracting more buys until the trend stops and starts working upwards again. Therefore, if you know a stock is underpriced (trading at a P/E low for the company), and that the company is in a good growth position with little debt and very unlikely to fail anytime soon, you *can* predict that eventually the earnings of the company will pull the price back up.
This is the Long-Term School of Investing, something my grandparents started teaching me a while ago. If you can determine what the long-term [Average P/E] of a company is, you can tell wether the stock is in the up or down stage of its Business Cycle, so you have the best chance at buying a quality company at the best possible price by making a list of ones you'd consider buying, then comparing their present P/E to the long-term [Average P/E] to see which are in the best price-range. This is why I maintain this list, adding to it when new promising companies appear in the Valueline index, and removing them when their fundamentals (ie, health) get harmed in a permanent way (ie, a compeditor has a better product and is taking over the market, an Enron-class accounting scandal hits, etc). The downside is that it takes a good deal of patience to invest like this, and more than a little courage to hold a stock as a hurricane, war or other BS flies out of right field and drives the whole market down. However, as long as the company's earnings remain true, you can ignore all of the speculation and static of the day-to-day jumps, and claim the eventual gains after all the day-traders have sold and left.