Wednesday, February 22, 2017

The Super Scorecard

Many of you will know that I created the Enhanced Triple S Scorecard with Dividend Scorecard Portion to look for a way to have a consistent view of looking for undervalued counters and counters that is able to provide at least 5% dividend yield for the next year.

However, as explained in the "Different Methods of Investment" post, I engaged in other ways of investing because of the bullish feel of the Singapore Stock Market as well as the requirement to utilize the excess cash I was holding (it was just a bit too much).

Thus, those that followed me will have knew that I went for some short term investment recently (invest with a shorter timeframe of 3 to 6 months in mind) with SUCCESS!

As a result, I started thinking if it was possible to find undervalued counters via the scorecard
(1) that has the possibility of rising and making capital gain; and
(2) over a shorter period of 6 months to 1 year.

So I started my research (with a small sample size of 8 different counters - Mixed with Blue Chips to Micro Pennies) and eventually I was able to upgrade the existing "Enhanced Triple S Scorecard with Dividend Scorecard Portion" into simply the "Super Scorecard".


The following are different sections of the Super Scorecard:

(1) An upgraded version of Enhanced Triple S Scorecard - with amended and new criteria
Enhanced Triple S Scorecard
The upgraded version
Additional criteria includes Current Ratio, Cash Profit Margin and the Last 3 Year Trend, while the Debt to Tangible Book Value has also increased to 40%.

The scoring for a counter to be deem as undervalued has also changed from 8 points to 7 points, while the total points has also increased from 13 points to 15 points.

The maximum negative score has also increase from negative 3 points to negative 7 points and the Indicative Selling Range has also been removed.

The upgrade seem to have made it more lenient for a counter to pass. But do note that if the counter made losses in the last 12 months, it will receive a big penalty which will reduced it chances of passing this criteria significantly.

With that, during my research, the success rate for a counter to be deem as an undervalued stock within this section and continued to make capital gain within 6 months to 1 year is 75%.

(2) An Alternative Valuation method via the Graham Formula and the DCF Method
The Alternative Valuation
In the event, the counter do not pass the initial test of the Super Scorecard, there will be another alternative valuation methods via the Discounted Cash Flow method and Graham Formula method to determine if we can still buy this counter.

This section explains that if the counter's current share price is below 70% of the estimated share price calculated from both of the alternative valuation methods, the scorecard will inform the investor to buy the counter. This will also meant that the counter is still deem as undervalued via the Discounted Cash Flow method and Graham Formula method.

With that, during my research, the success rate for a counter to be deem as an undervalued stock based on the alternative valuation methods and continued to make capital gain within 6 months to 1 year is 62.5%. 

(3) Stable Stock Analysis
Stable Stock Analysis
This is another new section to the scorecard and it is a further extension to the initial 2 sections explained above.

Therefore, if a counter is not deem as a value stock and did not pass the alternative valuation method, it will be tested to see if it is a stable stock.

As explain in the "Different Methods of Investment" post, a stable stock is deem as a company that has a moat or competitive edge in its industry and will most likely give investors a "forever" holding period.

By passing this stable stock analysis, an investor should purchase the counter whenever it reaches or drop near its 52 weeks low price. The investor can also continue to average down or up at different point in time whenever the counter drop near or reaches its 52 weeks low price.

Do note that the major assumption here is that the counter, which will most likely be a blue chip, will have some form of competitive edge and will be able to regain the share price in due time.

No success rate is tested for the stable stock analysis. This is because any investor engaged in this form of investment method must be looking at the super long term period (such as forever). This is also proven in many theories that if you have invested in a wonderful company, the holding period can be forever.

(4) The Dividend Scorecard
Dividend Scorecard
The final section of the Super Scorecard is the Dividend Scorecard. There is no change to the Dividend Scorecard and this section does not linked up with any of the sections above.

It acts as an individual scorecard on its own.

The purpose of the Dividend Scorecard is still similar, that is to find a counter that is able to produce a dividend yield of at least 5% for the next year if the investor purchase the counter at this particular price.

The current research did not test out the success rate of the Dividend Scorecard. However, you can always read about the case studies in the Dividend Series.

In Short

I have explained on the different sections listed in the Super Scorecard. But you should understand that the research is based on a small sample size of 8 and tested during the very bullish period of the Singapore Stock Market. This was also conducted after my review and understanding of the US Market. Thus, some portion of the Super Scorecard will have influences based on my understanding of the US Market.

For those interested in getting and understanding a bit more of this scorecard, I will be having a short paid seminar on 25th of March. All participants of the seminar will be able to get the Super Scorecard after that.

If you are still skeptical about it, you can always contact me and get a copy of the Enhanced Triple S Scorecard from me for free (exclude the Dividend Scorecard portion). 

Please also do remember to like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

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