Monthly Archives: July 2018

EP20 Bank Analysis (Part 3): How To Find Undervalued Banks



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I created three episodes to explain the basics of analyzing bank stocks which are a black box to many investors. This episode covers how you can find undervalued bank stocks through five steps.

  1. Get a list of banks and narrow the list via Price to Book and Price to Earning ratios
  2. Understand why the banks are undervalued in terms of the two ratios.  In many cases, the undervaluation is due to troubled assets or loans
  3. Evaluate whether or not the banks have an appropriate level of capital and reserve relative to troubled assets and loans
  4. Analyze their financial statements (balance sheet and income statement)
  5. Assess the quality of the executive management team via previous shareholder’s letters

Click here (The Bank Investor’s Handbook) to learn more about the book referenced in the episode.

Click here (FDIC website, Data pull instruction) to extract bank data from FDIC website


EP19 Bank Analysis (Part 2): Financial Statements



Support this podcast through your donation: https://paypal.me/valueinvesting

I will create three episodes to explain the basics of analyzing bank stocks which are a black box to many investors. This episode covers how you can analyze banks’ financial statements (balance sheet and income statement), which are vastly different from the financial statements in non-financial companies.  The next episode will cover the steps that you can follow to identify undervalued bank stocks.

Click here (The Bank Investor’s Handbook) to learn more about the book referenced in this episode.


EP18 Bank Analysis (Part 1): Bank Business Model



Support this podcast through your donation: https://paypal.me/valueinvesting

I will create three episodes to explain the basics of analyzing bank stocks which are a black box to many investors. This episode covers the bank business model in terms of how they make money, what deposit structure and lending portfolio mix are generally good for investors.  Additionally, I explain why it is important for investors to look at Common Equity Tier 1 (CET1) ratio and understand the current capital level of a bank.  The next two episodes will cover how you can analyze the financial statements of a bank and how you can identify undervalued banks in the stock market.

Click here (The Bank Investor’s Handbook) to learn more about the book referenced in this episode.


EP17 Capital Allocation Policy (Reinvesting, Dividends, vs. Share-repurchases)



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This episode covers how management’s decision on capital allocation policy can greatly affect the value of your investment in the long term.  Earnings/capital can be allocated in various ways. Warren Buffet mentioned in his shareholder letters as to when it makes sense to use one option vs. the other.  Later, I discuss how you can get a hint of whether the management team acts in the best interest of long-term shareholders.

The following capital allocation options are discussed in this episode.

  • Reinvested back into the business to maintain the current operation
  • Reinvested back into the business to grow the business
  • Used to acquire other businesses via M&A deals
  • Parked and invested in marketable securities such as Treasury Bills
  • Distributed to shareholders in the form of dividends
  • Distributed to shareholders through share-repurchase program

Podcast website: http://valueinvesting.blubrry.net/


EP16 (Part 2) Business Intrinsic Value Calculation



Support this podcast through your donation: https://paypal.me/valueinvesting

Followed by EP15 that covered three main valuation approaches (ratio-based, asset-based, and acquisition-based), this episode covers a Discount Cash Flow (DCF) approach to derive an intrinsic value of a company.  In this episode, I discuss three important questions for the DCF approach and show you how you can estimate the intrinsic value by using a 2-stage DCF analysis.

  1. Estimate the first year normalized future cash flow after excluding unexpected items
  2. Determine the first stage growth rate depending on the characteristics of the business
  3. Calculate a terminal value by assuming that the company is mature
  4. Use an appropriate discount rate (either 30 yr Treasury bond rate or other approaches such as WACC)

Additionally, I cover how you can include conservatism as a value investor in three different places (cash flow projection, discount rate, and margin of safety).

DCF tool available on: https://www.gurufocus.com/