For investors, young growth stocks can trigger dreams of wealth - and nightmares of poverty. These companies are often early-stage ventures that offer rapid revenue growth, but have yet to deliver earnings growth or much of a business track record. As such, the potential returns can be enormous, but investing in these stocks can also be risky. There are several points investors should consider when analyzing early-stage growth stocks.
Overview
The key features of early-stage growth stocks are rapid revenue growth but no earnings. Spending heavily to gain a market foothold, many growth companies - even those with strong sales revenue growth - can lose a lot of money in their early years. At the same time, these companies normally have a limited operating history, making it even more difficult for investors to judge the companies' current performance and value.
To stay on the safest side, many investors prefer to steer clear of companies with these risky characteristics. On the other hand, the next biggest and most rewarding stocks may be found among these kinds of stocks. The trick is to size up the risk.
To demonstrate how to evaluate an early-stage growth company's risk, let's consider Nasdaq-listed XM Satellite Radio Holdings (XMSR), a company that has been striving to become an established player in the fast-growing global satellite radio broadcasting market. Turning to XM's 2004 Form 10-K Annual Report, let's go over some key points for assessing the risk of an emerging growth stock.
Sales Growth
For starters, consider this growth trend. XM Satellite Radio delivered staggering sales growth in 2004. Scroll down to Selected Consolidated Financial Data (p.28, or Item 6 on the Table of Contents), and you will see that revenues grew from $0 in 2000, when XM Satellite Radio became publicly-listed, to more than $244 million in 2004. With sales growth of 168% in 2004, XM appears to have successfully taken advantage of growth opportunities. Importantly, the pace of sales growth was steadily upward - absent of unexpected swings - giving investors some reason to be confident that successful sales growth would continue.
Still, investors should take care: while the company's sales-growth record over the five-year period was certainly impressive, there is no guarantee that the company will be able to maintain that rate of growth into the future. In fact, the pace of growth could very well decline as the company satisfies demand for its products.
Profitability
You need to determine whether revenue growth is profitable. Look further down at XM's Consolidated Statement of Operations (p. F-5). The net loss shows us that in 2004, XM lost a lot of money - more than $642 million. That's no surprise: the company spent heavily on sales and marketing and invested in new radio programming content to attract subscribers. If those investments pay off, earnings could materialize.
But savvy investors want a clearer indication that one day the company will produce earnings. A good place to look is the company's profit margins. There should be signs that profit margins are steadily getting better - even if that means the margins are simply getting less negative.
Net Profit Margins = Net Profits after Taxes / Sales
Investors should be somewhat reassured. Although the company's losses accelerated between 2002 and 2004, its net margins saw a dramatic improvement, moving from a whopping -2,174.3% to -188.6% over the time period. Judging by its margin performance trend, XM offered heartening signs that it is moving towards profitability.
Cash Generation or Cash Burn?
Cash flow is another serious issue for newer, unprofitable companies in rapidly growing industries. As it can take time for early-stage companies to generate cash from operations, their survival depends on effective cash management so that they have an adequate cash supply to meet expenses. Emerging growth companies can face years of living on their bank balances. If a company eats through cash too fast, it runs the risk of going out of business.
So, it is good practice to look at the company's cash flow from operation.You will find that figure on XM's Consolidated Statement of Cash Flows (p. F-6). Investors may be discouraged to learn that XM's payments exceeded its cash receipts by more than $85.6 million in 2004 (see "net cash used in operating activities"). On the other hand, that number is significantly less than the $245 million of cash consumed the year before. That could signal a move towards cash flow breakeven.
When analyzing companies like XM that are cash flow negative, it's also worthwhile checking their burn rate, the rate at which a company currently uses up its supply of cash over time.
You will see on XM's Consolidated Balance Sheet (p. F-4) that at end-2004 the company had more than $717 million in cash in the bank. Assuming that annual net cash used in operating activities of $85.6 million and investing activities of $36.3 million (found lower on the Consolidated Statement of Cash Flows) stay at the same level, then XM has nearly six years before it will run out of cash. In other words, XM has a comfortable cushion of cash that will tie it over until it starts to generate cash internally. Investors need not worry about XM being forced to seek additional funds to finance day-to-day operations.
Fair Value
The best way to curb risk is to invest in companies at a fair value. Because a lot of emerging growth stocks like XM have no earnings, investors have to cast aside the traditional price-to-earnings (P/E) ratio for coming up with a fair valuation. In the absence of a P/E ratio, you can calculate the price-to-sales ratio and compare that figure with other, similar companies.
To find XM' price-to-sales ratio, we look at its stock price on the day it filed its 2004 Form 10-K Annual Report, which was on Mar 4, 2005. On that day, the stock closed at $33.11 (see XM's trading quote that day on Investopedia's stock research resource). With 29.11 million shares outstanding, XM's market value was about $7 billion.
So, at the end of 2004, XM traded for more than 28 times its current sales ($7 billion market value divided by 2004 sales of $244 million). At first glance, that appears to be an awfully rich valuation - normally investors look for companies with price-to-sales ratios in the single digits or even lower. However, priced at 28 times sales, XM is still less expensive than its closest peer Sirius Satellite Radio (SIRI), which traded for more than 80 times sales at year-end 2004. New-media technology stocks are typically very pricey - so some investors might argue that the company's rapid rate of growth combined with its steady progress towards profitability justify the high price-to-sales ratio. Then again, a lot of others would steer clear of the stock at that price.
Another way to evaluate fair value is discounted cash flow analysis. It offers a more rigorous approach to valuing emerging growth stocks. The starting point is forecasting the company's free cash flows available to shareholders. These are earnings adjusted for expenses and income that are not in cash (such as depreciation) and adjusted for required investments and changes in working capital. The series of forecasted free cash flows is then brought to current values by discounting with the company's cost of equity or overall cost of capital.
The Bottom Line
Investing in early-stage growth stocks can be a bit of guessing game. These companies are offering new services and products, and in many cases they are creating new markets. It can be awfully difficult to know their prospects with much certainty. That said, there are ways to identify their risks. Analysis of sales revenues, profitability and cash generation can help distinguish winners from losers.
Read more: http://www.investopedia.com/articles/stocks/05/earlygrowth.asp#ixzz2KA9GZFz4
Thursday, 7 February 2013
Is Growth Always A Good Thing?
Rapid growth in revenue and earnings may be top priorities in corporate boardrooms, but these priorities are not always best for shareholders. We are often tempted to invest large amounts in risky or even mature companies that are beating the drum for fast growth, but investors should check that a company's growth ambitions are realistic and sustainable.
Growth's Attraction
Let's face it, it's hard not to be thrilled by the prospect of growth. We invest in growth stocks because we believe that these companies are able to take shareholder money and reinvest it for a return that is higher than what we can get elsewhere.
Besides, in traditional investing wisdom, growth in sales earnings and stock performance are inexorably linked. In his book "One Up on Wall Street," investment guru Peter Lynch preaches that stock prices follow corporate earnings over time. The idea has stuck because many investors look far and wide for the fastest-growing companies that will produce the greatest share-price appreciation.
Is Growth a Sure Thing?
That said, there is room to debate this rule of thumb. In a 2002 study of more than 2,000 public companies, California State University finance professor Cyrus Ramezani analyzed the relationship between growth and shareholder value. His surprising conclusion was that the companies with the fastest revenue growth (average annual sales growth of 167% over a 10-year period) showed, over the period studied, worse share price performance than slower growing firms (average growth of 26%). In other words, the hotshot companies could not maintain their growth rates, and their stocks suffered.
The Risks
Fast growth looks good, but companies can get into trouble when they grow too fast. Are they able to keep pace with their expansion, fill orders, hire and train enough qualified employees? The rush to boost sales can leave growing companies with a deepening difficulty to obtain their cash needs from operations. Risky, fast-growing startups can burn money for years before generating a positive cash flow. The higher the rate of spending money for growth, the greater the company's odds of later being forced to seek more capital. When extra capital is not available, big trouble is brewing for these companies and their investors.
Companies often try increasingly big - and risky - deals to push up growth rates. Consider the serial acquirer WorldCom. In the 1990s, the company racked up growth rates of more than 20% by buying up little-known telecom companies. It later required larger and larger acquisitions to show impressive revenue percentages and earnings growth. In hopes of sustaining growth momentum, WorldCom CEO Bernie Ebbers agreed to pay a whopping $115 billion for Sprint Corp. However, federal regulators blocked the deal on antitrust grounds. WorldCom's prospects for growth collapsed, along with the company's value. The lesson here is that investors need to consider carefully the sustainability of deal-driven growth strategies.
Being Realistic About Growth
Eventually every fast-growth industry becomes a slow-growth industry. Some companies, however, still pursue expansion long after growth opportunities have dried up. When managers ignore the option of offering investors dividends and stubbornly continue to pour earnings into expansions that generate returns lower than those of the market, bad news is on the horizon for investors.
For example, take McDonald's - as it experienced its first-ever losses in 2003, and its share price neared a 10-year low, the company finally began to admit that it was no longer a growth stock. But for several years beforehand, McDonald's had shrugged off shrinking profits and analysts' arguments that the world's biggest fast-food chain had saturated its market. Unwilling to give up on growth, McDonald's accelerated its rate of restaurant openings and advertising spending. Expansion not only eroded profits but ate up a huge chunk of the company's cash flow, which could have gone to investors as large dividends.
CEOs and managers have a duty to put the brakes on growth when it is unsustainable or incapable of creating value. That can be tough since CEOs normally want to build empires rather than maintain them. At the same time, management compensation at many companies is tied to growth in revenue and earnings.
However, CEO pride doesn't explain everything: the investing system favors growth. Market analysts rate a stock according to its ability to expand; accelerating growth receives the highest rating. Furthermore, tax rules privilege growth since capital gains are taxed in a lower tax bracket while dividends face higher income-tax rates.
The Bottom Line
Justifications for fast growth can quickly pile up, even when it isn't the most prudent of priorities. Companies that pursue growth at the cost of sustaining themselves may do more harm than good. When evaluating companies with aggressive growth policies, investors need to determine carefully whether these policies have higher drawbacks than benefits.
Read more: http://www.investopedia.com/articles/fundamental/03/082003.asp#ixzz2KA5lFtVB
Growth's Attraction
Let's face it, it's hard not to be thrilled by the prospect of growth. We invest in growth stocks because we believe that these companies are able to take shareholder money and reinvest it for a return that is higher than what we can get elsewhere.
Besides, in traditional investing wisdom, growth in sales earnings and stock performance are inexorably linked. In his book "One Up on Wall Street," investment guru Peter Lynch preaches that stock prices follow corporate earnings over time. The idea has stuck because many investors look far and wide for the fastest-growing companies that will produce the greatest share-price appreciation.
Is Growth a Sure Thing?
That said, there is room to debate this rule of thumb. In a 2002 study of more than 2,000 public companies, California State University finance professor Cyrus Ramezani analyzed the relationship between growth and shareholder value. His surprising conclusion was that the companies with the fastest revenue growth (average annual sales growth of 167% over a 10-year period) showed, over the period studied, worse share price performance than slower growing firms (average growth of 26%). In other words, the hotshot companies could not maintain their growth rates, and their stocks suffered.
The Risks
Fast growth looks good, but companies can get into trouble when they grow too fast. Are they able to keep pace with their expansion, fill orders, hire and train enough qualified employees? The rush to boost sales can leave growing companies with a deepening difficulty to obtain their cash needs from operations. Risky, fast-growing startups can burn money for years before generating a positive cash flow. The higher the rate of spending money for growth, the greater the company's odds of later being forced to seek more capital. When extra capital is not available, big trouble is brewing for these companies and their investors.
Companies often try increasingly big - and risky - deals to push up growth rates. Consider the serial acquirer WorldCom. In the 1990s, the company racked up growth rates of more than 20% by buying up little-known telecom companies. It later required larger and larger acquisitions to show impressive revenue percentages and earnings growth. In hopes of sustaining growth momentum, WorldCom CEO Bernie Ebbers agreed to pay a whopping $115 billion for Sprint Corp. However, federal regulators blocked the deal on antitrust grounds. WorldCom's prospects for growth collapsed, along with the company's value. The lesson here is that investors need to consider carefully the sustainability of deal-driven growth strategies.
Being Realistic About Growth
Eventually every fast-growth industry becomes a slow-growth industry. Some companies, however, still pursue expansion long after growth opportunities have dried up. When managers ignore the option of offering investors dividends and stubbornly continue to pour earnings into expansions that generate returns lower than those of the market, bad news is on the horizon for investors.
For example, take McDonald's - as it experienced its first-ever losses in 2003, and its share price neared a 10-year low, the company finally began to admit that it was no longer a growth stock. But for several years beforehand, McDonald's had shrugged off shrinking profits and analysts' arguments that the world's biggest fast-food chain had saturated its market. Unwilling to give up on growth, McDonald's accelerated its rate of restaurant openings and advertising spending. Expansion not only eroded profits but ate up a huge chunk of the company's cash flow, which could have gone to investors as large dividends.
CEOs and managers have a duty to put the brakes on growth when it is unsustainable or incapable of creating value. That can be tough since CEOs normally want to build empires rather than maintain them. At the same time, management compensation at many companies is tied to growth in revenue and earnings.
However, CEO pride doesn't explain everything: the investing system favors growth. Market analysts rate a stock according to its ability to expand; accelerating growth receives the highest rating. Furthermore, tax rules privilege growth since capital gains are taxed in a lower tax bracket while dividends face higher income-tax rates.
The Bottom Line
Justifications for fast growth can quickly pile up, even when it isn't the most prudent of priorities. Companies that pursue growth at the cost of sustaining themselves may do more harm than good. When evaluating companies with aggressive growth policies, investors need to determine carefully whether these policies have higher drawbacks than benefits.
Read more: http://www.investopedia.com/articles/fundamental/03/082003.asp#ixzz2KA5lFtVB
Tuesday, 5 February 2013
Tuesday, 22 January 2013
WARREN BUFFETT- DON'T MAKE THIS TERRIBLE MISTAKE
Buffett: Buying and selling stocks on current news is a mistake.
How to Invest like Warren Buffett
1. High ROCE + Low Debt
2. Predictable Earnings
3. Profits generate a lot of Cash Flows
4. Uncomplicated Business (you can understand)
5. Strong Brand + Pricing Power
6. Managers are also Owners of Business
Monday, 21 January 2013
Sunday, 20 January 2013
Friday, 18 January 2013
Tuesday, 15 January 2013
Apa ini? Listen .. listen carefully ........ Shameful!
The student who spoke her mind has my respect.
Monday, 14 January 2013
KLSE Market PE is 16.6 (11.1.2013)
| KLCI | 11.1.2013 | ||||||||
| Index Stock | Price | Mkt. Cap | Earnings | Dividends | Equity | ||||
| Stock Name | RM | RM (m) | RM (m) | RM (m) | RM (m) | ||||
| AMMB | 6.64 | 20014.2 | 1527.8 | 600.4 | 11152.5 | ||||
| CIMB | 7.66 | 56935 | 4037.9 | 1651.1 | 25940.4 | ||||
| RHB | 7.9 | 19704.2 | 1713.4 | 630.5 | 12944.9 | ||||
| HLFG | 14.42 | 15180.9 | 1167.8 | 258.1 | 8495.8 | ||||
| MBB | 9 | 75960.7 | 5798.5 | 3038.4 | 36967.5 | ||||
| PBB | 16.2 | 57217.2 | 3510.3 | 1716.5 | 14975.4 | ||||
| IOI | 5.05 | 32475.5 | 1794.2 | 1006.7 | 12668.7 | ||||
| MMC | 2.63 | 8008.5 | 333.7 | 120.1 | 6211.9 | ||||
| KLK | 22.48 | 23997.5 | 1212.0 | 695.9 | 7130.9 | ||||
| GENTING | 9.51 | 35372.3 | 2875.8 | 283.0 | 17741.9 | ||||
| PPB | 13 | 15411.5 | 981.6 | 277.4 | 14060.0 | ||||
| BAT | 60.9 | 17388.8 | 718.5 | 782.5 | 431.2 | ||||
| SIME | 9.59 | 57630.8 | 4146.1 | 2074.7 | 26021.0 | ||||
| UMW | 12.4 | 14486.8 | 503.0 | 362.2 | 4264.3 | ||||
| YTL | 1.81 | 19395 | 1259.4 | 213.3 | 13394.3 | ||||
| GENM | 3.61 | 21434.3 | 1498.9 | 514.4 | 12528.1 | ||||
| TM | 5.82 | 20820.5 | 1189.7 | 707.9 | 6975.9 | ||||
| AIRASIA | 2.89 | 8033.9 | 565.8 | 136.6 | 4058.6 | ||||
| UEMLAND | 2.15 | 9307.1 | 313.4 | 0.0 | 4848.3 | ||||
| PETCHEM | 13 | 49840 | 2637.0 | 1295.8 | 9623.0 | ||||
| MHB | 4.4 | 7040 | 206.5 | 161.9 | 2432.0 | ||||
| ARMADA | 3.82 | 11189.4 | 428.7 | 78.3 | 3544.3 | ||||
| TENAGA | 6.92 | 38349.9 | 4261.1 | 1112.1 | 36410.2 | ||||
| PETDAG | 22.96 | 22809.7 | 655.5 | 798.3 | 4778.5 | ||||
| HLBANK | 14.98 | 49128.8 | 2532.4 | 2996.9 | 3542.0 | ||||
| MAXIS | 6.55 | 49128.8 | 2532.4 | 2996.9 | 8100.6 | ||||
| PETGAS | 18.98 | 37556.3 | 1082.3 | 788.7 | 8884.5 | ||||
| YTLPOWER | 1.6 | 11740.7 | 1249.0 | 340.5 | 9539.3 | ||||
| AXIATA | 6.69 | 56920.8 | 2381.6 | 1593.8 | 19399.0 | ||||
| DIGI | 5.17 | 40196.8 | 1252.2 | 1366.7 | 1399.5 | ||||
| 902675.9 | 54366.7 | 28599.8 | 348464.7 | ||||||
| Market PE | 16.60 | ||||||||
| DY | 3.17% | ||||||||
| DPO | 0.53 | ||||||||
| Mkt cap/BV | 2.6 | ||||||||
| ROE | 15.6% | ||||||||
| EY | 6.02% | ||||||||
| Risk free int. | 3.40% | ||||||||
| ERP | 2.62% | (Fairly valued) | |||||||
| KLCI | |||||||||
| 11.1.2013 | 1682.7 | ||||||||
Related:
KLSE Market PE is 17.7 (19.10.12)
Sunday, 13 January 2013
Arithmetic vs logarithmic: Difference between charts plotted using these two scales
Narendra Nathan, ET Bureau Aug 27, 2012,
When data is plotted as a chart, it can be done using two types of scales—arithmetic or semi-logarithmic. The difference in scale can completely alter the shape of the chart even though it is plotted using the same set of data. Consider the three charts given below, which use theSensex data since its inception in 1979 till now. But why does one need to use the semi-logarithmic scale when arithmetic scale is commonly used for plotting charts. This is in order to overcome the inherent weakness of the arithmetic charts.
When data is plotted as a chart, it can be done using two types of scales—arithmetic or semi-logarithmic. The difference in scale can completely alter the shape of the chart even though it is plotted using the same set of data. Consider the three charts given below, which use theSensex data since its inception in 1979 till now. But why does one need to use the semi-logarithmic scale when arithmetic scale is commonly used for plotting charts. This is in order to overcome the inherent weakness of the arithmetic charts.
Arithmetic charts
In arithmetic or linear charts, both X and Y axes scales are plotted at an equal distance. For instance, the Sensex movement from 15,000 to 16,000, that is, an increase of 1,000 points, is treated as equal to the Sensex movement from 16,000 to 17,000, which is another 1,000 points.
In arithmetic or linear charts, both X and Y axes scales are plotted at an equal distance. For instance, the Sensex movement from 15,000 to 16,000, that is, an increase of 1,000 points, is treated as equal to the Sensex movement from 16,000 to 17,000, which is another 1,000 points.
This works fine when the data range is small, but will distort the picture when the range is big. Consider the Sensex movement from 20,000 to 21,000, which was a mere 5% increase, but the movement of the first 1,000 points in the Sensex, that is, from 100 to 1,100, was a whopping 1,000% increase. By treating them as equal, the arithmetic chart distorts the picture. This explains why it seems as if the Sensex was almost flat for the first 10 years of its existence in the arithmetic chart.
Logarithmic charts
Logarithmic charts are commonly used in science and engineering when you need the data to be displayed accurately. This is also a necessity when the data that needs to be plotted varies widely. In such charts, the logarithm of the data value (Sensex in the given example) is used as a base to fix the gaps between each data points on the Y axis. This process makes sure that the percentage increase between two data values is depicted clearly. To understand this in a better manner, consider the logarithmic charts given below. Note that the gap between 100 and 200 (100% increase) is equal to the gap between 200 and 400 (next 100% increase). The same gap is maintained for the Sensex increase from 1,000 to 2,000 or from 10,000 to 20,000. Semi-logarithmic charts
In logarithmic charts, both the X and Y axes are plotted using the logarithmic scale. Since there is no possibility of distortion in the X axis (where the date range is plotted), we can continue to use the arithmetic scale while plotting the share price data. In other words, the logarithmic scale is used only along one axis, that is, the Y axis, and therefore, these charts are called semi-log charts.
Advantages
The semi-logarithmic charts can be of immense help while plotting long-term charts, or when the price points show significant volatility even while plotting short-term charts. This is because the chart patterns will appear as more clear in semi-logarithmic scale charts. For example, the very long-term uptrend line in the Sensex is clearly visible in the semi-logarithmic chart (see Semi-logarithmic scale with trendline), not in the arithmetic chart. Similarly, the Sensex was constrained in a slightly upward moving channel for 13 years in the middle, that is, between 1992 and 2005, and this is clearly visible only in the semi-logarithmic chart (see Semi-logarithmic scale with channel). One can plot the charts in the semi-logarithmic scale to easily identify several other chart patterns, some of which we shall explain in the coming weeks.
http://articles.economictimes.indiatimes.com/2012-08-27/news/33425208_1_charts-sensex-arithmetic
Semilogarithmic-scale line graphs
If we use a logarithmic scale on the y-axis and if the x-axis remains the same (arithmetic scale), we create a semi-logarithmic scale line graph. With a logarithmic scale on the y-axis we represent the relative change of y over time rather than its absolute change over time. Semi-logarithmic scale line graphs are used to present and interpret rates of change over time rather than magnitude of change. They also allow showing very different magnitudes and ranges of rates between two lines (e.g. high incidence and low mortality rates for the same disease).
Semi-logarithmic scale paper:
- On the y-axis, intervals are logarithmic and no longer arithmetic.
- There are several cycles of tick marks on the y-axis. Each corresponds to an equal distance on the y-axis.
- The values of one cycle are 10 times greater than the values of the previous cycle.
- Within a cycle the 10 tick marks are not equally distant (distance from 2 to 3 is different than distance from 3 to 4). Their progression is geometric, not arithmetic.
- The y axis can cover a large range of y values.
The following characteristics are noteworthy:
- The slope of the line indicates the rate of change (the relative change) of y over time.
- A horizontal straight line indicates no change.
- An upward or downward straight line slope indicates a constant rate of increase or decrease in the measured indicator (e.g. rate) over time.
- Two parallel lines indicate similar rate of change over time.
Friday, 11 January 2013
Tesco’s UK sales growth highest in three years
Tesco’s UK sales growth highest in three years
Published: 2013/01/11
LONDON: Britain’s Tesco plc said its £1 billion (RM4.86 billion) turnaround plan for its home market was starting to work as it posted its highest sales growth in three years over the Christmas period.
Tesco, the world’s third-largest retailer, beat forecasts for underlying sales growth, regaining an edge after a dismal Christmas in 2011 prompted the group’s first profit warning in 20 years and a strategic rethink.
Sales at British stores open more than a year, excluding fuel and VAT sales tax, grew 1.8 per cent in the six weeks to January 5, part of Tesco’s fiscal fourth quarter, compared with analysts’ forecasts in a range of up 0.5 to 1.5 per cent and with a third-quarter fall of 0.6 per cent. Reuters
http://www.fool.com/investing/international/2013/01/09/whats-in-store-for-tescos-shareholders.aspx
Published: 2013/01/11
LONDON: Britain’s Tesco plc said its £1 billion (RM4.86 billion) turnaround plan for its home market was starting to work as it posted its highest sales growth in three years over the Christmas period.
Tesco, the world’s third-largest retailer, beat forecasts for underlying sales growth, regaining an edge after a dismal Christmas in 2011 prompted the group’s first profit warning in 20 years and a strategic rethink.
Sales at British stores open more than a year, excluding fuel and VAT sales tax, grew 1.8 per cent in the six weeks to January 5, part of Tesco’s fiscal fourth quarter, compared with analysts’ forecasts in a range of up 0.5 to 1.5 per cent and with a third-quarter fall of 0.6 per cent. Reuters
http://www.fool.com/investing/international/2013/01/09/whats-in-store-for-tescos-shareholders.aspx
Thursday, 10 January 2013
Wednesday, 9 January 2013
MALAYSIA'S first Islamic bond (sukuk) for retail investors
Minimum profit rate of 3.7pc
Published: 2013/01/09
MALAYSIA'S first Islamic bond (sukuk) for retail investors, launched yesterday and expected to be listed on February 8, will have a minimum profit rate of 3.7 per cent a year.
The RM300 million sukuk with a 10-year tenure was issued by DanaInfra Nasional Bhd, a unit under the Ministry of Finance, to fund the Mass Rapid Transit (MRT) project that will run between Kajang and Sungai Buloh in the Klang Valley. It was launched by Prime Minister Datuk Seri Najib Razak.
The issue is part of a larger RM1.5 billion sukuk that's being sold by DanaInfra, of which RM1.2 billion is for institutional investors.
"It will be better than the fixed deposit (FD) return and better than the MGS (Malaysian Government Securities, or government bonds)," Treasury secretary-general Datuk Seri Mohd Irwan Serigar Abdullah told reporters after the launch yesterday.
Bankers said the actual profit rate for the retail sukuk, which will depend on investor demand and the prevailing market interest rate, will be determined at the close of the book building exercise of the institutional offering.
Datuk Lee Kok Kwan of CIMB Investment Bank, one of four banks that are the joint lead arrangers for the issue, said he was confident that there would be strong demand for the retail sukuk.
He pointed out that unlike fixed deposit, income that investors derive from sukuk is not subject to tax.
"And the main assurance is that, post-listing, the liquidity will be there as the four banks are obligated to market them," he remarked.
Bursa Malaysia chief executive officer Datuk Tajuddin Atan said the retail sukuk, which opens up a new asset class for people to invest in, cements Malaysia's role as a top sukuk marketplace.
Previously, bonds or sukuk were accessible only to high-net worth and institutional investors.
"To make this sustainable, we need a pipeline, and this is being worked on. DanaInfra has a big pipeline of sukuk, but we're also looking at other issuers," he said.
The sukuk is meant for investors who want to diversify their portfolio. The minimum subscription amount for an ETBS is RM1,000, which will get an investor one board lot which comprises 10 units with a principal price of RM100 each.
Read more: Minimum profit rate of 3.7pc http://www.btimes.com.my/Current_News/BTIMES/articles/sukuk/Article/#ixzz2HQbadqdL
Friday, 4 January 2013
Indonesia: An industry-led growth economy
Cyrillus Harinowo Hadiwerdoyo, Jakarta | Opinion | Fri, January 04 2013, 9:10 AM
Malaysia's main market index ends year at all time high; advances 10.34% in 2012.
Tuesday January 1, 2013
Malaysia's main market index ends year at all time high
By TEE LIN SAY
linsay@thestar.com.my
Local bourse advances 10.34% in 2012
PETALING JAYA: The FBM KLCI finished 2012 with a 10.34% gain to close at an all-time high of 1,688.95 as election concerns, defensive trading and high cash holding continued to dominate the equity scene in Malaysia. For the day, the local bourse was up 7.62 points on volume of RM1.31bil shares.
The KLCI's gains were mostly done in the last 15 minutes of trading on selected key blue chip stocks.
Kuala Lumpur Kepong Bhd was the biggest gainer of the day, closing RM2.06 to RM24, pushing up the KLCI by 3.39 points while Malayan Banking Bhd rose 12 sen to RM9.02 and nudged the index by 2.25 points. AEON Co (M) Bhd was on the gainers list, up RM1.42 to close at RM14.12.
Nonetheless, the KLCI is still one of the underperformers when compared with its regional peers. It is only ahead of the Shanghai Composite Index, Taiwan and South Korea, which recorded year to date gains of 3.17%, 8.87% and 9.38%, respectively.
Not surprisingly, it was the smaller Ace market counters that hogged the gainers list for the year.
These included Microlink Solutions Bhd with a 308% gain to 51 sen andBorneo Aqua Harvest Bhd with a 118.18% gain to 72 sen.
Among the bigger stocks that did well included KLCC Property Holdings Bhd which gained 99.37% to RM6.28 on plans to form a stapled real estate investment trust (REIT).
KLCC Property's restructuring exercise will involve the company acquiring the remaining 49.5% stake in Midciti Resources Sdn Bhdwhich owns the Petronas Twin Towers from KLCC Holdings Bhd for RM2.86bil. Following that, KLCC Property will inject three properties into KLCC REIT.
The properties are the Twin Towers, Menara ExxonMobile and Menara 3 Petronas. Thus once the restructuring is completed, KLCC Property shareholders will own shares and units in both KLCC Property and KLCC REIT.
The best performing stock on the Main Market for the year was Bright Packaging Industry Bhd, which was up 230.58% on a year to date basis.
It closed at RM2, which is also its 10-year high, on news that the company may see a change in its board and management.
Bright manufactures aluminium foil packaging materials which are mainly supplied to the tobacco industry. Last week, the company told Bursa Malaysia that four substantial shareholders with a collective stake of 31.2% had requested an EGM to remove existing directors and appoint new ones.
Over in the Ace market, the best performing stock and overall best performing stock for whole of Bursa Malaysia for 2012 was Green Ocean Corp Bhd.
Sunday, 23 December 2012
Use Stock Volume to Your Benefit
So how can you use volume to your advantage?
1. Remind yourself that traders only determine the short term price not the value.
2. Use the volume to help predict the right time to buy more assets or change into a better position.
Large volume (relatively speaking) means the price is at a peak or valley. You are either at the top or the bottom of the chart, you need to determine this.
What is Stock Volume?
Summary
In this lesson, we learned the importance of stock volume. Although volume won’t help intelligent investors learn the intrinsic value of a company, it can be used as a tool to help predict market behaviour.
Many times investors can be fooled into believing that the market price of a stock is determined by all the shareholders. This idea is false.
When we look at the volume of a company on an given day, we can quickly get a sense of how many traders are actually determining the price of a stock when we compare this number to the shares outstanding. This ratio, volume/shares outstanding, provides a good idea how many traders are moving away from the company and how many are coming into the company.
We demonstrated this principal with Wells Fargo (WFC). When we looked at the historical market price for WFC, we learned that on the day where the volume was the highest in ten years, the market price was at an all time low. This idea of shareholders disagreeing with the market price when volume is relatively high is an important point that stock traders can use to their advantage.
Always remember, volume can mean that the stock is over priced or underpriced. The peak or valley is for you to discern.
http://www.buffettsbooks.com/security-analysis/what-is-stock-volume.html
1. Remind yourself that traders only determine the short term price not the value.
2. Use the volume to help predict the right time to buy more assets or change into a better position.
Large volume (relatively speaking) means the price is at a peak or valley. You are either at the top or the bottom of the chart, you need to determine this.
What is Stock Volume?
Summary
In this lesson, we learned the importance of stock volume. Although volume won’t help intelligent investors learn the intrinsic value of a company, it can be used as a tool to help predict market behaviour.
Many times investors can be fooled into believing that the market price of a stock is determined by all the shareholders. This idea is false.
When we look at the volume of a company on an given day, we can quickly get a sense of how many traders are actually determining the price of a stock when we compare this number to the shares outstanding. This ratio, volume/shares outstanding, provides a good idea how many traders are moving away from the company and how many are coming into the company.
- When the company trades at a very low volume, we can generally say that the shareholder agree with the market price.
- Likewise, if the volume is very high, we can generally say that shareholders disagree with the market price.
We demonstrated this principal with Wells Fargo (WFC). When we looked at the historical market price for WFC, we learned that on the day where the volume was the highest in ten years, the market price was at an all time low. This idea of shareholders disagreeing with the market price when volume is relatively high is an important point that stock traders can use to their advantage.
Always remember, volume can mean that the stock is over priced or underpriced. The peak or valley is for you to discern.
http://www.buffettsbooks.com/security-analysis/what-is-stock-volume.html
When to Sell Stock like Warren Buffett
1. When a higher return is expected by trading to another asset (to include the loss incurred by capital gains tax).
2. When the company changes its fundamentals.
When to Sell Stock like Warren Buffett
Summary
In this lesson, we learned the importance of always understanding the consequences of our actions. Buying and selling stock can have an enormous impact on our success as an investor. The most important thing to learn from this lesson is the emotional decisions when selling stock can often lead to very poor results.
We learned that there are two major rules for knowing when to sell stock:
1. We sell stock when we can trade the capital into an investment that will produce a larger return after accounting for the capital gains tax paid (state and federal). In addition, you’ll want to ensure the risk assumed is comparable for the return received.
2. We sell stock when the business changes its fundamentals. This could mean the way they manage debt. The future outlook for earnings is decreasing…etc
http://www.buffettsbooks.com/security-analysis/when-to-sell-shares.html
2. When the company changes its fundamentals.
When to Sell Stock like Warren Buffett
Summary
In this lesson, we learned the importance of always understanding the consequences of our actions. Buying and selling stock can have an enormous impact on our success as an investor. The most important thing to learn from this lesson is the emotional decisions when selling stock can often lead to very poor results.
We learned that there are two major rules for knowing when to sell stock:
1. We sell stock when we can trade the capital into an investment that will produce a larger return after accounting for the capital gains tax paid (state and federal). In addition, you’ll want to ensure the risk assumed is comparable for the return received.
2. We sell stock when the business changes its fundamentals. This could mean the way they manage debt. The future outlook for earnings is decreasing…etc
http://www.buffettsbooks.com/security-analysis/when-to-sell-shares.html
How to use a cash flow statement to identify strong versus risky companies
What is a Cash Flow Statement
This important document is used to help determine how money flows through a business. Prior to 1987, investors could only examine the health of a company from the income statement and balance sheet. Due to stricter regulations, publicly traded companies are now required to also disclose the cash flow statement.
The cash flow statement is broken down into three categories.
1. Operating Activities: This is probably the most important section of the statement because it shows the money that's flowing into the business from the product or service that the company produces. Positive revenues listed on the cash flow statement from other activities are not sustainable in the long term, so that's why this section is so important.
2. Investing Activities: A negative number listed in this section would mean that the company is investing money. A positive number in this section would mean that the company sold an asset in order to generate money. Obviously its better to see a negative number show-up under this section because it implies that the company is continuing to invest the revenues that it produces.
3. Financing Activities: In this section, an investor can identify whether the business is try to raise money or pay off debts. A positive number in this section means the company is incurring debt or dilute the value of their shares. A negative number means the company is paying off debt or increasing the value of their shares (through a share buy back). Generally speaking its good to see a negative number under this section because it means the company is removing their leverage and creating a stronger position for their shareholders.
The Cash flow is a great document to help look at trends and how money flows through a business. Although the balance sheet and income statement are very useful documents for determining the intrinsic value of a stable company, the cash flow statement gives potential investors a glimpse into the current conditions of the company and how they manage their resources.
http://www.buffettsbooks.com/intelligent-investor/cash-flow-statement/what-is-cash-flow-statement.html
How to read the cash flow statement
http://www.buffettsbooks.com/intelligent-investor/cash-flow-statement/how-to-read-cash-flow-statement.html
How to read the cash flow statement
http://www.buffettsbooks.com/intelligent-investor/cash-flow-statement/how-to-read-cash-flow-statement.html
Income Investing: How do you plan to pay for your retirement?
Imagine that you're 65 years old and you're looking to retire.
If you have $500,000 in savings, how long will that money last?
If you spend $50,000 a year and your saving grows at 7% a year, you'll be broke by age 80.
The savings and investments can only support you for 15 years from the age of 65!!!
What is Income Investing?
Income investing is purchasing stable stocks and bonds that pay dividends and coupons. If enough stocks and bonds are acquired, the dividends and coupons will provide income for the owner during retirement.
If the income is enough to meet spending requirements, then the equity and par value of the investments will remain or grow with time as income payments continue to grow as well.
How can you invest in companies that will provide benefits now and into retirement?
Invest in stable companies with low debt/equity ratio that pay dividends.
Always purchase assets that will increase your cash flow next month. Income investing has a compounding effect in increasing your cash flow. Using this approach will provide increasing liquidity (dividends) each month, so you can invest in the most undervalued security (either stocks, bonds, or preferred shares).
Conclusion
Income investing provides quarterly payments during retirement.
Income investing provides a constant stream of cash so you can continually take advantage of changing market conditions.
As a rule of thumb, I like to find companies that pay 1/3 of their earnings through a dividend and the other 2/3 into the book value growth of the business (this is growth I don't pay taxes on).
Earnings
-----> Option 1 -----> Retained or Pay down debts ----> Increase in Book Value or Equity
-----> Option 2 ------> Dividends
Most companies retain some earnings (e.g. 2/3) and also distribute some as dividends (e.g. 1/3).
How can I employ Income Investing Techniques
If you have $500,000 in savings, how long will that money last?
If you spend $50,000 a year and your saving grows at 7% a year, you'll be broke by age 80.
The savings and investments can only support you for 15 years from the age of 65!!!
What is Income Investing?
Income investing is purchasing stable stocks and bonds that pay dividends and coupons. If enough stocks and bonds are acquired, the dividends and coupons will provide income for the owner during retirement.
If the income is enough to meet spending requirements, then the equity and par value of the investments will remain or grow with time as income payments continue to grow as well.
How can you invest in companies that will provide benefits now and into retirement?
Invest in stable companies with low debt/equity ratio that pay dividends.
Always purchase assets that will increase your cash flow next month. Income investing has a compounding effect in increasing your cash flow. Using this approach will provide increasing liquidity (dividends) each month, so you can invest in the most undervalued security (either stocks, bonds, or preferred shares).
Conclusion
Income investing provides quarterly payments during retirement.
Income investing provides a constant stream of cash so you can continually take advantage of changing market conditions.
As a rule of thumb, I like to find companies that pay 1/3 of their earnings through a dividend and the other 2/3 into the book value growth of the business (this is growth I don't pay taxes on).
Earnings
-----> Option 1 -----> Retained or Pay down debts ----> Increase in Book Value or Equity
-----> Option 2 ------> Dividends
Most companies retain some earnings (e.g. 2/3) and also distribute some as dividends (e.g. 1/3).
How can I employ Income Investing Techniques
Summary of this lesson
By employing the techniques of income investing, one can prepare themselves properly for retirement. Since income investing is the process of picking stable stocks and bonds that pay decent dividends and coupons, the investor can benefit from the cash flow that’s produced by these securities.
The first way income investing provides benefits to the investor is through liquidity. Since the investor will continually receive dividends or coupons, they then have the opportunity to reinvest that cash flow into the most undervalued asset each month. This compounding cash flow is truly the essence of investing like Warren Buffett. With an ever increasing cash flow, investors can take advantage of market conditions during spikes and valleys.
The second way income investing provides benefits to the investor is during retirement. Since most retirees may need to sell their investments in order to pay their monthly lifestyle expenses, income investing offers an alternative approach. Since the retiree will receive quarterly and semi annual payments from these types of investments, they will continue to have a steady cash flow to meet their lifestyle expenses. Although some retirees may need to pull from the principal, income investing will minimize that withdrawal.
In the end, Income Investing creates more cash flow for the individual employing the technique. It’s Warren Buffett’s opinion that purchasing dividend paying stocks is a very wise decision because of the continued and consistent cash flow that provides liquidity to reinvest your earnings.
Warren Buffett Intrinsic Value Calculator - Determine if Stock is Undervalued or Not.
Warren Buffett's 4 Rules:
1. Vigilant Leaders
2. Long Term Prospects
3. Stock Stability
4. Undervalued
Non-Predictable Company (Andrew :-) )
- Lots of Debt
- No Long Term Prospects
- Not Stable
- Price ? - Can't be determined due to stability
- Manageable Debt
- Long-term Prospects
- Stable
- Market Price = $44.33 Intrinsic Value = ?
Lesson Objective 1: How do we calculate the intrinsic value of a stock
Lesson Objective 2: How do we use the BuffettsBooks.com intrinsic value calculator
Summary of this lesson
In this lesson, students learned that the intrinsic value can be defined as the discounted value of the cash that can be taken out of a business during it's remaining life. For us, we've defined the life as the next ten years. This way, we can discount that cash by the 10 year federal note. The Cash that we are taking out of the business is simply the dividends and the book value growth during the next 10 years. Since these numbers need to be estimated, it's very important to ensure that Warren Buffett's third rule (a stock must be stable and understandable) is met.
When a company doesn't have a history of linear growth, estimating the cash that they will produce for the next ten years becomes more speculative. When we look at the root of the intrinsic value calculator, it operates off of the same principals as a bond calculator. Instead of using coupons, we substitute dividends. And instead of using par value (or value at maturity) we estimate the book value of the business in 10 years. The value that we use to discount the summation of the cash is simply the 10 year federal note.
Although the previous paragraph might sound confusing to some, it's application is fairly straight forward. The reason Buffett says, "Two people looking at the same set of facts, will almost inevitably come up with at least slightly different intrinsic value figures," is due to a difference in opinion of the future cash flows. Since some investors are more conservative than others, their estimates of book value growth or dividend payments may be lower. This will immediately change the intrinsic value. Your job as an intelligent investor is to determine your own tolerance for risk and conservative estimates on how much money you will receive while owning the stock for a 10 year period.
Intrinsic Value Calculator
Source of Quotes: http://www.berkshirehathaway.com/owners.html
"Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life." - Warren Buffett
Therefore, the sum of cash that can be taken out of the business over the next ten years is going to be the dividends plus the equity growth. The discounted value is the current value of the 10 year federal note. To start, we'll determine how much a company's book value is growing.
"In other words, the percentage change in book value in any given year is likely to be reasonably close to that year's change in intrinsic value."- Warren Buffett
Click here for the Intrinsic Value Calculator:
Would you rather be with Andrew or Linda? Businesses manage their finances just like individual people. :-)
Predicting the future networth of these individuals.
Andrew: Risky to Predict
Linda: Less Risky to Predict
Just because a business has volatile numbers doesn't mean it won't make a lot of money in the future.
It's just more difficult to predict and value = RISK.
Buffett Rule: A Stock must be stable and understandable.
Andrew: Risky to Predict
Linda: Less Risky to Predict
Just because a business has volatile numbers doesn't mean it won't make a lot of money in the future.
It's just more difficult to predict and value = RISK.
Buffett Rule: A Stock must be stable and understandable.
Best Video Explanation of the Yield Curve and how this can help your investing
What is a Yield Curve?
What are the 3 financial risks in an investment?
What causes financial risks in an investment?
1. Excessive debt
"Only when the tide goes out do you discover who's been swimming naked." - Warren Buffett.
Companies incur debts because they want to speed up time. They can own assets now instead of waiting for them later. Why is speeding up time a bad thing?
These are often the companies and people with a lot of debts when the market collapses.
2. Overpaying for an investment.
Price is what you pay. Value is what you get. - Warren Buffett
The asset quality has not changed. The market conditions has not changed. The poor investment was based on the initial price paid, not the quality of the asset. The investor overpaid to own the asset or stock.
3. Not knowing what you're doing.
"Risk comes from not knowing what you're doing." - Warren Buffett.
Why do people value the ownership of a house but not value the ownership of a company?
People understand how to value a house. Many people do not understand how to value a company or stock. They definitely do not understand the value of the company when they are broken down into many shares. So, that is the true risk here and if you are the type of person who buys company shares and never look at what they are worth and buying on the basis that "well I like this company", you are probably setting up yourself up for buying too high above the true value of the share.
1. Excessive debt
"Only when the tide goes out do you discover who's been swimming naked." - Warren Buffett.
Companies incur debts because they want to speed up time. They can own assets now instead of waiting for them later. Why is speeding up time a bad thing?
These are often the companies and people with a lot of debts when the market collapses.
2. Overpaying for an investment.
Price is what you pay. Value is what you get. - Warren Buffett
The asset quality has not changed. The market conditions has not changed. The poor investment was based on the initial price paid, not the quality of the asset. The investor overpaid to own the asset or stock.
3. Not knowing what you're doing.
"Risk comes from not knowing what you're doing." - Warren Buffett.
Why do people value the ownership of a house but not value the ownership of a company?
People understand how to value a house. Many people do not understand how to value a company or stock. They definitely do not understand the value of the company when they are broken down into many shares. So, that is the true risk here and if you are the type of person who buys company shares and never look at what they are worth and buying on the basis that "well I like this company", you are probably setting up yourself up for buying too high above the true value of the share.
Greed and Fear. Who do you think is ultimately determining the market price in the long run?
What are instincts?
Any behaviour is instinctive if it is performed without being based upon prior experience or knowledge.
Since most investors base their investing on emotions and instinct, they follow the mindset of Mr. Market. (Instinct = without knowledge).
Solution .. become knowledgeable. Base your decisions on facts opposed to emotions.
Greed Cycle
People are chasing prices ... not value.
Mindset: A quick buck is about to be made.
Fear Cycle
People are scared they'll lose everything.
Mindset: I don't k now the value of these stocks, so I'm outa' here.
How do we know how much the stock is worth? This is a tough question.
The knowledge of a stock's value allows an investor to determine if Mr. Market is Greedy or Fearful. (That's why we are here. :-) )
The key is to be greedy when others are fearful and fearful when others are greedy. - Warren Buffett.
The name of the game really is between Accumulating Shares versus Trading Shares. You want to be the person who is accumulating shares.
The stock market behaves like a voting machine, but in the long term it acts like a weighing machine. - Benjamin Graham.
Short Term: Anyone can price the stock.
Long Term: The Value becomes absolute.
Who do you think is ultimately determining the market price in the long run?
Any behaviour is instinctive if it is performed without being based upon prior experience or knowledge.
Since most investors base their investing on emotions and instinct, they follow the mindset of Mr. Market. (Instinct = without knowledge).
Solution .. become knowledgeable. Base your decisions on facts opposed to emotions.
Greed Cycle
People are chasing prices ... not value.
Mindset: A quick buck is about to be made.
Fear Cycle
People are scared they'll lose everything.
Mindset: I don't k now the value of these stocks, so I'm outa' here.
How do we know how much the stock is worth? This is a tough question.
The knowledge of a stock's value allows an investor to determine if Mr. Market is Greedy or Fearful. (That's why we are here. :-) )
The key is to be greedy when others are fearful and fearful when others are greedy. - Warren Buffett.
The name of the game really is between Accumulating Shares versus Trading Shares. You want to be the person who is accumulating shares.
The stock market behaves like a voting machine, but in the long term it acts like a weighing machine. - Benjamin Graham.
Short Term: Anyone can price the stock.
Long Term: The Value becomes absolute.
Who do you think is ultimately determining the market price in the long run?
Benjamin Graham's Mr. Market, a stubborn business partner who sometimes offer great deals or very expensive prices.
As buyers and sellers move the market price of a stock, the market will offer great deals or very expensive prices. This idea is represented by Benjamin Graham's Mr. Market. Graham used the idea of Mr. Market to represent a stubborn business partner that sometimes offers great deals or horrible prices. Your job as an intelligent investor is to determine which deals are of great value.
Benjamin Graham's Mr. Market
Mr. Market is your emotionally disturbed business partner.
You can't change his behaviour ... but you can react to it!
Mr. Market is your servant, not your guide.
Mr. Market: "Hey Guys!!! Buy some stocks ... everyone's make money ... you can too. I am making a lot of money, so are my friends."
Mr. Market: "Watch out, I'll take your money. The outlook for tomorrow is even worse, so don't ask! If you think you can make money in the stock market, you are just kidding yourself."
Never follow Mr. Market's changing emotions.
Instead, remain calm and competent, and take advantage of the opportunities Mr. Market presents.
Mr. Market is your servant, not your guide. - Warren Buffett
Benjamin Graham's Mr. Market
Mr. Market is your emotionally disturbed business partner.
You can't change his behaviour ... but you can react to it!
Mr. Market is your servant, not your guide.
Mr. Market: "Hey Guys!!! Buy some stocks ... everyone's make money ... you can too. I am making a lot of money, so are my friends."
Mr. Market: "Watch out, I'll take your money. The outlook for tomorrow is even worse, so don't ask! If you think you can make money in the stock market, you are just kidding yourself."
Never follow Mr. Market's changing emotions.
Instead, remain calm and competent, and take advantage of the opportunities Mr. Market presents.
Mr. Market is your servant, not your guide. - Warren Buffett
The Reasons for Selling and for Buying a Stock
For every single trade, there is always a buyer and a seller.
The Reasons for Selling
Seller: "This stock stinks. I can make more money somewhere else."
Seller: "I need money for my new car."
The Reasons for Buying
Buyer: "This company is going to make me some money."
Buyer: "This company is going to make me some money."
There are a few reasons for selling a stock, but there is usually only one reason for buying a stock. :-)
The seller thinks the stock stinks, whereas the buyer thinks the company is great.
The seller thinks the stock is still good but he needs the money, and the buyer bought because he thinks the company is great.
Thousands of orders a day cause the market price of a company to move up and down. However, the market price of a stock is determined only by a small number of players and not by all of the people.
The Reasons for Selling
Seller: "This stock stinks. I can make more money somewhere else."
Seller: "I need money for my new car."
The Reasons for Buying
Buyer: "This company is going to make me some money."
Buyer: "This company is going to make me some money."
There are a few reasons for selling a stock, but there is usually only one reason for buying a stock. :-)
The seller thinks the stock stinks, whereas the buyer thinks the company is great.
The seller thinks the stock is still good but he needs the money, and the buyer bought because he thinks the company is great.
Thousands of orders a day cause the market price of a company to move up and down. However, the market price of a stock is determined only by a small number of players and not by all of the people.
How does the Stock Market work for the Value Investor?
Amy the Seller put a stop order to sell a company share at $65 per share.
Linda the Buyer put a market order to buy.
The transaction was matched.
The market price of the stock is now displayed on the board at $65 per share.
Does this mean the company IS worth $65 a share?
or
Did a couple of people trade it for $65 a share?
As a value investor, the answer is the latter. The $65 is the trading price. Just because a couple of people traded the share for $65 a share, this doesn't mean that the company is actually worth $65 a share.
Value investing is all about determining what the value of that share is worth and looking at what the price people are willing to buy it for or sell it for, and capitalize on these.
Linda the Buyer put a market order to buy.
The transaction was matched.
The market price of the stock is now displayed on the board at $65 per share.
Does this mean the company IS worth $65 a share?
or
Did a couple of people trade it for $65 a share?
As a value investor, the answer is the latter. The $65 is the trading price. Just because a couple of people traded the share for $65 a share, this doesn't mean that the company is actually worth $65 a share.
Value investing is all about determining what the value of that share is worth and looking at what the price people are willing to buy it for or sell it for, and capitalize on these.
Saturday, 22 December 2012
Why is stock investing so lucrative?
Emotion trading offers really cheap prices and really expensive prices.
Your job is to always calculate the intrinsic value of the business regardless of the size, then compare the value to the price it trades for.
Your job is to always calculate the intrinsic value of the business regardless of the size, then compare the value to the price it trades for.
P/E Ratio
P/E Ratio
This ratio is a comparison between the price you would pay to buy a stock and how much profit you may see from 1 share in 1 year.
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