Tuesday, January 19, 2010

How to Assess a Share

How do you assess a stock in the markets?

This is how most of us buy our shares
1. Have inside tips
2. Hand over our hard earned money to fund manager
3. Get so called hot tips through friends, markets, friends and etc.

Assessing the value of a company

Choose for undervalue stock

Focus investing
- Look for undervalue stock
- Produce above average returns over the long haul
- Spread the risk in shares get you into more risk
- Fund managers tend to use shotgun rather than using rifle thou they claim to be sharp shooters

How to identify an outstanding company
1. Meeting non financial criteria
- It is simple and understandable
- It has consistent operating history
- It has favorable long term prospects

2. Meeting financial criteria
- Return on equity (not earning per share)
- Owner’s earning (the share of profits belongs to investor)
- Profit margin (high)
- Return on investment profits (which must create at least $1 of market value for every dollar reinvested)

The majority of quoted companies will fail at least one of the criteria
- Is the business truly worth?
- Is the market value significantly lower than that value worth

Putting your eggs in 1 basket
- Risk actually increases when investment are spread too thinly
- Put all your egg in 1 basket and watch over it

Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price

by Robert Heller

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