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Monday, August 24, 2020
Saturday, August 13, 2016
Advantages of being your own stock analyst
StockInvestingtips learning series: In stock markets, it is always better to understand the basics of stock investing yourself and then invest your money. This becomes even more important as every professional stock investment companies provide it's services but comes with the disclaimer about losses, The words which haunts most of the stock market investors are "Stock market investing is subject to market risk, Invest carefully" and take their fees irrespective of any commitment about a 100 percent success and good returns on invested money. Hence in such scenarios it becomes more important to be your own stock analyst. If a person is a serious investor then it would be even more beneficial for him to become his own stock analyst. The major benefit of being your own stock analyst is that you definitely save on the professional fees which companies charge extra to your loosing money, hence increasing your losses. A person will not feel so bad about giving percentage of profit as fees. All this fuss about a professional stock analysts can be reduced to nil if a person decides to become his own stock analyst. Many of our previous tutorials would help a person in making intelligent stock investing decision himself. This post is in continuation to our belief that a person should be his own stock analyst.
Analysis Is a Process
It doesn't matter whether you are an investor looking for growth or value; the first step in thinking like an analyst is to develop a probing mind. You need to find out what to buy or sell at what price. Analysts usually focus on one particular industry or a sector. Within that particular sector, they focus on select companies. An analyst's aim is to deeply probe the affairs of the companies on their list. They do this by analyzing the financial statements and all other available information about the company. To cross-check the facts, analysts also probe the affairs of a company's suppliers, customers and competitors. Some analysts also visit the company and interact with its management in order to gain a firsthand understanding of the workings of the company. Gradually, professional analysts connect all the dots to get the full picture.
Before making any investment, you should do your own research. It is always better to research several stocks in the same industry so that you have a comparative analysis. However, the biggest constraint in doing your own research is time. Retail investors who have many other things to do may not be able to devote as much time as professional security analysts. However, you can surely take up just one or two firms in the beginning, to test how well you can analyze them. That would help you in understanding the process. With more experience and time, you can think of putting more stocks under your lens.
The Best Place to Start Is Where You Are
Analyzing the analysts' reports is the best way to start your own analysis. That way, you save a lot of time in cutting short preliminary work. You can learn about your selected company simply by reading analysts' research reports. You may not blindly follow analysts' sell or buy recommendations, but you can read their research reports to get a quick overview of the company, including its strengths and weaknesses, main competitors, industry outlook and future prospects. Analysts' reports are loaded with information, and reading reports by different analysts simultaneously would help you in identifying the common thread. Opinions may differ, but basic facts in all reports are common.
Furthermore, you can take a closer look at the earnings forecasts of different analysts, which ultimately determine their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for the reasons while reading analysts' reports. What would have been your opinion about the present stock, given the same information? No clue? Then move on to the next step.
What to Analyze
For reaching your own conclusion, you need to understand the various steps involved in a stock analysis. Some analysts follow a top-down strategy, starting with an industry and then locating a winning company, while others follow a bottom-up approach, starting with a particular company and then learning about the outlook of industry. You can make your own order, but the entire process must flow smoothly. Any process of analyzing a stock would involve the following steps.
Industry Analysis
There are publically available sources of information for almost any industry. Often, the annual report of a company itself gives a good enough overview of the industry, along with its future growth outlook. Annual reports also tell us about the major and minor competitors in a particular industry. Simultaneously reading the annual reports of two or three companies should give a clearer picture. You can also subscribe to trade magazines and websites that cater to a particular industry for monitoring the latest industry happenings.
Business Model Analysis
You should focus on a company's strength and weaknesses. There can be a strong company in a weak industry and a weak company in a strong industry. The strengths of a company are often reflected in things such as its unique brand identity, products, customers and suppliers. You can learn about a company's business model from its annual report, trade magazines and websites.
Financial Strength
Whether you like it or not, understanding the financial strength of a company is the most crucial step in analyzing a stock. Without understanding financials, you cannot actually think like an analyst. You should be able to understand a company's balance sheet, income statement and cash flow statements. Often, numbers lying in the financial statements speak louder than the glossy words of an annual report. In case you are not comfortable with numbers, no need to hesitate, just start learning as early as possible.
Management Quality
Analysts also focus on management quality. It is often said that there are no good or bad companies, only good or bad managers. Key executives are responsible for the future of the company. You can assess company management and board quality by doing some research on the Internet. Tons of information is available.
Growth Analysis
Ultimately, stock prices follow earnings. So in order to know whether stock prices would be moving up or down in the future, you need to know where future earnings are heading. Unfortunately, there is no a quick formula that can tell you what to expect for future earnings. Analysts make their own estimates by analyzing past figures of sales growth and profit margins, along with profitability trends in that particular industry. It's basically connecting what has happened in the past to what's expected to happen in the future. Making accurate enough earnings forecasts is the ultimate test of your stock analysis capabilities, because it's a good indication of how well you understand those industries and companies.
Valuations
Once you know about future earnings, the next step is to know about the worth of a company. What should be the worth of your company's stocks? Analysts need to find out how much the current market price of the stocks is justified in comparison to the company's value. There is no "correct value," and different analysts use different parameters. Value investors look at intrinsic worth whereas growth investors look at earning potential. A company selling at a higher P/E ratio must grow at a higher price to justify its current price for growth investors. Happy Investing !! LIKE! SHARE! LEARN! courtesy : Investopedia
Analysis Is a Process
It doesn't matter whether you are an investor looking for growth or value; the first step in thinking like an analyst is to develop a probing mind. You need to find out what to buy or sell at what price. Analysts usually focus on one particular industry or a sector. Within that particular sector, they focus on select companies. An analyst's aim is to deeply probe the affairs of the companies on their list. They do this by analyzing the financial statements and all other available information about the company. To cross-check the facts, analysts also probe the affairs of a company's suppliers, customers and competitors. Some analysts also visit the company and interact with its management in order to gain a firsthand understanding of the workings of the company. Gradually, professional analysts connect all the dots to get the full picture.
Before making any investment, you should do your own research. It is always better to research several stocks in the same industry so that you have a comparative analysis. However, the biggest constraint in doing your own research is time. Retail investors who have many other things to do may not be able to devote as much time as professional security analysts. However, you can surely take up just one or two firms in the beginning, to test how well you can analyze them. That would help you in understanding the process. With more experience and time, you can think of putting more stocks under your lens.
The Best Place to Start Is Where You Are
Analyzing the analysts' reports is the best way to start your own analysis. That way, you save a lot of time in cutting short preliminary work. You can learn about your selected company simply by reading analysts' research reports. You may not blindly follow analysts' sell or buy recommendations, but you can read their research reports to get a quick overview of the company, including its strengths and weaknesses, main competitors, industry outlook and future prospects. Analysts' reports are loaded with information, and reading reports by different analysts simultaneously would help you in identifying the common thread. Opinions may differ, but basic facts in all reports are common.
Furthermore, you can take a closer look at the earnings forecasts of different analysts, which ultimately determine their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for the reasons while reading analysts' reports. What would have been your opinion about the present stock, given the same information? No clue? Then move on to the next step.
What to Analyze
For reaching your own conclusion, you need to understand the various steps involved in a stock analysis. Some analysts follow a top-down strategy, starting with an industry and then locating a winning company, while others follow a bottom-up approach, starting with a particular company and then learning about the outlook of industry. You can make your own order, but the entire process must flow smoothly. Any process of analyzing a stock would involve the following steps.
Industry Analysis
There are publically available sources of information for almost any industry. Often, the annual report of a company itself gives a good enough overview of the industry, along with its future growth outlook. Annual reports also tell us about the major and minor competitors in a particular industry. Simultaneously reading the annual reports of two or three companies should give a clearer picture. You can also subscribe to trade magazines and websites that cater to a particular industry for monitoring the latest industry happenings.
Business Model Analysis
You should focus on a company's strength and weaknesses. There can be a strong company in a weak industry and a weak company in a strong industry. The strengths of a company are often reflected in things such as its unique brand identity, products, customers and suppliers. You can learn about a company's business model from its annual report, trade magazines and websites.
Financial Strength
Whether you like it or not, understanding the financial strength of a company is the most crucial step in analyzing a stock. Without understanding financials, you cannot actually think like an analyst. You should be able to understand a company's balance sheet, income statement and cash flow statements. Often, numbers lying in the financial statements speak louder than the glossy words of an annual report. In case you are not comfortable with numbers, no need to hesitate, just start learning as early as possible.
Management Quality
Analysts also focus on management quality. It is often said that there are no good or bad companies, only good or bad managers. Key executives are responsible for the future of the company. You can assess company management and board quality by doing some research on the Internet. Tons of information is available.
Growth Analysis
Ultimately, stock prices follow earnings. So in order to know whether stock prices would be moving up or down in the future, you need to know where future earnings are heading. Unfortunately, there is no a quick formula that can tell you what to expect for future earnings. Analysts make their own estimates by analyzing past figures of sales growth and profit margins, along with profitability trends in that particular industry. It's basically connecting what has happened in the past to what's expected to happen in the future. Making accurate enough earnings forecasts is the ultimate test of your stock analysis capabilities, because it's a good indication of how well you understand those industries and companies.
Valuations
Once you know about future earnings, the next step is to know about the worth of a company. What should be the worth of your company's stocks? Analysts need to find out how much the current market price of the stocks is justified in comparison to the company's value. There is no "correct value," and different analysts use different parameters. Value investors look at intrinsic worth whereas growth investors look at earning potential. A company selling at a higher P/E ratio must grow at a higher price to justify its current price for growth investors. Happy Investing !! LIKE! SHARE! LEARN! courtesy : Investopedia
Sunday, July 31, 2016
Dividends in Stock Markets - explained
Dividend is a method/tool by which the owners of company share the profits with the stockholders of the company. Stock holders are people who have invested in that company and are partial owners of the company. Amount of dividend to be distributed is decided by the board of directors of a company and before giving out dividend the company might keep aside certain amount of profits needed for expansion or Research or re-investing. It is purely on discretion of the board of directors whether they want to distribute dividend or not.
Dividend is often calculated in unit called Dividend Rate. which is quoted in INR each share receives. Dividend Rate might also be quoted in terms of a percent of the current market price, often called as dividend yield. Dividend payments must be approved by the shareholders and may be structured as a one-time special dividend, or as an ongoing cash flow to owners and investors. Dividends are mainly given by blue-chip companies as they have ample cash surplus and strong customer base and reputation. A newly listed company might not give dividend as it needs money for expansion and acquisitions. However ones such company reaches a mature level and becomes stable, then it might offer dividends.
A company which decides to pay-out dividend may have different principles and methods for deciding the amount of dividend per share it wants to distribute. Some of the methods which are quite common with the board of directors are as follows:
1. Stable dividend policy: Even if corporate earnings are in flux, stable dividend policy focuses on maintaining a steady dividend payout.
2. Residual dividend model: Dividends are based on earnings less funds the firm retains to finance the equity portion of its capital budget and any residual profits are then paid out to shareholders.
3. Constant payout ratio: A company pays out a specific percentage of its earnings each year as dividends, and the amount of those dividends therefore vary directly with earnings.
4. Target payout ratio: A stable dividend policy could target a long-run dividend-to-earnings ratio. The goal is to pay a stated percentage of earnings, but the share payout is given in a nominal dollar amount that adjusts to its target at the earnings baseline changes.
We'll end this post here as it has lots of concepts and methods for understanding the way dividends work and how companies decide for dividend payout. More data would make this even more heavier. You can subscribe through email to get stock investing tutorials directly in email or can press LIKE on top of the post to get updates from our facebook page.
Be tuned for our next post on Dividend yield.
HAPPY TRADING!!
Saturday, July 9, 2016
Relative Stock Valuation Methods for Investing
StockInvestingTips Learning Series In continuation with previous post which explained the Absolute Stock Valuation Methods, read full post here(If you missed it). This post would explain the other way of stock valuation which is known as Relative Stock Valuation Methods. Relative methods for stock valuation consists of atleast 5 different ways for evaluating a stock. These all 5 methods would be explained one by one in this post.
Here are the 5 Relative Stock Valuation Methods:
1.P/E Ratio
2.Return on Equity
3.Operational Margin (OM)
4.Enterprise value (EV)
5.P/cash Flow ratio
Here are the 5 Relative Stock Valuation Methods:
1.P/E Ratio
2.Return on Equity
3.Operational Margin (OM)
4.Enterprise value (EV)
5.P/cash Flow ratio
Monday, June 20, 2016
Using Absolute Stock Evaluation Methods for investing
StockInvestingTips learning series: Many of the newbies of stock market doesnot know much about different stock valuation methods which needs to be known before shortlisting a company for investing your money. There are two different stock market evaluation methods namely:
1. Absolute Stock Market Valuation
2. Relative Stock Market Valuation
I'll explain these two stock valuation methods one by one, however this post would explain the Absolute Stock Valuation Method only. Relative Stock Valuation method would be explained in another post as I do not want to make this post too heavy for understanding. Step by step approach is better then a heavy dose.
Absolute Stock valuation methods can be applied using two approaches which are as follows:
1. Dividend Discount Method
2. Discounted Cash Flow Method
1. Absolute Stock Market Valuation
2. Relative Stock Market Valuation
I'll explain these two stock valuation methods one by one, however this post would explain the Absolute Stock Valuation Method only. Relative Stock Valuation method would be explained in another post as I do not want to make this post too heavy for understanding. Step by step approach is better then a heavy dose.
Absolute Stock valuation methods can be applied using two approaches which are as follows:
1. Dividend Discount Method
2. Discounted Cash Flow Method
Wednesday, June 1, 2016
Selling Strategies every individual should know
StockInvestingTips learning series: Almost all the websites providing stock investing tips always emphasize on stock buying tips because it adds to their revenue for providing paid stock tips on daily basis. However none of the website providing paid tips provide any strategy for selling your stocks and ensuring that the losses are minimised incase stock markets become bearish. In this post I would illustrate few tips for selling your stocks. You might use some of these tips as stock selling strategies for your own stock portfolio.
Stock Selling Strategies everyone should know:
1. Sell during financial crises: Anyone can face Personal financial crises at any time of life. It is always better to sell any stocks you are holding during financial distress. Never go for a personal loan or any sort of borrowing if you have ample options for selling your stock investments. Loans are
Stock Selling Strategies everyone should know:
1. Sell during financial crises: Anyone can face Personal financial crises at any time of life. It is always better to sell any stocks you are holding during financial distress. Never go for a personal loan or any sort of borrowing if you have ample options for selling your stock investments. Loans are
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