Monday, March 28, 2011

To Buy? or Not to Buy

Hey there,

When we talk about value investing, the first thing that comes to my mind is Warren Buffet, following his name shortly is Benjamin Graham. Warren Buffet is known as the best value investor of all time, being the 3rd richest man on earth, accumulating all his wealth from the stock market. Benjamin Graham, is thought to be one of the 1st person who pioneered value investing. He is also the teacher of Warren Buffet and author of the Intelligent Investor (yes it is where I got my name from).

I’ve talked about the differences of investors and traders in my older post but how do some value investors decide on which stocks to buy?

I guess they all have their own way to analyse a company depending on their balance sheets, cash flows, profits to earning ratio and other financial indicators. They also use past performances to gauge how the company could potentially do in the future. At the end of the day, all their calculations will give them one vital number, which is the intrinsic value. This number is the price in which they believe the share is worth. If the price of the share is below this price for whatever reason, they look at it as a discount and buy the share. If the share price is above this value, they’ll think that the share is overpriced and will avoid it.

To learn more about value investing, and the formulas used to calculate the intrinsic value, the book Buffettology written by Mary Buffet and David Clark is a very good book. They teach you step by step on how to calculate the fair value of a share and what to look out for.

I have a checklist that I use if I want to invest in a company (note, not trade) and they are basically stuff that I learnt from reading different books.

I also have a useful spreadsheet that can be used to calculate the intrinsic value of a share. If you have any questions about any of the terms in the checklist, feel free to drop me an email and I’ll answer it the best way I can. Same thing if you want the spreadsheet, shoot me an email and I’ll send it to you.

Today’s post is short because I figured that the checklist is fairly self explanatory. If you have any questions at all, or think the checklist can be improved in any way, please leave me a comment or send me an email. It is a learning experience for us all.

Once again, thank you for all your comments and emails I’m more than happy to receive more. If you think what I’ve been posting has been helpful, let me know, if you think they have been crap, let me know as well and I’ll try to improve them. Finally, if you like what you read, do like me on facebook or follow me on twitter. Thank you so much for reading!

And finally good luck to everybody taking part in the trading places competition, I look forward to kicking your ass. lol, jokes, I'm a noob.

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