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Intrinsic Value of Stocks
 

Intrinsic Value of Stocks

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A practical matter in stock investing is understanding and using intrinsic stock value. Knowing and using intrinsic stock value comes from doing your homework. It starts with fundamental analysis of ...

A practical matter in stock investing is understanding and using intrinsic stock value. Knowing and using intrinsic stock value comes from doing your homework. It starts with fundamental analysis of stocks looking at the price to earnings ratio, cash flow ratios, price to sales ratio, the quick ratio, and developing risk reward ratios in stock investment. The concept of an intrinsic stock value emerged during the dark days of the Great Depression. The stock market had flourished during the 1920’s and crashed in 1929 leaving many stock market investors the worse for the experience. At the time the stock market investing was considered little better than gambling. An economist and investor, Benjamin Graham, came up with the concepts of intrinsic stock value and a margin of safety. He and others demonstrated that stock investing could be done rationally and profitably so long as investors and traders heeded the results of fundamental and technical analysis of stocks.

Investors and traders buy stocks and sell stock in expectation of profit. The plain facts of the world of investing is that without the gift of seeing the future it is impossible to always know which stocks will go up or down in price. In order improve the odds of making accurate predictions investors and traders have used time honored tools such as Candlestick chart analysis in order to see and exploit Candlestick pattern formations. This use of price pattern analysis goes back to rice trading in ancient Japan and is useful to today in options trading, commodity trading, futures trading and stock trading. However, the time horizon of Candlestick charts is typically short and medium term. Using these tools the investor and trader will typically be able to pick the most advantageous price at which to enter or exit the market.

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    Intrinsic Value of Stocks Intrinsic Value of Stocks Presentation Transcript

    • Intrinsic Stock Value By www.CandlestickForums.com
    • A practical matter in stock investing is understanding and using intrinsic stock value. Knowing and using intrinsic stock value comes from doing your homework. www.CandlestickForums.com
    • It starts with fundamental analysis of stocks looking at the price to earnings ratio, cash flow ratios, price to sales ratio, the quick ratio, and developing risk reward ratios in stock investment. By: www.CandleStickForums.com
    • The concept of an intrinsic stock value emerged during the dark days of the Great Depression. The stock market had flourished during the 1920’s and crashed in 1929 leaving many stock market investors the worse for the experience. By: www.CandlestickForums.com
    • At the time the stock market investing was considered little better than gambling. An economist and investor, Benjamin Graham, came up with the concepts of intrinsic stock value and a margin of safety. By: www.CandlestickForums.com
    • He and others demonstrated that stock investing could be done rationally and profitably so long as investors and traders heeded the results of fundamental and technical analysis of stocks. By: www.CandleStickForums.com
    • Investors and traders buy stocks and sell stock in expectation of profit. The plain facts of the world of investing is that without the gift of seeing the future it is impossible to always know which stocks will go up or down in price. By: www.CandleStickForums.com
    • In order improve the odds of making accurate predictions investors and traders have used time honored tools such as Candlestick chart analysis in order to see and exploit Candlestick pattern formations. By: www.CandleStickForums.com
    • This use of price pattern analysis goes back to rice trading in ancient Japan and is useful to today in options trading, commodity trading, futures trading and stock trading. By: www.CandleStickForums.com
    • However, the time horizon of Candlestick charts is typically short and medium term. Using these tools the investor and trader will typically be able to pick the most advantageous price at which to enter or exit the market. By: www.CandleStickForums.com
    • Long term investing hinges on identifying and exploiting intrinsic stock value and a margin of safety. When a promising stock is selling at substantially below its intrinsic stock value the investor will buy. By: www.CandleStickForums.com
    • When the price goes up too fast or the factors that constitute the stock’s intrinsic value go away the long term investor will sell the stock. By: www.CandleStickForums.com
    • The basic definition currently used for intrinsic stock value is the discounted value of future earnings. This means calculating expected earnings and accounting for inflation. By: www.CandleStickForums.com
    • Then the investment value is compared to other investments such as treasury bonds or dividend stocks. A company with substantial property holdings, cash holdings, and no debt my have high intrinsic value despite not having a large cash flow. By: www.CandleStickForums.com
    • When the intrinsic value of the stock is substantially above its current stock price it has a large margin of safety. This is when the investor will buy the stock; and so long as the margin of safety exists he or she will profitably hold the stock. By: www.CandleStickForums.com
    • A company with strong products, low debt, and substantial hard assets can be a value stock which an investor will hold for years. By: www.CandleStickForums.com
    • However, when the margin of safety evaporates with bad management, poor product performance, or other reasons the intrinsic stock value will sink to that of the current stock price. By: www.CandleStickForums.com
    • That is when the investor will start looking at Candlestick stock charts to decide when will be the most advantageous time to sell. By: www.CandleStickForums.com