How To Avoid Losing Money In The Stock Market http://www.profitableinvestingtips.com/stock-investing/how-to-avoid-losing-money-in-the-stock-market A common expression years ago, was playing the stock market. The expression came from the fact that many thought of stock investing as gambling on whether stocks would go up or down. Traders listened for stock tips with fond hopes of getting into a stock before it ran up in price and out of a stock before it went bust. After the stock market crash that ushered in the Great Depression, Benjamin Graham taught how to avoid losing money in the stock market by learning to calculate the intrinsic value of a given stock. What is intrinsic stock value? The intrinsic value of a stock is generally referred to as the forward looking value of the stock discounted to present circumstances. Mr. Graham devised a formula so that investors could make a rational decision about whether or not to buy or sell a stock. How to avoid losing money in the stock market is to use tools like the Graham intrinsic value formula and your own good common sense when investing in stocks. Intrinsic Stock Value Here is a thumbnail view of the Graham formula for calculating intrinsic stock value in 1962 and modified in 1974. The 1974 version considers the following: • Earnings per share, EPS, for the preceding twelve months • A constant of 8.5 representing an expected price to earnings ratio, P/E ratio, for a company that is not growing • An estimate of long term growth, five years = g • A constant of 4.4 which was the average yield of high grade corporate bonds in the early 1960 decade • The current yield of AAA corporate bonds = Y • Where V = intrinsic value The formula is as follows: V = (EPS x (8.5 + 2g) x 4.4)/Y The point of this formula is to calculate the RGV or Relative Graham Value. Do the calculation to find V. Then divide V by the current stock price. This gives you the RGV.

1. How to Avoid Losing
Money in the Stock Market

2. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
A common expression years ago, was
playing the stock market.

3. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The expression came from the fact that
many thought of stock investing as
gambling on whether stocks would go up
or down.

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5. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Traders listened for stock tips with fond
hopes of getting into a stock before it ran
up in price and out of a stock before it went
bust.

6. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
After the stock market crash that ushered in
the Great Depression, Benjamin Graham
taught how to avoid losing money in the
stock market by learning to calculate the
intrinsic value of a given stock.

7. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
What is intrinsic stock value?

8. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The intrinsic value of a stock is generally
referred to as the forward looking value of
the stock discounted to present
circumstances.

9. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Mr. Graham devised a formula so that
investors could make a rational decision
about whether or not to buy or sell a stock.

10. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
How to avoid losing money in the stock
market is to use tools like the Graham
intrinsic value formula and your own good
common sense when investing in stocks.

11. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Intrinsic Stock Value

12. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Here is a thumbnail view of the Graham
formula for calculating intrinsic stock value
in 1962 and modified in 1974.

13. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The 1974 version considers the following:

14. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Earnings per share, EPS, for the preceding
twelve months

15. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
A constant of 8.5 representing an expected
price to earnings ratio, P/E ratio, for a
company that is not growing

16. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
An estimate of long term growth, five years =
g

17. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
A constant of 4.4 which was the average
yield of high grade corporate bonds in the
early 1960 decade

18. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The current yield of AAA corporate bonds =
Y

19. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Where V = intrinsic value

20. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The formula is as follows:

21. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
V = (EPS x (8.5 + 2g) x 4.4)/Y

22. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The point of this formula is to calculate the
RGV or Relative Graham Value.

23. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Do the calculation to find V.

24. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Then divide V by the current stock price.

25. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
This gives you the RGV.

26. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
If the RGV is less than one the stock is
overvalued and a bad investment

27. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
If the RGV is greater than one the stock is
undervalued and may be a good
investment

28. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
Fundamentals

29. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
The stock market may seem crazy at times
as prices swing up and down according the
mood of investors.

30. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
However, the eventual price of any stock will
be determined by a given set of
fundamentals.

31. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
How to avoid losing money in the stock
market and instead make a comfortable
income is to learn how to evaluate and act
upon the fundamentals.

32. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
What products and services does a
company produce?

33. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
What is their cost and how much of a profit
do they make?

34. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
What is their competition and does the
company engage in research and
development to make new things?

35. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
How much debt does the company have and
is there any problem servicing that debt.

36. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
And, is there hidden value in a company that
protects it against losses and could be
exploited to increase returns?

37. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
This process of investigation is called
fundamental analysis and is how to make
money in stock and how to avoid losing
money in the stock market.

38. http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock-
market
It is important to remember that very
successful investors never ever invest in a
company unless they know exactly how
the company makes its money and how it
insures that it will do so in the future.