Stock Market
Stock market is a market where you trade stocks.
Stock market is a market where you trade stocks.
Stocks mean bonds or shares.
Bonds – buy from banks, corporate companies, government.
Example: I buy a bond for $1000 and I invest that money on company.
And they give me form of IOU.
So, they pay me interest on that bond.
I can also sell my bond.
Shares – breaking whole or part of company to small pieces.
Stock market has primary and secondary function.
At primary market- the company issues the new shares or
bonds.
At secondary market- the shares bought from initial market
is sold.
So, as an investor you can buy the shares or bond from the
primary market or from the secondary market.
When you own a stock,that means you own a small piece of much larger
company.
Stock bought and sold in a stock market means buying and
selling their ownership.
Stock price means current market price of a single stock in
that company.
Buyers put in a bid price
Sellers put in an ask price
Price to Earning ratio (P/E)
Example : price per share/ earnings per share = $4.20/ 30 cents = 14
i.e. if you pay $4.20 per share right now,you are paying 14 times 1 year earnings to get $4.20.It means it takes 14 years to get money back from 1 year earning investment.
==> Utility companies have low Price to Earning ratio (P/E)
==> Telecom companies have high Price to Earning ratio (P/E)
Price to Earning ratio (P/E) doesn't predict the size,dividend,future earning.
low Price to Earning ratio (P/E) is good
high Price to Earning ratio (P/E) ==> high expectation
Price to Earning ratio (P/E) > 16 don't buy
Price to Earning ratio (P/E) > 20 = high growth,competitive advantage,rich valuation
Price to Earning ratio (P/E) = 12-20 ==> fair value,stable industry
Price to Earning ratio (P/E) < 12 low margin,commodity and undervalued finance
So, Price to Earning ratio (P/E) = 12-30
Price to Sales ratio ( P/S)
p/s = 1 ==> pay $1 for $1 sales the company makes
p/s = 2 ==> pay $2 for $1 sales
==> pay less than $1 for $1 sales ==> pretty good bargain
As a whole,
<1 ==> great out performance
1-2 ==> pretty good
3 ==> good
4 ==> go up to high at 4
4< ==> bad
So ,
p/s ratio below the median = good
p/s < = 2 means strong buys and buys
p/s <= median p/s for its industry
(valuation that are lower than their industry)
Recommend p/s <= 2
Diversification
If you only own one stock and the share price drops,you could lose a big part of your investment.So,don't just put all your eggs in one basket.
put number of companies and no of stocks on different companies to reduce risk.
do not invest enormous amount on stock
Fundamental Analysis
A) For Value and Growth
P/ E
PEG
P/B
B) For returns and forecasts
Dividend Yield
Divedend Franking
Total Shareholder Return
C) Financial Strings
Return to Equity
Debt to Equity
Interest cover
Beta
Beta increases ==> stock more volatile and more risky
· Compound your results by reinvesting dividends in additional shares of stock.
· Dividend growth rate is a reliable forecaster of future earnings growth
· Dividends are paid in cash.
==> tax officet
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.
Dividend Yield
==> tax officet
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.
Price to Book ratio
P/B = share price / book value per share
and
book value = Assets - liabilites
example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]
PEG ratio
P/B = share price / book value per share
and
book value = Assets - liabilites
example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]
Debt to Equity Ratio
Price to Earning ratio (P/E)
Example : price per share/ earnings per share = $4.20/ 30 cents = 14
i.e. if you pay $4.20 per share right now,you are paying 14 times 1 year earnings to get $4.20.It means it takes 14 years to get money back from 1 year earning investment.
==> Utility companies have low Price to Earning ratio (P/E)
==> Telecom companies have high Price to Earning ratio (P/E)
Price to Earning ratio (P/E) doesn't predict the size,dividend,future earning.
low Price to Earning ratio (P/E) is good
high Price to Earning ratio (P/E) ==> high expectation
Price to Earning ratio (P/E) > 16 don't buy
Price to Earning ratio (P/E) > 20 = high growth,competitive advantage,rich valuation
Price to Earning ratio (P/E) = 12-20 ==> fair value,stable industry
Price to Earning ratio (P/E) < 12 low margin,commodity and undervalued finance
So, Price to Earning ratio (P/E) = 12-30
Price to Sales ratio ( P/S)
p/s = 1 ==> pay $1 for $1 sales the company makes
p/s = 2 ==> pay $2 for $1 sales
==> pay less than $1 for $1 sales ==> pretty good bargain
As a whole,
<1 ==> great out performance
1-2 ==> pretty good
3 ==> good
4 ==> go up to high at 4
4< ==> bad
So ,
p/s ratio below the median = good
p/s < = 2 means strong buys and buys
p/s <= median p/s for its industry
(valuation that are lower than their industry)
Recommend p/s <= 2
Diversification
If you only own one stock and the share price drops,you could lose a big part of your investment.So,don't just put all your eggs in one basket.
put number of companies and no of stocks on different companies to reduce risk.
do not invest enormous amount on stock
Fundamental Analysis
A) For Value and Growth
P/ E
PEG
P/B
B) For returns and forecasts
Dividend Yield
Divedend Franking
Total Shareholder Return
C) Financial Strings
Return to Equity
Debt to Equity
Interest cover
Beta
Beta increases ==> stock more volatile and more risky
Beta > 1 stock is riskier than market
Beta < 1 stock is less risky
- high beta stocks are riskier
- they have a higher expected return
Divident Strategies
Invest in companies who have a history of increasing their dividend.
· Compound your results by reinvesting dividends in additional shares of stock.
· Dividend growth rate is a reliable forecaster of future earnings growth
· Dividends are paid in cash.
F Franking Credit
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.
Dividend Yield
==> tax officet
==>all companies that provide divedents are franking credits
example : $1 = CT 30%
Div --> 70c
C-->30c
= $1
==> more franking credits are good features for paying less tax
==> franking credits are bonuses.
Price to Book ratio
P/B = share price / book value per share
and
book value = Assets - liabilites
example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]
PEG ratio
P/B = share price / book value per share
and
book value = Assets - liabilites
example
P/B = 4.30/1.84 = 2.34 times
So,
P/B >1 ==> you paying lot for share [ careful ]
P/B<1 ==> you getting bargain for share [ good ]
Debt to Equity Ratio
Example
|
Assets liabilities Equity
$120,000 $100,000 $20,000
-cash equipment -loans
Bank ==è liabilities/equity = 5
High risk to bank
i.e. per $1 è $5 debt
So, E is highly leveraged.
Return to Equity (ROE)
Example:
|
|
Earns per year $50M $50M
Equity $100M $250M
ROE = profit/equity
= 50% = 20%
So, A is more efficient in generating profits. So, buy A.
