VALUE INVESTING TUTORIAL

VALUE INVESTING TUTORIAL

Good Business?

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1. History of Consistently Increasing Sales, Earnings and Cash Flow
2. Sustainable Competitive Advantage
3. Conservative Debt
• Long Term Debt < 3X Net Income
4. Return of Equity (ROE) & Return on Assets (ROA) Must be Consistent & High
• ROE > 15% => Great Investment
5. Low Capital Expenditure (CAPEX) Required to Maintain Current Operations
6. Management buying the stock
7. Financial Statement
1. - revenue : increasing thru the years
2. - net income : increasing thru the years

Good Price?

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1. Company is Undervalued: Stock Price Is Below Intrinsic Value
2. Stock Breaks Out of Consolidation Or On An Uptrend and must be above the 20 or 50-Day moving Average

 

PE ratio

10 - under price

15 - fair value

20 - over price

Price/book ratio - less than 1 = undervalue, earning poor

  - more than 1 =

PEG ratio

Time to buy

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1) Sept to Oct

 

 

 

Seven Reasons To Sell A Value Stock

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1. The stock price drops 20% below your purchase price. A 20% drop is very unlikely if you buy a very good company that is undervalued.
2. You found you made a mistake when evaluating the company, as it does not meet one of the 9 investment criteria.
3. During your regular evaluation, you notice a negative change in one of the 9 investing criteria, and it does not seem temporary (e.g. fall in profit margin, earnings per share, ROE etc…)
4. Management takes action that is not in shareholder’s best interests or dilutes their stakes significantly.
5. You identify a much better investment (higher growth prospects, better price) that will give you a much higher annual rate of return.
6. When the economy is approaching a bubble and the stock’s price is way overvalued.
7. Inflation is very high => FED begins to raise interest rates
8. S&P 500 PE ratio is above 30.
9. The Stock price reverses into a downtrend