Sensex - Value Investing
What is Value Investing?
The strategy of selecting stocks that trade for less than their intrinsic value. Value investors actively seek stocks of companies with sound financial statements that they believe the market has undervalued.
Very simply, value investing means attempting to buy a stock (or other financial asset) for less than it's worth.Value investors believe the market always overreacts to good and bad news, causing stock price movements that do not correspond with their long-term fundamentals. The result is an opportunity for value investors to profit by taking a position on an inflated/deflated price and getting out when the price is later corrected by the market. Typically, these investors select stocks with lower-than-average price-to-book or price-to-earning ratios and/or high dividend yields.
Historically, this has meant the purchase of shares in companies which have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a mixture of all three. As such it is contrasted with growth investing, where the investor focuses only on the potential for future earnings growth and is prepared to pay much high P/E multiple.
So value investing lies in comparing two figures:
1)Current Market Value:
Multiply the number of ordinary shares in issue by the current price of each share to produce the market capitalisation. You can look up the market capitalisation of a quoted company in the financial pages of most newspapers, and on many financial websites.
2)Intrinsic Value of the Company:
There is no single way of establishing what the value of a company should be. Instead, value investors use a number of different valuation techniques, based on asset values, dividends, earnings, cash flows and other financial criteria.
Value investors don't try to predict which way interest rates are heading or the direction of the market or of the economy, but only look at a stock's current valuation ratios and compare them to their historical range. For example, say a particular stock's P/E ratio has ranged between a low of 15 and a high of 50 over the past five years, value investors would consider buying the stock if it's current P/E is around 20 or less. Once purchased, they would hold the stock until it's P/E rose to the 40-50 range before considering selling. The only reason they'd sell the stock sooner is if the company's long-term fundamental outlook significantly worsened.?
The strategy of selecting stocks that trade for less than their intrinsic value. Value investors actively seek stocks of companies with sound financial statements that they believe the market has undervalued.
Very simply, value investing means attempting to buy a stock (or other financial asset) for less than it's worth.Value investors believe the market always overreacts to good and bad news, causing stock price movements that do not correspond with their long-term fundamentals. The result is an opportunity for value investors to profit by taking a position on an inflated/deflated price and getting out when the price is later corrected by the market. Typically, these investors select stocks with lower-than-average price-to-book or price-to-earning ratios and/or high dividend yields.
Historically, this has meant the purchase of shares in companies which have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a mixture of all three. As such it is contrasted with growth investing, where the investor focuses only on the potential for future earnings growth and is prepared to pay much high P/E multiple.
So value investing lies in comparing two figures:
1)Current Market Value:
Multiply the number of ordinary shares in issue by the current price of each share to produce the market capitalisation. You can look up the market capitalisation of a quoted company in the financial pages of most newspapers, and on many financial websites.
2)Intrinsic Value of the Company:
There is no single way of establishing what the value of a company should be. Instead, value investors use a number of different valuation techniques, based on asset values, dividends, earnings, cash flows and other financial criteria.
Value investors don't try to predict which way interest rates are heading or the direction of the market or of the economy, but only look at a stock's current valuation ratios and compare them to their historical range. For example, say a particular stock's P/E ratio has ranged between a low of 15 and a high of 50 over the past five years, value investors would consider buying the stock if it's current P/E is around 20 or less. Once purchased, they would hold the stock until it's P/E rose to the 40-50 range before considering selling. The only reason they'd sell the stock sooner is if the company's long-term fundamental outlook significantly worsened.?
posted by Sensex-Blog Admin at 11:45 PM
2 Comments:
don't you think pe of 40 50 is too high?
This is just an example taken for the sake of making peolple understand. Also you can check the P/E of bhatri tele ventures its @ 59.
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