Want to learn basics of Fundamental Analysis

[wbosher]

Then read all you can on "value investing"

.... simple?

What's the issue here?

The issue is I basically know nothing about FA, which is why I'm asking questions.

OK with you?

[ENP]

The issue is I basically know nothing about FA, which is why I'm asking questions.

OK with you?

If you don't like Buffett and you want to learn about fundamentals..

- learn how to read a statement of financial performance (income and expenses)
- learn how to read a balance sheet (asssets and liabilities)
- learn about P/E ratio
- learn why the business is making more/less profits or has more/less equity from year to year.
- learn how the market values the business on the future earnings (PEG ratio, etc)

A few basics.

[shasta]

I'd recommend taking a look at The Intelligent Investor, by Bejamin Graham.
http://en.wikipedia.org/wiki/The_Intelligent_Investor

Oddly enough, I did my initial reading in the FA field, and am now starting to read about TA.

wbosher

I strongly urge you to buy this book & read it over & over, it's a must have book for all investors.

Yes, we wont enjoy the same economic conditions that Warren Buffett did, but the concepts are timeless IMO.

You will hear "Intrinsic value" mentioned all the time, to try & simplify it for you, the broker reports you see use a company's fundamentals to work out a target price (well in excess of the actual share price usually), & you will hear companies mgmt use terms like that they want to "unlock value" or "enhance shareholder value".

This is the very method i try to use to invest in stocks, my recent ASX:WLF thread is another example of this.

WB's philisophy was to buy $1's worth of stocks for $0.50, so basically stocks deeply discounted.

If you want to re-read the ASX:SRL thread, i was updating the "discount to fair value" frequently for a period, eventually the market caught up & the discount reduced.

Another book all relative new comers should have is "The Agressive Investor" by Colin Nicholson, this uses both TA & FA, & therefore is another must have book.

The ~$100 those two books will costs you, will be your best investment you ever make.

[peat]

This is the technical answer from my Fundamentals of investment text
Intrinsic value depends on several factors :
1 Estimates of the shares future cash flows (dividends over the holding period) and the estimated price of the share at the time of sale
2 The discount rate used to translate these future cash flows into a present value
3 The amount of risk embedded in achieving the forecasted level of performance
The discounted valuation model used depends on the rate of growth
(a) where there is zero growth
Value of a share = annual div's/ required rate of return
(b) with constant growth says
Value of a share = next years dividends/(required rate of return - constant rate of growth in div's)
V = D1/(k-g)
I could go on but I've probably lost you by now

[shasta]

Where can I find historical data like EPS etc...?

Some companies only offer financial reports going back a couple of years on their web sites.

If you want to use EPS as a guide, the only figure that matters is the future projected one!

[shasta]

Like I said, I'm out of the market for at least 6 months, probably longer. At this stage I'm just curious about FA, and how to work out if a stock is over or under valued. Not looking at investing in anyone in particular.

I am mainly a short to medium term trader, using only TA. Just want to use my time away from the market to explore new things.

Im out of the market too, & maybe til 2011 - i dont know at this stage, so im using the time out of the market to track certain sectors & companies to try & find those that are undervalued & flying under the radar, if they run too early, i'll replace them with the next company i find, as i'm always reshuffling the 100 or so companies i track.

[wbosher]

If you don't like Buffett and you want to learn about fundamentals..

I think you got me wrong here, I never said I don't like Buffet or his methods. I was simply pointing out that most normal people can't possibly expect to simply buy one of the millions of "Buffet" books out there and get rich using his methods alone, because of his several advantages.

I can't possibly say that I agree or disagree with any FA person or method, because I don't know anything!

Thanks ENP for your advise above, and I already started looking at some of these things. One thing (among many) I don't understand, is how you relate what you read in the balance sheet and from various ratios and percentages, to the current share price. How do you determine from all of these bits of information, if the share price is reasonable? Is there some sort of magic formula?

All this makes TA look like a walk in the park.

[wbosher]

Wow, I really need to type faster. There have been four posts while I was typing in the last one!!!

[shasta]

I think you got me wrong here, I never said I don't like Buffet or his methods. I was simply pointing out that most normal people can't possibly expect to simply buy one of the millions of "Buffet" books out there and get rich using his methods alone, because of his several advantages.

I can't possibly say that I agree or disagree with any FA person or method, because I don't know anything!

Thanks ENP for your advise above, and I already started looking at some of these things. One thing (among many) I don't understand, is how you relate what you read in the balance sheet and from various ratios and percentages, to the current share price. How do you determine from all of these bits of information, if the share price is reasonable? Is there some sort of magic formula?

All this makes TA look like a walk in the park.

Whilst Buffett might buy whole businesses & not just a few shares in them, it's the psychological thinking which is the difference.

He thinks of buying & owning a business forever (& he's a big proponent of the "allocation of capital"), which is the complete opposite of TA, which only trades based on volume & technical indicators - to a chartist what the business does is irrelevant

In more simple terms, if you find a stock you like on the NZX/ASX, & it has a pathway to production say in 3 - 5 years, has a big resource which will be in demand, you buy & hold the stock.

Warren has made some of his biggest purchases following a big correction/drop in the market, so using the fear in the market to your advantage is a Buffett style trait. (I guess it's part of averaging down, which TA frowns upon!)

[shasta]

I'd rather base my investments on the best investor of all time rather than Joe Blow down the street though.

You can track him (WB) personally if you like, buy Berkshire Hathaway "B" Shares, for around $US70 a share

The "A" shares are available at ~$US105,000 per share!