View Full Version : Valuation of Stock

08-22-2005, 12:44 PM
Hello all,

I have been becoming more interested in learning how to value stocks. Is this something I should spend time learning or is it best left to professional analysists? Can anyone recommend a good book or tutorial on this and on how to read cashflow/balance sheets etc.


08-22-2005, 01:10 PM
Applied Equity Analysis by James English

08-23-2005, 12:26 AM
The book that started it all... (http://www.amazon.com/exec/obidos/tg/detail/-/007141228X/qid=1124771040/sr=8-5/ref=pd_bbs_5/104-9067089-8166349?v=glance&s=books&n=507846)

Maybe after 20 years you will decide like me that it is a fool's game and passive investing wins.

Check this out. (http://www.stanford.edu/~wfsharpe/art/active/active.htm)

08-23-2005, 07:13 AM
Maybe after 20 years you will decide like me that it is a fool's game and passive investing wins.

[/ QUOTE ]

An article discussing passive vs active management of mutual funds is an apples to oranges comparison to an individual investor actively managing their own portfolio.

08-23-2005, 11:56 PM
Read in this order:

1) "Security Analysis" by Ben Graham and David Dodd
2) "The Essays of Warren Buffett" arranged by Lawrence Cunningham
3) "Common Stocks and Uncommon Profits" by Philip Fisher
4) "A Random Walk Down Wall Street" by Burton Malkiel
5) "Irrational Exuberance" by Robert Shiller
6) "Origins of the Crash: The Great Bubble and its Undoing" by Roger Loewenstein
7) "The Great Crash" by J.K. Galbraith

08-24-2005, 12:23 AM
All good suggestions. You really don't give enough info about yourself to give a definitive answer.

If you are reasonably intelligent and reasonably good with numbers, it's not that hard to learn how to value stocks quantitatively and qualitatively.

Remember, you don't necessarily have to be able to caculate the precise value of the stock to the umpteenth decimal point. As Warren Buffett, or was it Brittany Spears said, you only want to be able to compare two stocks. I can tell an Olympic heavyweight wrestler is heavier than a 5 year old girl, even though I cannot tell you the precise weight of both persons, just by looking at them.

Even a lay person can learn enough about valuing stocks to get a rough idea if he is getting good value.

And you can also check your conclusions by looking at the estimates and valuations which are publicly available or sold commercially on websites by analysts and investment publishers.

One approach to making money trading stocks is treating a stock like any good or product. You buy it cheap and sell it dear.

You go to China, buy a basket for $1 and sell it in America for $10. Or you buy the basket in America for $10 and sell it in Japan for $30.

But in order to make money. You have to know what some willing buyer is likely to pay for the stock. And if you don't know how to appraise the stock value, how can you know how much to safely bid or how much you can get for it in the open market?

Same for trading horses or antiques. If you cannot appraise the value of the item, how do you know how much to pay, so you can still make a profit.

Have you ever seen that show where people in England compete on the red and blue teams by buying antiques and auctioning them off? Each team starts with 100 pounds or something like that.

If you overpay for an antique and can't sell it for more than you paid for it, you lose your ass, as the British might say. You're an idiot.

So if you want to make money buying and selling stocks, do you think it might help to learn how to value stocks?

Note that many mutual funds own stocks or invest in stocks. So if you are trying to choose a mutual fund, you still have the problem of selecting a mutual fund. And if you don't understand the fund's investing style or the quality of the underlying stock picks, it's harder to reliably choose a winner.

Having said that, I do agree, with Warren Buffett, that if you don't have the time, patience, and learning to pick your own stocks, then just pick a reliable index fund.