Stocks are usually valued in several ways:
1) By earnings potential, or P/E ratio,
2) By reliability or sustainability of earnings, or
3) By cash flow
1) - typically is employed for high potential companies - ie companies which have little earnings today but a propensity for large gains in the future - for eg companies in R&D etc where a "killer product" might emerge. A high P/E generally comes about from peoples' expectations of future growth. Evaluating such companies are typically more difficult as investors have to sort out the gems from the hype, and thus are fairly high risk by nature
2) - otherwise known as "blue chips", these companies offer stable and sustainable income in the form of consistent dividend policies and some capital growth over the long term. They are typically market leaders in their industry and are thus valued at a rate of return that is consistent with their lower risk category, thus typically have a lower P/E
3) - also known as value investing, this somewhat differs from 2) in the sense that it takes into account cashflow more than earnings. Theoretically a company may be making an accounting loss and yet be cashflow positive (ie they are in a cash or near cash business, for eg telecoms and utility stocks. There is little or no consideration given to the profitability or sustainability of the company in the long term. Rather, a simple nett asset value computation is used where so long as the NAV per share trades at a certain percentage discount to share price (typically 60% or more discount), they represent a "value investment". This is where NAV is defined as current assets (less of inventory, which is relatively illiqud) minus all short and long term liabilities. In other words, should the company be shut down tomorrow, the "return" would be around 3 times your investment. The company should also have a good dividend policy which pays out a relatively high portion of their net cash flow. The company should also not be too tightly held, else the individual investor might be disadvantaged, even though there are laws to protect minority investors in most cases.
Comment: I contribute to Yahoo! Answers, and sometimes when there is a question I feel is pertinent to this blog, I add the same answer here.
Thursday, November 6, 2008
Saturday, November 1, 2008
Lest we forget
The cheerful little girl with bouncy golden curls was almost five.
Waiting with her mother at the checkout stand, she saw them, a circle of glistening white pearls in a pink foil box. "Oh mommy please, Mommy. Can I have them? Please, Mommy, please?"
Quickly the mother checked the back of the little foil box and then looked back into the pleading blue eyes of her little girl's upturned face.
"A dollar ninety-five. That's almost $2.00. If you really want them, I'll think of some extra chores for you and in no time you can save enough money to buy them for yourself. Your birthday's only a week away and you might get another crisp dollar bill from Grandma."
As soon as Jenny got home, she emptied her penny bank and counted out 17 pennies.
After dinner, she did more than her share of chores and she went to the neighbor and asked Mrs. McJames if she could pick dandelions for ten cents.
On her birthday, Grandma did give her another new dollar bill and at last she had enough money to buy the necklace. Jenny loved her pearls. They made her feel dressed up and grown up. She wore them everywhere, Sunday school, kindergarten, even to bed. The only time she took them off was when she went swimming or had a bubble bath.
Mother said if they got wet, they might turn her neck green. Jenny had a very loving daddy and every night when she was ready for bed, he would stop whatever he was doing and come upstairs to read her a story.
One night as he finished the story, he asked Jenny, "Do you love me?"
"Oh yes, daddy. You know that I love you." "Then give me your pearls."
"Oh, daddy, not my pearls. But you can have Princess, the white horse from my collection, the one with the pink tail. Remember, daddy? The one you gave me. She's my very favorite."
"That's okay, Honey, daddy loves you. Good night."
And he brushed her cheek with a kiss.
About a week later, after the story time, Jenny's daddy asked again, "Do you love me?"
"Daddy, you know I love you."
"Then give me your pearls."
"Oh Daddy, not my pearls. But you can have my baby doll. The brand new one I got for my birthday. She is beautiful and you can have the yellow blanket that matches her sleeper."
"That's okay. Sleep well. God bless you, little one. Daddy loves you."
And as always, he brushed her cheek with a gentle kiss. A few nights later when her daddy came in, Jenny was sitting on her bed with her legs crossed Indian style.
As he came close, he noticed her chin was trembling and one silent tear rolled down her cheek.
"What is it, Jenny? What's the matter?"
Jenny didn't say anything but lifted her little hand up to her daddy.
And when she opened it, there was her little pearl necklace. With a little quiver, she finally said, "Here, daddy; this is for you."
With tears gathering in his own eyes, Jenny's daddy reached out with one hand to take the dime store necklace, and with the other hand he reached into his pocket and pulled out a blue velvet case with a strand of genuine pearls and gave them to Jenny. He had them all the time. He was just waiting for her to give up the dime-store stuff so he could give her the genuine treasure.
So it is, with our Heavenly Father.
He is waiting for us to give up the cheap things in our lives so that he can give us beautiful treasures. Isn't God good?
Are you holding onto things that God wants you to let go of? Are you holding on to harmful or unnecessary partners, relationships, habits and activities that you have come so attached to that it seems impossible to let go?
Sometimes it is so hard to see what is in the other hand but do believe this one thing .
God will never take away something without giving you something better in its place.
The greatest gifts happen when you share love & touch others. NOT to DECIDE is to DECIDE ..
Comments:
Personally, I was touched by this e-mail. No matter what God you worship, we must always come back to the fundamentals - ie what is our true values in life? Money is money, and does a lot of things - but it cannot buy love, family or well-being.
So we come to a different concept of "value investing" - money as a means to an end on not the end goal itself.
Outside of the moral/religious aspect, also know when to let go of what is ultimately unimportant and focus on how to increase what is important to you.
Lest I be accused of preaching, at the very lowest definition, for those of you who are truly only interested only in the bottom-line, the moral that still can be drawn from this simple yet complex story is that you should know when to let go of an "investment" lest you be blinded to a "true gem". But then again, this would be a sad definition.
Waiting with her mother at the checkout stand, she saw them, a circle of glistening white pearls in a pink foil box. "Oh mommy please, Mommy. Can I have them? Please, Mommy, please?"
Quickly the mother checked the back of the little foil box and then looked back into the pleading blue eyes of her little girl's upturned face.
"A dollar ninety-five. That's almost $2.00. If you really want them, I'll think of some extra chores for you and in no time you can save enough money to buy them for yourself. Your birthday's only a week away and you might get another crisp dollar bill from Grandma."
As soon as Jenny got home, she emptied her penny bank and counted out 17 pennies.
After dinner, she did more than her share of chores and she went to the neighbor and asked Mrs. McJames if she could pick dandelions for ten cents.
On her birthday, Grandma did give her another new dollar bill and at last she had enough money to buy the necklace. Jenny loved her pearls. They made her feel dressed up and grown up. She wore them everywhere, Sunday school, kindergarten, even to bed. The only time she took them off was when she went swimming or had a bubble bath.
Mother said if they got wet, they might turn her neck green. Jenny had a very loving daddy and every night when she was ready for bed, he would stop whatever he was doing and come upstairs to read her a story.
One night as he finished the story, he asked Jenny, "Do you love me?"
"Oh yes, daddy. You know that I love you." "Then give me your pearls."
"Oh, daddy, not my pearls. But you can have Princess, the white horse from my collection, the one with the pink tail. Remember, daddy? The one you gave me. She's my very favorite."
"That's okay, Honey, daddy loves you. Good night."
And he brushed her cheek with a kiss.
About a week later, after the story time, Jenny's daddy asked again, "Do you love me?"
"Daddy, you know I love you."
"Then give me your pearls."
"Oh Daddy, not my pearls. But you can have my baby doll. The brand new one I got for my birthday. She is beautiful and you can have the yellow blanket that matches her sleeper."
"That's okay. Sleep well. God bless you, little one. Daddy loves you."
And as always, he brushed her cheek with a gentle kiss. A few nights later when her daddy came in, Jenny was sitting on her bed with her legs crossed Indian style.
As he came close, he noticed her chin was trembling and one silent tear rolled down her cheek.
"What is it, Jenny? What's the matter?"
Jenny didn't say anything but lifted her little hand up to her daddy.
And when she opened it, there was her little pearl necklace. With a little quiver, she finally said, "Here, daddy; this is for you."
With tears gathering in his own eyes, Jenny's daddy reached out with one hand to take the dime store necklace, and with the other hand he reached into his pocket and pulled out a blue velvet case with a strand of genuine pearls and gave them to Jenny. He had them all the time. He was just waiting for her to give up the dime-store stuff so he could give her the genuine treasure.
So it is, with our Heavenly Father.
He is waiting for us to give up the cheap things in our lives so that he can give us beautiful treasures. Isn't God good?
Are you holding onto things that God wants you to let go of? Are you holding on to harmful or unnecessary partners, relationships, habits and activities that you have come so attached to that it seems impossible to let go?
Sometimes it is so hard to see what is in the other hand but do believe this one thing .
God will never take away something without giving you something better in its place.
The greatest gifts happen when you share love & touch others. NOT to DECIDE is to DECIDE ..
Comments:
Personally, I was touched by this e-mail. No matter what God you worship, we must always come back to the fundamentals - ie what is our true values in life? Money is money, and does a lot of things - but it cannot buy love, family or well-being.
So we come to a different concept of "value investing" - money as a means to an end on not the end goal itself.
Outside of the moral/religious aspect, also know when to let go of what is ultimately unimportant and focus on how to increase what is important to you.
Lest I be accused of preaching, at the very lowest definition, for those of you who are truly only interested only in the bottom-line, the moral that still can be drawn from this simple yet complex story is that you should know when to let go of an "investment" lest you be blinded to a "true gem". But then again, this would be a sad definition.
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