This formula can be used to filter stocks into a buy and do not buy list:
V = E A R N I N G S × ( 8.5 + 2 g )
V = Value.
Earnings = Trailing Twelve Months Earnings
8.5 = P/E base for a no-growth company
g = reasonably expected 7 to 10 year growth rate
Now we have the basis for mathematical modeling. We can improve on this formula by adding more factors to it, such as for interest rates, or public sentiment. Simply create a score which quantifies the public sentiment or brand loyalty behind a company. For instance Apple would score very high.
Conclusion
When I invest for the long term I do not just fitler by V (value). I also filter by dividend growth potential which uses an entirely different set of values. Apple using the formula above is a good example of a company which by the math has value. We can then determine whether the price it is going for in USD matches with the value of the stock as quantified by the formula to determine if it is over or under priced. If we look at the potential for dividends we can just see by cash flow and dividend growth potential that Apple can raise dividends for years and years (low dividend payout ratio and low P/E ratio)
This is not investment advice. I am not going to tell anyone to go out and buy Apple or any particular stock. In fact, if someone is young or old has a lot to do with their investment strategy and I cannot know whether the reader is looking for income generation or long term growth. Apple does not pay a high dividend so for the retired person this is not a good stock to hold. For the person who is under 25 this is in my opinion a great stock to hold because the dividends will have plenty of room to grow and the price of the stock also has plenty of room to grow. The main things Apple has going in it's favor is brand loyalty and massive mountain of cash to spare. Both of these combined make for favorable growth in dividend payments and stock price.
You should ask the following question: if I was unable to sell the stock to anyone ever again, how much would I buy it for?
This is why dividends matter. If you have stocks which pay dividends then even if you can never sell it, you get increasing dividends each year.
Truth is the stocks I likely will buy, the majority of them I will never intend to sell. Can't think of a good reason why I would sell Apple stocks unless to trade for a better stock.
huge amount, but that is due to other investments.Thanks for sharing this @dana-edwards. I personally am not invested in the stock market a
I have a program that I run which runs a few different equations for an asset that I am looking to invest in, which generally helps me to filter out the good and the bad quite easily, but it is just the first step I take. I then usually do some technical analysis, and a full fundamental analysis of the asset.
I invest based on a series of filters which curate the viability or suitability of a stock. So first I'll apply the initial filter which could just be a formula like the valuation formula in this post. Then I'll look at other aspects such as P/E and dividend payout ratio, then I'll look in even more detail, looking at what the company is doing, whether they have secured good deals, who is the CEO and whether or not that CEO is shareholder friendly, does the company have moats, is it selling a niche product or must have product, etc. I get obsessive in my research, once I have a narrow list of stocks to obsess over, and then I try to buy them when they are cheap.
That's great to hear! I also follow a similar method, especially when finding companies to work with. I am working with an ICO at the moment, and I followed a very similar process when deciding whether to take on the work or not.
Have you used https://finviz.com/ ?
It is a free website that also offers tech. / fundamental analysis, I have used it myself a few times. We need something like it for Crypto.
Interesting formula. Thank you for the explanation. In Turkey Wikipedia is forbidden. So, I follow this type of posts
Great update sir. It was enlightening. It has triggered an interest in stock investments which has been latent for a while now.
very helpful and educational post.
keep it up
Some good info. Thanks ;)
Who needs to buy stocks when buying coins is more profitable :p
Coins don't pay dividends so you have to sell them. Coins grow fast but are hard to evaluate or predict. Stocks like Apple you can be almost certain Apple will be around in 20 years. Which coins will be around in 20 years is something probably none of us can answer.
That said I clearly hold coins, but diversification is good.
Hmmmm !!! Point to be noted.
Seems like I need to rethink my investments. Thank you so much :D
I think young people could and perhaps should take more risky investment such as crypto of course.
The potential is huge, and if it goes wrong there is time to fix the mistake.
Risky is good to a point. But if you hold nothing but crypto then that in my opinion is not wise.
Interesting I haven't read up on Apple's intention with regard to its offshore profits. It's cash balance is a huge book value item so perhaps I would add it on top of the V formula. Because the V formula is really just estimating enterprise value without regard to cash/liabilities. The flipside is that value formula also entails what would be used to pay off debt holders: so for a significantly leveraged company, I would subtract their long-term debt from the V.
Disclaimer: I am not a financial advisor/expert, this is not investment advice.
Yeah ... a long time planning is important in mmy opinion before investing your money in anything..
I think that is good for all the people as they all know what will be the future :)
I didn't know about this formula, but I need to do my own research! Thanks for the heads up @dana-edwards!
only predictions are not enough for long term planning but growth potential is one of the basic and important factor to consider when you think about long term investments.thanks @dana-edwards . it is the best formula for those guys who are investing for long term . because you must check all the things before you planing to go for long term .
Extraordinary refresh sir. It was edifying. It has set off an enthusiasm for stock ventures which has been inactive for some time now.