Hello
I like the idea of having a strategy to value a share price. I am sure this would vary greatly between individuals but I would like to be able to do this for myself.
Can anyone recommend any reading or websites that would explain how to do this?
Thank you
Wee Dubbya
Robbie Burns Naked trader should keep you from trouble. It's pretty basic but has merit.
Mr Burns is rather vague about it I would suggest "Rule #1: The Simple Strategy for Successful Investing" by Phil Town. You can find very practical approach to this subject (Intrinsic Value of the Stock). And I would recommend to read the book of R. Burns too. It is very good and entertaining book and gives excellente base for trading and investing.
Hi Weedubbya,
Interesting question.
When you say "value a share price." I presume you mean work out what the share price should be to reflect the true value of the business?
I think there are two fundamentally different ways of looking at that question - both are pretty unhelpful in my view.
1. The Discounted value of future Cash-Flows.This is a truism and like most truisms not very useful,
Essentially it says that the value of owning the share is based on what you will get back from it in the future if you own to infinity or to the point where it closes down and distributes its terminal assets.
You then discount the total value of the future cash you will receive by your cost of capital, to work out what it is worth now.
This is implicitly true and some analysts do use methodologies around this. However, I have spent much of my career working on business forecasts and although I would say it is something I pretty good at (if I have the relevant information) but I still have a margin of error and that margin of error applied to a DCF valuation makes it almost entirely useless.
2. The Shares are worth what someone else is prepared to pay for them.A different truism and no more helpful.
The only way for you to realise the value of any shares you hold today is to sell them to someone prepared to pay for them.
In this sense the share-price is always the correct valuation of the company.
If that is true, then what on earth are we all doing here?
The answer, I believe, lays somewhere in the middle.
The valuation under model 2 , will effectively move based on the consensus belief in the DCF valuation based on model 1.
I know I am getting quite philosophical and definitely not especially helpful so I won't drone on further on the subject. I will though just say that I find it very helpful to remember these two extremes and how your personal thoughts and analysis sit between them.
Perhaps more helpfully; your post highlighted to me a Stockopedia resource that I was not previously aware of; a whole section entitled How to value stocks . I have not read it so far, but given what I know of the editorial standards here on Stockopedia, I would have high expectations that this will put you on the right track.
Gromley, the link you shared ‘How to value stocks’ takes me to the home page, is that correct or am I missing something?
aha Jeff, I am using the original Stockopedia site not the new one. So it must I presume be in a different place on the new site. (As a recent subscriber you won't have access to the old stire)
I cannot immediately find it through the new Stocko interface , so will ask the team to clarify how it can be accessed on the new site and I'll post an updated link here once I have a reply.
Jim Slater and the Zulu Principle is very good if not an easy read, alternatively check the stocko Jim Slater screen out, found quite a few value shares lurking there, but don't buy them all.
