Areas to review from Benjamin Graham’s Security Analysis book and others.
Investments have two valuations, one is the intrinsic value determined by various methods and a market value. These two value/prices are rarely the same. The market price continually goes above and below the intrinsic value range.
Investors can determine their own intrinsic value range or they can use a price determined by a service like Value Line or Standard & Poor’s.
The items below determine intrinsic values and General Market factors-including interest rates for individual investments:
Quantitative (Intrinsic value factors):
• Capital structure
• Other, e.g., sales
Qualitative (Future value factors)
• Management and Reputation
• Competitive conditions
• Company and industry prospects
• Possible and probable changes in volume, price, and cost
The four common ways to value equities are earnings, dividends, assets (book value) and hope.
Investors who expect returns from income will probably use dividend and assets for their valuations.
Speculators who hope to sell at prices higher than their purchase price will probably use earnings and hope for their valuations.
Speculative ways to value equities are best used when the economy is going from recovery to peak.
Investment ways to value should be used to protect gains when the economy is going from peak to the end of a recession.