Warren Buffett's stock valuation method

Buffett stock valuation method of the whole selection

A successful investor: Buffett stock valuation is so successful, our ordinary retail investors can follow suit? The original money is to be earned in this way. I am here to organize the Buffett stock valuation method of the book, for your reference, I hope you have gained in the reading process!

Success does not need to go to do how amazing big things, no matter how much money you have, in this market, should be accustomed to do every little thing, unswervingly, happily do it, to form good habits. Losing money and making money, are from their own trading habits, but there are good and bad points, and thus there are different results.

When doing disk and buying and selling to be flexible, the time to go out on a limb, to believe in themselves. Close attention and highly focused on the market in the mainstream hot money movements and trends, hot money does not move I also do not move, hot money does not come to my empty position, always love the market hot money. Hot money movement and flow is the most valuable indicator in the market. Through continuous practice, efforts to develop the ability to find hot money (requires patience and concentration), in various ways new to the hot money flow, its intensity of timely and rapid assessment, and at the same time, in accordance with the principle of energy flow always follow the path of least resistance flow (technical pattern analysis, chip stability analysis, and profit space evaluation), rapid decision-making (thinking), and finally to realize the hand-brain unity, the first to keep up with the hot money flow. The hot money flow and thus realize the goal of constant and stable profit.

Doing any thing requires some time for it to mature naturally. If you are too impatient, impatient and unwilling to wait, you will not be able to do it quickly enough, and you will often suffer from destructive hindrances. Therefore, any real success may be characterized, but they must have a **** the same quality, that is, have extraordinary patience, see how the lion hunts? It patiently wait for the prey, only in the timing and the opportunity to win are appropriate when it jumped out of the bushes, successful speculators have the same characteristics, he will never speculate for the speculation and speculation, he patiently waiting for the right time, and then only take action, Soros will be his own recipe for success attributed to the "amazing patience", attributed to the "Patiently waiting for the right time, patiently waiting for the change in the external environment to be fully reflected in the price movement".

Regrettably, "trading with patience", which everyone understands and sounds simple, is not easy to do, because it is contrary to some instinctive elements of human nature: the really long period of rational trading is so "monotonous", out of human instincts. ", out of human instincts, novices like to ignore the external conditions of the market in the market jumping around looking for excitement; the market will often be not too short of the risk of large gains in the market phase, but "know that can not be done for the", "to do others can not do the Things" and always in and out of the market "looking for and grasping" opportunities is also the instinct of human nature; outside the noise and agitation is also every moment to affect our emotions, judgment and patience?

"Spring" is the season for planting seeds, no matter how much you like flowers, you can't sow seeds into the ground in winter, we can't be too early, we can't be too late, we have to wait patiently, patiently wait for the right time, patiently wait for the right environment, and then we can do the right thing. . Patience, seen as ordinary, is a great quality! It makes the impatient people become cool, it makes the wrathful people get warm, it makes the troublesome and painful people feel comfortable, it makes the disheartened people be inspired!

Many people lost a loss, can still rationally look at the market is not due to a gain or loss and messed up the mentality, such people tend to earn more loss less, many people lost a loss on the feeling of inches, it is difficult to go to the operation, afraid of loss and afraid of less earn, such people tend to earn less loss more. You are which kind of people will determine the profitability of your investment situation, sometimes we need time to be quiet and think.

Simple and practical Warren Buffett stock valuation method Daquan

Listed company stock valuation method is a necessary process of fundamental analysis of the company, by comparing the difference between the theoretical stock price of the company calculated with different valuation methods and the actual stock price in the market, and then ultimately to make investment buying and selling decisions.

For value investors, before buying a company's shares, it is very important to understand the company's valuation in the end is underestimated or overestimated, because the founder of the concept of value investment, Warren Buffett's teacher, Graham, that the intrinsic value of the stock, the margin of safety and the correct attitude to investment is the concept of value investment in the three cornerstones of the Margin of Safety, and the margin of safety of the valuation of the company. The problem.

Generally speaking, the valuation method of stock analysis is divided into absolute valuation method and relative valuation method.

Absolute valuation method

If you understand and calculate the absolute valuation method formula based on the academic content of corporate finance learned by finance majors, for the general stockholders who have not been in contact with corporate finance, it will certainly be very puzzling to comprehend, therefore, I will simplify it and practical.

Absolute valuation method, also called the discount method, commonly used valuation method is the free cash flow discount model, mainly through the listed company's history, current fundamentals of the analysis and forecasts of future financial data reflecting the company's operating conditions to obtain the intrinsic value of the listed company's shares. Its basic criterion is that the value of the company comes from the continuous inflow of cash flows in the future, and then these cash flows obtained every year are discounted to the present value based on a discount rate, and then summed up afterwards.

1. Discount rate

So how do you understand discounted cash flows? For example, let's say you have 100,000 RMB on hand right now, but due to inflation and time money value, etc., the purchasing power of your 100,000 RMB may be lower or higher than the 100,000 RMB right now in the next 5 years, so you have to discount the 100,000 RMB by giving a discount rate for this money in the future. If you feel that the $100,000 will be worth more money and produce more value in the future, then you should give it a lower discount; if you feel that it will not be worth anything in the future, then you should give it a higher discount. However, which discount is required to measure a standard, this standard is the discount rate, and the discount rate is generally based on the 5-year treasury rate as a standard (Warren Buffett generally refer to the U.S. 10-year treasury rate), for example, at the beginning of 2018, China's 5-year treasury rate of 4.27%, plus the stock risk premium, which is the discount rate. Since investing in stocks is riskier than investing in Treasuries, it's important to give a risk premium to stock investments, which is typically about 4%, so this discount rate is 4.27% + 4% = 8.27%.

2. Cash flow

Also, and this 100,000 yuan future cash flow depends on growth, and then finally sum the cash flow. Finally, the totaled cash flows of $100,000 over the next 5 years are then divided by a discount rate of 8.27%, which comes out to be the present value of the $100,000 over the next 5 years. And back to the stock, generally can be simple to calculate free cash flow in this way, that is, free cash flow = net cash flow from operating activities - capital expenditures (or net cash flow from investments)

But for the stock market investors, there is no need to need, and it is difficult to accurately calculate the free cash flow of the listed company, because the free cash flow model involves the cash flow, capital expenditures, the discount rate, the growth of the Four variables, these variables are difficult to choose and may be subjective, especially the cyclical company cash flow forecast is difficult, and long-term capital expenditure is even more difficult to predict, any slight deviation from the results may be very different, so this free cash flow model is more suitable for hydroelectricity, highway and other relatively stable industries.

Two, relative valuation method

Relative valuation method in the practical application of the relatively simple, easy to understand, less subjective, more objective, with the timeliness, but there is also a comparable company how to choose the problem, and even if a comparable company has been selected, but it is difficult to find out the exact method to solve the problem of whether the value of the comparable company is reasonable.

Generally, it is difficult to find a precise way to resolve the question of whether a comparable company's value is reasonable even if it has been selected.

The general relative valuation methods are price-earnings ratio (PB), price-to-book ratio (PB), price-to-present ratio (PS), price-to-growth ratio (PEG). Next, the editorial one by one for the shareholders to analyze.

1.PE

The formula for calculating the P/E ratio: P/E ratio = price per share/earnings per share = stock market capitalization/net profit

The P/E ratio is a simple indicator used to characterize the relationship between stock price and earnings, and the P/E ratio is generally categorized as dynamic P/E, static P/E and rolling P/E. Among them, the static price-earnings ratio has a serious lag, the rolling price-earnings ratio can accurately reflect the current operating information but lack of foresight, the dynamic price-earnings ratio can reflect the company's future operating information but lack of uncertainty. And I generally use the rolling price-earnings ratio, because this is closer to the current operating situation, its formula: rolling price-earnings ratio (TTM) = current share price / the last four quarters of earnings per share total.

But there are shortcomings in the price-earnings ratio, for example, for the performance of strong growth, continuity and certainty of the industry, 10 times the price-earnings ratio may be really underestimated, but for the performance of the industry with extreme volatility and losses, 100 times or even higher the price-earnings ratio instead of a very good period of time to buy, so price-earnings ratio is generally not applicable to cyclical industries, performance losses and performance does not have the Sustainability of the industry and the company.

In addition, in determining whether the price-earnings ratio is high or low, it should also be noted that, in Peter Lynch's "six types of companies" theory, slow-growth company's stock PE is the lowest, while fast-growth company's stock PE is the highest, and cyclical company's stock PE is in between. Some investors who specialize in finding bargains believe that whatever stock has a low PE should be bought, but this investment strategy is not correct and there are many other aspects to consider.

Vietnam Sound Investment Research has a few tips for determining whether a company's PE is high or low:

a. The company itself is compared vertically, i.e., with the average valuation of the company's history, especially the lowest valuation in the company's history;

b. The company is compared with similar companies in the same industry with similar business and other aspects of the market;

c. The company is compared with mature markets such as Europe, the United States and the United States. and other mature markets, especially with the Hong Kong stock market, which is more sensitive to A-shares.

2. PB

Price-to-Network Ratio (PNR) formula: PNR=Price per Share/Net Assets per Share=Market Capitalization of Stocks/Net Assets

Price-to-Network Ratio (PNR) is a comparison of a stock's market value with its current book value (i.e., owner's equity or net assets). value, the higher the stock price. Generally speaking, low P/E ratio, investment value is high; high P/E ratio, investment value is low, but at the same time to consider the company's market environment, operating conditions and profitability.

The scope of application of the P/NAV ratio:

Heavy asset-type enterprises (such as traditional manufacturing industry), to the net asset valuation method, supplemented by earnings valuation method;

Light asset-type enterprises (such as service industry), to the earnings valuation method, supplemented by net asset valuation method.

3. PS

Price to sales ratio formula: price to sales ratio = price per share / income per share = market value of the stock / income

Generally speaking, the PS is small, which means that may be a large sales revenue per share, while the stock price is low, this situation is mostly caused by the net sales margins are very low, that is, sell more but do not make money, but also means that there is room for improvement. Means room for improvement, especially if the product price increases or cost reductions, etc., slight changes could lead to a big boost in profits.

Scope of application of the marketing ratio:

Applicable to large sales, fast turnover of traditional industry companies, such as supermarkets, department stores, pharmaceutical business, etc., while the GEM companies are generally very small (GEM companies with little sales revenue), and only applies to the comparison of companies in the same industry.

Internet companies, the number of users, the number of clicks and market share as a visionary consideration, the market-to-sales ratio;

Emerging industries and high-tech companies, the market share as a visionary consideration, the market-to-sales ratio.

When using PS, the following points should be noted:

a. Using this indicator to select stocks, you can eliminate those stocks whose P/E ratios look reasonable, but whose main business does not have core competitiveness and mainly relies on non-recurring gains and losses to increase profits;

b. Since sales are usually more stable than net profit, and the P/S ratio only takes into account sales, the P/S ratio is very suitable for measuring stocks that have a large gap between net profit year to year. companies with large year-to-year differences in net income;

c.A high price-to-sales ratio means that the market expects more profitability and growth from a company, while a low price-to-sales ratio means that investors are paying very little for each dollar of sales for that company;

d.The price-to-sales ratio is usually only comparable within the same industry, and it is often used to measure very poorly performing companies, which usually have no P/E ratio to refer to.

4. PEG

P/E growth ratio formula = P/E ratio/earnings per share annual growth rate = (market value of the stock/net profit)/net profit annual growth rate

Generally, it is believed that when the value of the price-earnings growth ratio is less than 1, it is considered that the company's value is underestimated or that the company's performance growth is very poor. Greater than 1 is considered overvalued, the market will think that its growth will be higher than expected; close to 1 is considered reasonable, fully reflecting the company's future performance growth. But for companies with strong growth, investors are willing to give it a higher valuation and premium, that is, the price-earnings growth ratio may be more than 1, or even 2.

The lower the PEG value, the lower the PE of the stock, or the higher the rate of growth of earnings, and thus the more investment value.

The benefit of the PEG indicator is to look at the PE against the growth of the company's performance, where the key is to make an accurate expectation of the company's performance, but it is difficult because the earnings growth rate is more difficult to predict and fluctuates a lot, and therefore is not very reliable. You can rely on the PEG indicator to tell a story in a bull market, but it is not the same in a bear market.

The following points should be noted when using PEG:

a. A typical characteristic of a company with a low PE and fast growth is that the PEG will be very low.

b. Investors usually believe that stocks with a PEG below 1 can be considered good investment targets, and the lower the better (even below 0.5). However, some investors claim that stocks with PEGs in the 0.7-0.8 range are the most suitable for investment.

c.Since the net profit growth rate is not guaranteed to be stable, I would suggest averaging and then calculating the current PEG. but this does not include companies that have had extreme values, and using the average would be bad.

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