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DrBourse FA Help for Beginners

DrBourse

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As a follow up to the above Intrinsic Vales Post above, here is some more Info.

The following is Referenced from "The Warren Buffett Way" pages 35, 36, 37 & 90.

Simplistically, a company's "Intrinsic Value" could be found by estimating the earnings of the company and multiplying those by an appropriate capitalization factor. This factor, or multiplier, is influenced by the company's stability of earnings, assets, dividend policy, and financial health.

Using an Intrinsic Value approach is limited by the analyst's imprecise calculations for a co's economic future.

The concern is that an analyst's projections could be easily negated by a host of potential future factors.

Sales volume, pricing, and expenses are difficult to forecast, thus making the application of a multiplier that much more complex.

The suggestion is that a Margin of Safety could be established and that it could be used to select stocks.

The idea of Intrinsic Value is an elusive concept. It is distinct from the market's quotation price.

Originally, Intrinsic Value was thought to be the same as a company's Book Value, or the sum of it's real assets minus obligations.

However, analysts came to know that the value of a company was not only its Net Real Assets but, additionally, the value of the earnings these assets produced.


The idea is that it is not essential to determine a company's exact Intrinsic Value but, instead accept an appropriate measure or range of value.


A greater amount of a company's Intrinsic Value is the sum of measurable, quantitative factors.

A lesser amount is attributed to Quality of Management, Nature of the Business, and optimistic Growth Projections.

Fixed Assets are measurable, dividends are measurable, current earnings as well as historical earnings are measurable. Each of these factors can be demonstrated by figures and become a source of logic referrerenced by actual experience.

The overall objective of this Intrinsic Valuation Calculator is to identify stocks with a current price that is less than two-thirds of it's Projected Intrinsic Value Range.


This Intrinsic Valuation Calculator relates "Owners Earnings" to the "Current Price".

Owners Earnings is stated as:- a company's net income, plus depreciation, depletion and amortization, less the amount of capital expenditure and any additional working capital that might be needed.

Owners Earnings does not provide a precise calculation as it often requires rough estimates.


This "Estimated Intrinsic/Balance Sheet Share Price Value" is what Buffets Valuer calculates the Share Price should be (based on the PAST current Balance Sheet Figures).

So Buffet is suggesting that provided there are no Abnormal Events this is what this Company's Forward share price is valued at.

If there are Company related abnormal events they can usually be accounted for within this Valuer.

That is, I can adjust any of the "Rates or Actuals" to help reflect abnormal events.

ie:- for a Profit Warning/Downgrade we simply adjust the Growth Rate. etc..

Extra info on Intrinsic Values and how to calculate it can be found in the 1st Edition of "The Warren Buffett Way" as shown in the following attachments.
 

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galumay

Was/is just a general comment.

To be honest it seems like Doctorate is needed to trade profitability!
I dont agree once you find an edge and that maybe simply trade and risk management
your away!

i'm inclined to agree with tech/a (to be fair that happens a lot, lol). you are data dumping a lot. i recommend you learn how to structure and present your ideas a bit more. appears to be more rambling, data dumping, stream of consciousness, type stuff. it's disorienting trying to read any of it. i suggest you find one of your fav trading books and try to emulate its structure, it will help.
 
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I think "beginners" would experience exasperation trying to understand all this...imo.
Won't comment on content, but as a beginner that has traded for 2 years, each post above for me would probably be a 4 hour lesson, first defining terms used then trying to piece together the understanding of it, before working out how to apply.
Thanks for posting it though, I personally might get to it in 10 years time, if not cremated before then.
 
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I think it's a great post.
I would never try to take it all in, just skim through it and maybe fill a few gaps and when i see anything that fits in with my style of trading study that section.
If anyone tried to use all the info, by the time you decided on what to buy it would be too late.
 

DrBourse

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AVERAGING DOWN - why bother chasing a Bad Trade - there are so many other opportunities out there - this is one area I totally disagree with, Averaging Down is, in effect, teaching ppl never to admit that "you have made a mistake" - BIG PROBLEM - we all get it wrong from time to time, that's what 'The Market" does - the thing we should be teaching ppl is exactly that, admit your error, take the loss, then move on, don't chase the thing, chances are that if you got it wrong once, you will get it wrong again.

Averaging Down, is to me, like burning cash, why waste more money chasing something that's gone bad - use that extra cash to buy something that's gunna rise, but make sure you USE A STOP LOSS..
 

DrBourse

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Beige Book - The Fed's regional survey, known as the Beige Book for the colour of its cover...The Beige Book represents a distillation of anectdotal evidence about the economy gathered by the staff of the 12 Fed Banks, helps set the stage for the testamony by the Fed Chairman to the Congress rate-setting Federal Open Market Committee... The Beige Book is part of the Federal Open Market Committee's preparations for its meetings. The report is released two Wednesdays before each FOMC. The book is a summary of economic conditions in each of the Fed's regions. The Report is published by the Federal Reserve Board eight times each year ...The report is primarily seen as an indicator of how the Fed might act at its next meeting..
 

DrBourse

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Book Value is no good for Valuing a company's Intrinsic Value - It is not uncommon to get Intrinsic Value and Book Value confused…..

The Book Value (equity) is that which appears in the balance sheet of the company and equals the assets less the liabilities......

It is easy to calculate the book value, or the equity, of a company, but when it comes to valuing a company, it is of only limited use......

Book Value (per share - net assets) represents what the shareholder owns of the company, after netting Total Liabilities from Total Assets.....

It includes both Tangible & Intangible Assets......

It's measured by dividing Shareholders Equity by the Nr of Shares Outstanding as of the EOY balance date.
 

DrBourse

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A High Debt to Equity Ratio is not always as Bad as dictated by the Old Trading Rules.

Basically a High Debt/Equity Ratio needs to be investigated before anyone jumps to an incorrect assumption....

Debt can be a problem in some cases, But for some stocks the "Excessive Debt" is Providing Positive Returns to Shareholders....

Remember there is "Good, Productive Debt" But there is also "Bad and Unproductive Debt", the trick is identifying what is OK relative to individual companies....



Say that Debt is helping provide a 2.5% Div Yield,…..Zero Debt they would also probably have a Zero Div Yield - so theoretically a bit more Productive Debt could increase that return substantially - This is where astute directors etc come to the fore - Good Financial Management will make a company greater - Bad Financial Management will send a company broke....

Have you researched the Co Directors and the Financial Team, what is their past record like???....

Do they know what they are doing with the current ??% Debt/Equity Ratio???......

How much is Short Term Debt, How much is Long Term Debt, What are the Loan Contract Details...are there Roll Over Provisions in the Contracts....

What are the Loan % Rates, and are the Rates Competitive, or are they exorbitant????….

Look at their Balance Sheet/Financial Position, Do they have money invested that could be used to repay the debts at a minutes notice????…..

What are the Tax Implications with such a High Debt Load, Good or Bad????….

In the current interest rate environment, can higher Debt to Equity ratios be sustained.



Back in the Old Days punters like us only had those mythical % guidelines to help our decision making process - in todays environment we have endless research resources at our fingertips..



The Old Rules like the ones people refer to are just that, "Old Rules".
 

DrBourse

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Dividends, Franking & Payout Ratios….

A minor suggestion for any budding Financial Analysts out there.....

Something I look for in any Analysis I do ATM is that - Franking % & Payout Ratio, should both be WELL BELOW 100%.....

50% or LESS would be ideal IMO.....

In the recent past, and for the ST Future, Companies need to retain as much of their Profits as they possibly can.....

Companies that "Payout Too Much" are flirting with serious repercussions....

Shareholders should be happy with reduced Dividends, rather than risk getting None.........

The argument that Companies need to keep Shareholders happy with large Dividends/Franking Credits just does not stand up in todays Economic Climate....

Remember to DYOR....
 

DrBourse

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Earnings Stability simply means a company is able to produce a fairly predictable pattern of earnings. That could be a desirable record of solid gains. EPS Stability Rating is a measure of consistency in earnings growth. Like many ratings, it runs on a 1 to 99 scale.(where 1 is excellent & 99 is Terrible) BUT anything below 25 is OK......

Technically speaking, earnings stability is a percentage value showing one standard deviation of the variability around the trend line fitted through three to five years of earnings history. Therefore, the lower the number, the more stable the company's earnings history. A company that reports consistent earnings growth of, say, 25-27 percent each quarter over three to five years will have an earnings stability near 1 (%) while a company that reports earnings varying from 5 percent in one quarter to 85 percent in another to -15 percent in yet another will have a substantially higher earnings stability value. Keep in mind that our proprietary Earnings Per Share Rating factors in earnings stability.

For more info just Google “Earnings Stability Definition” OR “Earnings Stability Formula”.
 

DrBourse

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The 3 “DrBourse Help For Beginners” forums ALL contain a series of “RANDOM POSTS” on subjects and items that may be of interest to beginners…

My intention is to lodge numerous posts to start with, then enter into “CONSTRUCTIVE DISCUSSIONS” that are geared toward assisting with beginner’s education in the various aspects of Share Trading….

These posts are not intended to be in any logically presented format….

Experienced Traders will gain little from my posts….
 

DrBourse

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i'm inclined to agree with tech/a (to be fair that happens a lot, lol). you are data dumping a lot. i recommend you learn how to structure and present your ideas a bit more. appears to be more rambling, data dumping, stream of consciousness, type stuff. it's disorienting trying to read any of it. i suggest you find one of your fav trading books and try to emulate its structure, it will help.
Not data dumping, it’s called selective posting.

My posts usually catch the eye of “interested beginners”, you responded, so it’s obviously working.

My writing structure is fine thank you, been no problems with anything I’ve written and published so far – yes, my presentation style is a bit different, but that’s the way life is, we are all different.
I am sorry that you feel disoriented, perhaps if you read the 3 DrBourse threads you will understand my style.

In seminars I used to give the participants comprehensive handouts at the start of the sessions, that’s basically what I’m doing now, then participants would use those notes to help them engage in discussions on those topics/subjects.
 

galumay

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The whole thing has got very promotional, not sure its a good look. All of the advise is very arguable and taken at face value by a new investor, may be misleading.
 

Dona Ferentes

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The whole thing has got very promotional, not sure its a good look. All of the advise is very arguable and taken at face value by a new investor, may be misleading.
That was my impression from Post One.
 

StockyGuy

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Don't understand the criticisms of the OP. He's offering some basic education and tips for beginners, without charge. I see them mainly as talking points. It's wrong to criticise the man for not giving the ANSWER or THE GRAIL to guaranteed benchmark beating success. Reality is most can't/won't beat the market. It is well known.

IF he starts offering to sell advice or training, then IMO it would be appropriate to ask to see his numbers, or at least proof of trading prowess. Seminar providers don't usually offer that, hence I don't go to a lot of seminars :p
 

DrBourse

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HI stock Guy,
I stopped the Seminar life many years ago, went into retirement, got bored doing nothing, so after a few years I decided to reappear and give all the educational info away Free - having Reems of Handouts, Powerpoint Presentations, etc, just gathering dust seemed 2B a waste.
Thought I may be able to assist some in a small way, as I only trade as a hobby these days.

As I mentioned in another thread, "I Don't feel the need to prove anything to anybody anymore".

Beginners should be interested in what I have to give, unfortunately a few angry locals seem hell bent on an agressive approach, that's fine, I'm not here to discuss anything with them, anyway I can't see what they post so that takes any agro out of the equation, a 'calm retired life' is my priority now.

If I can help in some way that's fine by me, if not that's also fine by me!.
I will check these 3 DrB forums a couple of times a each week just to see if anyone wants anything from me.
Cheers....
 

Joe Blow

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Please be kind everyone. Whether we agree or disagree with someone's content, or their approach, any criticism should be constructive and designed to improve the thread and raise the level of discussion. Please note that this is not directed at anyone is particular, it's just a general observation intended to assist in maintaining a friendly, constructive and inclusive atmosphere.
 
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The whole thing has got very promotional, not sure its a good look. All of the advise is very arguable and taken at face value by a new investor, may be misleading.
but but hopefully , they are created to provoke questions ( i don't understand , please explain ?? )

sorry but in my generation quality teachers HELPED you learn , not just gave you the magic key to life , love and everything
 
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PS 'taken at face value' leaves you completely vulnerable to expert advice ( that may or may NOT be the best way for YOU to go forward )

sure listen to every word of that expert advice but PLEASE ask questions when you are unsure or confused
 
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