Calculating value

Bobziz

A fundamental question for those in the know, how do you go about calculating the value of an individual stock or fund etc ? 

For example, I've read posters recently stating that renewables are currently trading at a premium/high, and are therefore not an attractive option in the short term. Obviously if you look at the share prices of most of the companies in the sector, you can see that prices are at all time highs and have got there in a short space of time. However, how do you go about determining that the market price is high or low relative to what would be considered fair value (par?) ? 

I appreciate that value is not the only thing that drives share/fund prices, but I'd like to understand how members go about making their stock/fund picks when looking to buy low sell high. Any thoughts would be much appreciated.

coyrls

The fact is the share price.  Statements about under valued or over valued are opinions.

LobsterMemory

This topic could lead to bowlhead's longest ever reply so, to save him from RSI, you could do worse than googling 'monevator how to value shares' and see where it takes you

Prism

Buy low and sell high is only one way of investing. I honestly don't worry about it since valuing a company is very subjective. For example some people think Tesla is cheap and others believe it is very overpriced. You could argue that whether a share is currently a bit cheaper or more expensive than it should be isn't massively important over the long term.

Ray_Singh-Blue

Say some people think a stock is cheap and some people think it is overpriced. Luckily we have this thing called the stock market, where they can come together and strike a deal at a price they both feel happy with.

Bobziz

LobsterMemory said:

This topic could lead to bowlhead's longest ever reply so, to save him from RSI, you could do worse than googling 'monevator how to value shares' and see where it takes you

Thanks, I will do. I'm also hoping for one of bowlheads essays too. I usually find them to be both educational and thought provoking.

coastline

For years many commentators used P/E values as one guide but they can vary a fair bit. Look at the US market it looks high and tends to direct the rest of the world. There's no point waiting for value to appear as you'll probably miss out on huge gains. So regarding fund investing all you can do apart from invest in one go is drip feed and buy the dips. 
Ept_5ZQXMAcw0CW (679×391) (twimg.com)
This link has some good reading .
UK Value Investor — For defensive value investors
Single stocks are volatile so you'll either have to be patient or buy when they are slightly out of favour. Two good examples of quality below with prices going in the wrong direction.
 Unilever (ULVR) | The Share Centre
Astrazeneca (AZN) | The Share Centre
I don't buy anything without looking at a chart and indicators which I accept won't get any recommendations on here. AZN and ULVR are both on my watch list as forward earnings are going in the right direction according to the forecasts in the link. If there were problems I'd leave them out. How I buy them is another one which is pointless posting as my ideas won't be accepted.
What I've learnt is get rid if there's a profits warning as you don't know what will happen next. Look no further than Tesco a few years ago. Price was rising in a growth phase and P/E value was a heady 20 at one point. Supermarkets in the past traded nearer 10 than 20. Profits warning then slump. So I suppose Amazon must keep going to some extent otherwise it'll be in half if it doesn't. 

Thrugelmir

Bobziz said:

A fundamental question for those in the know, how do you go about calculating the value of an individual stock or fund etc ? 

Research. Research.  Research. There's many sources of quality information (unfortunately many aren't free).  Rationalise your own investment decisions. There's pro and cons to every investment. Never invest in the flavour of the month. The herd moves en masse. 

The smalller the market capitalisation and/or the lower the free float of a company's shares. The greater the volatility in the share price. Track the share price over time and opportunities will arise. 

Prism

Thrugelmir said:

Bobziz said:

A fundamental question for those in the know, how do you go about calculating the value of an individual stock or fund etc ? 

Research. Research.  Research. There's many sources of quality information (unfortunately many aren't free).  Rationalise your own investment decisions. There's pro and cons to every investment. Never invest in the flavour of the month. The herd moves en masse. 

The smalller the market capitalisation and/or the lower the free float of a company's shares. The greater the volatility in the share price. Track the share price over time and opportunities will arise. 

To be fair investing with the herd aka momentum is just another way of investing which has produced some pretty decent results over an extended period. I don't do it but many do.

Thrugelmir

Prism said:

Thrugelmir said:

Bobziz said:

A fundamental question for those in the know, how do you go about calculating the value of an individual stock or fund etc ? 

Research. Research.  Research. There's many sources of quality information (unfortunately many aren't free).  Rationalise your own investment decisions. There's pro and cons to every investment. Never invest in the flavour of the month. The herd moves en masse. 

The smalller the market capitalisation and/or the lower the free float of a company's shares. The greater the volatility in the share price. Track the share price over time and opportunities will arise. 

To be fair investing with the herd aka momentum is just another way of investing which has produced some pretty decent results over an extended period. I don't do it but many do.

Trouble is an individual investor may not have previously experienced a sustained market fall. Therefore has remained fully invested in a particular sector and never taken the opportunity to fully diversify or rebalance their portfolio. 

Another_Saver

Bobziz said:

A fundamental question for those in the know, how do you go about calculating the value of an individual stock or fund etc ? 

For example, I've read posters recently stating that renewables are currently trading at a premium/high, and are therefore not an attractive option in the short term. Obviously if you look at the share prices of most of the companies in the sector, you can see that prices are at all time highs and have got there in a short space of time. However, how do you go about determining that the market price is high or low relative to what would be considered fair value (par?) ? 

I appreciate that value is not the only thing that drives share/fund prices, but I'd like to understand how members go about making their stock/fund picks when looking to buy low sell high. Any thoughts would be much appreciated.

I think what you're asking is about premiums/discounts in relation to investment trusts that hold renewable energy assets (e.g. Greencoat UK Wind plc etc.). In general, there are any number of ways to calculate the "value" of an asset. With this specific asset class, a "premium" is probably the price relative to the book value of the assets. Greencoat is priced based on what is shareholders think its wind turbines can earn in future (just google discounted cash flow model, or watch a video of Warren Buffett explaining it), which tends to be higher than the book value of the wind turbines. This is true of most companies - if wind turbines "market value" as an investment asset was less than their cost to build or buy one, such a business would not be viable, they would not have been able to raise the capital to buy the wind turbines in the first place.