What is the yardstick to measure the stock prices? Or how one can find the intrinsic value for the stocks?
Another question wch often comes to my mind is tht what drives the prices of the stock?
these questions are always in the mind whether u r an investor or trader... so I thought to discuss this with u all the best in the field...
One of the maxim I hav oftn heard in the mrkt is "Bhav Bhagwan Che" so what it really means???
Uptill now what I hav understood frm the mrkt is Stock prices are made up of probably two things i.e its Book Value and Sentimental Value...
Hence
Stock Price = Book Value + Sentimental Value
Probably the book value shud giv u an insight abt the intrinsic value for the stocks...
Graham has presented a simplified formula to look into the fair PE ratio for any stock...
P/E = 8.5 + 2G
where P/E is the fair P/E ratio, and G is the earnings growth rate.
The intrinsic value of the stock is then...
V = EPS + P/E
V = Intrinsic Value
EPS = Trailing Twelve Months Earnings Per Share
8.5 = P/E base for a no-growth company
G = earnings growth rate
But is all this applicable in Indian Market...
Lets take a situation the market at ~20000 in Dec'10, LnT trading at 2000, I found it Cheap buy it, the market witness a choppy session LnT goes dwn, comes 1900 I thought good rate to avg the price once again buy...
In the TV the guys talking the market may be heading for the life time high:clap:before the budget... my convictions bcomes strong within next few sessions mrkt takes a correction, comes ~19500 LnT, 1800 ok...hold on... few more days Egypt problms comes in Mrkt coming dwn LnT hitting lower 1700 and so on... then comes Libiya Crude Oil Price rising and Fiscal deficit and Growth, Inflation blah...blah...blah... the Mrkt ~18000, LnT ~1500, now where my conviction has gone, why I'm not able to see the value in the stock wch probably is trading much lower to what I expected and invested at.
The moral of the story is that the stock has lost its sentimental value... The people (including me) are now convinced that the stock is heading southwards, even @ 1500...its seems quiet costly so, what shud v done shud I wait and watch...
The TV guys once again comes and talk for 16000 levels, the FII's moving out frm the market and not able to see the earnings coming in the market, intrest rate to be risen to control inflation all together in short we are in a bad phase of the market and to me and to a common investor the capitals blocked and v are stucked... What next???
Where can I find the intrinsic value of this stock all calculations already went haywire...What shud be done in such situation, shud we stop investing... shud I take SIP route, how much money to be deployed in the stock...What financial planning must be done...before one enters the market and will it withstand the test of time??? This is not one situation of our day to day of trading life, for me I can say I had witness quite a few and probably they all have taught me a good lessons for mine financial planning...
So here I would like u all to share ur views and ur experiences how to look deeper into the stock prices... beyond the intrinsic value...
Another question wch often comes to my mind is tht what drives the prices of the stock?
these questions are always in the mind whether u r an investor or trader... so I thought to discuss this with u all the best in the field...
One of the maxim I hav oftn heard in the mrkt is "Bhav Bhagwan Che" so what it really means???
Uptill now what I hav understood frm the mrkt is Stock prices are made up of probably two things i.e its Book Value and Sentimental Value...
Hence
Stock Price = Book Value + Sentimental Value
Probably the book value shud giv u an insight abt the intrinsic value for the stocks...
Graham has presented a simplified formula to look into the fair PE ratio for any stock...
P/E = 8.5 + 2G
where P/E is the fair P/E ratio, and G is the earnings growth rate.
The intrinsic value of the stock is then...
V = EPS + P/E
V = Intrinsic Value
EPS = Trailing Twelve Months Earnings Per Share
8.5 = P/E base for a no-growth company
G = earnings growth rate
But is all this applicable in Indian Market...
Lets take a situation the market at ~20000 in Dec'10, LnT trading at 2000, I found it Cheap buy it, the market witness a choppy session LnT goes dwn, comes 1900 I thought good rate to avg the price once again buy...
In the TV the guys talking the market may be heading for the life time high:clap:before the budget... my convictions bcomes strong within next few sessions mrkt takes a correction, comes ~19500 LnT, 1800 ok...hold on... few more days Egypt problms comes in Mrkt coming dwn LnT hitting lower 1700 and so on... then comes Libiya Crude Oil Price rising and Fiscal deficit and Growth, Inflation blah...blah...blah... the Mrkt ~18000, LnT ~1500, now where my conviction has gone, why I'm not able to see the value in the stock wch probably is trading much lower to what I expected and invested at.
The moral of the story is that the stock has lost its sentimental value... The people (including me) are now convinced that the stock is heading southwards, even @ 1500...its seems quiet costly so, what shud v done shud I wait and watch...
The TV guys once again comes and talk for 16000 levels, the FII's moving out frm the market and not able to see the earnings coming in the market, intrest rate to be risen to control inflation all together in short we are in a bad phase of the market and to me and to a common investor the capitals blocked and v are stucked... What next???
Where can I find the intrinsic value of this stock all calculations already went haywire...What shud be done in such situation, shud we stop investing... shud I take SIP route, how much money to be deployed in the stock...What financial planning must be done...before one enters the market and will it withstand the test of time??? This is not one situation of our day to day of trading life, for me I can say I had witness quite a few and probably they all have taught me a good lessons for mine financial planning...
So here I would like u all to share ur views and ur experiences how to look deeper into the stock prices... beyond the intrinsic value...