Before investing in stocks, you need to analyze the company first, and then do the valuation. Finally, compare this valuation with the current price. If the current price is much lower than the valuation, buy it, because at this time it is equivalent to a discount.
How to analyze and estimate
It’s the same principle to repair different electrical appliances with different screwheads. We need to take different indicators for quantitative analysis and quantitative evaluation.
Different industries need different indicators, different companies in the same industry also need different indicators, and the same company needs different indicators at different times.
Therefore, stock investment is like a skill of repairing electrical appliances. Different tools (indicators) are used to repair (quantify) different electrical appliances (companies).
What we need is a way to continuously obtain new indicators. In fact, it is not difficult, but it needs constant learning. We all know that any skill is endless.
The more methods we master, the lower the natural risk and the higher the return. Let me take one of the indicators, PE, as an example.
What is PE?
PE is used to estimate one of the tools, sharp tool Oh: PE, the abbreviation of P / E ratio.
P / E ratio = market value / profit (market value is how much the company is worth, and profit is how much money the company can make in a year)
Market value = share price * number of shares, that is, the quoted price and selling price of the company in the market.
Profit (net profit) is the net profit of a company in one year.
PE means, if I buy this company all back, I will make money by it, and I will be able to make money in a few years.
In other words, one of the functions of PE is to help us simply evaluate whether the company is expensive or cheap.
This is PE, can you understand?
I still remember the steps of our course, no, first analysis, then valuation, and then trading investment.
First analyze the company. If it is a good company, we will evaluate it. If it is overvalued, we will not buy it. If it is undervalued, we can buy it. So valuation is a very important step for all the analysis to come to fruition.
PE is one of the most commonly used valuation formulas. All novices will encounter the problem, do not know where to start. Take the picture below,
Is the P / E ratio negative? Why? You know why not?
Remember what was p / E ratio? P / E ratio = market value / profit.
Under what circumstances will the P / E ratio be negative? When a company is losing money, that is, the denominator of this formula is negative, the P / E ratio will be negative.
P / E ratio, simply put, is how many years can be recovered. Let’s take another example.
Do you dare to take a company like this that takes 171 years to get back to its original value?
This is the rhythm of buying a stock and passing it on to generations. So we know how to use this PE?
In another case, some stocks with extremely high P / E ratio seem to have a good rise. This is actually the result of short-term capital speculation, commonly known as “bubble”. Once the bubble is broken, it will be faced with a cliff like fall. Therefore, it is not recommended to follow suit, because there is no idea what the funds will withdraw.
That’s what I said. The biggest risk is the unknown risk.
In more than 3000 stocks, we can eliminate most of the bad stocks with P / E ratio.
There is a saying in the stock market: seven losses, two losses and one profit. Because most investors choose stocks on the basis of hearsay or by feeling. This kind of investment can not be called investment at all. It is similar to gambling.
Let’s go back to seven losses, two losses and one profit.
If, a classmate, buy a stock randomly from more than 3000 stocks now, then his profit and loss probability is seven losses, two even and one gain.
Student B, he knows how to use PE. From more than 3000 stocks, companies with negative P / E ratio and companies that have returned their capital in more than 30 years are eliminated. How many companies are left? 70% of the bad companies are basically eliminated. Will the probability of their profits be much higher?
Therefore, the investment risk is largely related to the amount of knowledge they have mastered, and so is the rate of return.
I like to think of stock investment as a screening mechanism.
What do you mean? Every time you know a little bit of knowledge, your probability of profit is higher, the rate of return is higher, and the risk is lower.
It’s not hard to invest in stocks, it’s just how much time and effort you’re willing to put in to prepare
We use different indicators to analyze and compare peers, and so on. We are screening and eliminating bad companies.
These skills, like magic, will not be easily known. But people who know it will feel so simple, and those who don’t know can’t see through. Standing outside the wall, you can’t really understand a field.