Yardstick to measure the stock prices

#1
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...:confused:

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...
 
#2
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...:confused:

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...
Pls post ur valuable comments...
 
#4
What drives the prices of stock?
After a lot of discussion with myself I came to conclision tht there are atleast three parameters wch drive the prices of the stock:
1) visibility in earnings,
2) liquidity in the mrkt, and
3) sentiments (mrkt don't like uncertainities)...

>> In my view liquidity in the market can b roughly gauged by the intrst rates offered by the banks. if the rate of intrst is continously being increasd it is suggestive tht liquidity in the mrkt is high... and the mrkt is nearing its peak... getting heated and ovrheated... and the correction is nearby... definitely in midterm the prices of the stocks may head southwards...

>> the sentiments are also an important factor wch can be the driving forc for the prices of the stocks... there goes a maxim "teji mein sabka bolbala aur mandi mein sabka muh kaala". if the sentiments in the mrkt is right... then the prices may inch northwards...and if the sentiments pf the mrkts r weak or there is some uncertainities looming or hovering in the system such as political, scams etc. can head the prices of the stocks southwards. once u r thru the woods the picture bcomes clear and a proper trend starts emerging. Remember "Trend is your friend."

>>Another and the most important factor tht drive the prices of the stock is visiblity in earnings, going forward... This can be gauged by looking in the annual reports and guidance given by the company frm time to time... One shud also look for its quarterly Sales and Profit after Tax figures... I feel comfortable withthose companies wch r having sales growth of 20% and PAT growing @ 30% annually.





In present situation u can see the intrst rate peaking (presently 5.5) leaving RBI with an option of 100 bps (in that situation v will be historically touching the intrst rates of yr 2000) going forward to curb inflation... so in the near term I feel in the next credit policy meet v can see hike of 25 bps to max 50 bps... Thus suggesting going forward the intrest rate r almost peaking up...so it is suggestive fundamentally the liquidity has been taken off frm the system... and v hav already witness a sharp fall frm Jan11.



Now going forward if sentiment become too-too weak I find the worst case scenario for SENSEX to be arnd 16000. But tht's the worst case only... and in most cases 17500-18000 shud serve as gud supprt.



India GDP Growth Slows to 8.2% in Q4
Report Published: 3/1/2011 11:20:15 AM By: TradingEconomics.com, MOSPI
India's economy grew 8.2% compared to the same period a year earlier between October and December, government data showed on March 1.
Quarterly GDP at factor cost at constant (2004-05) prices for Q3 of 2010-11 is estimated at Rs. 12,61,664 crore, as against Rs. 11,66,145 crore in Q3 of 2009-10, showing a growth rate of 8.2 per cent over the corresponding quarter of previous year.

The economic activities which registered significant growth in Q3 of 2010-11 over Q3 of 2009-10 are: agriculture, forestry & fishing at 8.9 per cent, construction at 8.0 percent, trade, hotels, transport and communication at 9.4 per cent, and financing, insurance, real estate and business services at 11.2 per cent. The growth rate in mining& quarrying, manufacturing and community, social and personal services is estimated at 6.0 per cent, 5.6 per cent and 4.8 per cent respectively in this period.

According to the second advance estimates of production of crops released on 9.2.2011 by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GDP from agriculture in Q3 of 2010-11, production of rice, coarse cereals and pulses during the Kharif season of 2010-11 is estimated to have increased by 5.6 per cent, 28.2 percent and 52.8 percent, respectively over the corresponding season in the previous agriculture year. Among the commercial crops, the production of oilseeds and sugarcane is estimated to have increased by 15.8 per cent and 15.2 per cent, respectively during the Kharif season of 2010-11, while the production of cotton is expected to grow by 40.0 per cent during the agriculture year 2010-11. However, horticultural crops and livestock products are expected to grow at 5.6 per cent and 4.7 per cent, respectively during 2010-11.

According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity, registered growth rates of 5.8 per cent, 5.1 per cent and 6.5 per cent, respectively in Q3 of 2010-11, as compared to the growth rates of 10.3 per cent, 14.4 per cent and 3.8 per cent in these sectors in Q3 of 2009-10. In the mining sector, production of coal, crude oil and natural gas registered growth rates of 1.5 per cent, 15.5 per cent and 3.7 percent in Q3 of 2010-11, as against the growth rates of 4.6 per cent, (-)0.9 percent and 50 per cent in Q3 of 2009-10.

Among the services sectors, the key indicators of railways, namely, the net tonne kilometers and passenger kilometers have shown growth rates of 4.0 per cent and 6.2 per cent, respectively in Q3 of 2010-11, as against the growth rates of 12.5 per cent and 6.7 per cent, in the corresponding period of previous year. In the transport and communication sectors, the production of commercial vehicles, cargo handled at major ports, cargo handled by the civil aviation and the total stock of telephone connections (including WLL and cellular) registered growth rates of 22.1 per cent, 0.86 per cent, 12.2 per cent and 40.0 per cent, respectively in Q3 of 2010-11 over Q3 of 2009-10. The key indicators of banking, namely, aggregate bank deposits and bank credits have shown growth rates of 18.8 per cent and 27.9 per cent, respectively during April-December, 2010-11 over the corresponding period in 2009-10.


So roughly what I can estimate tht with the monetary tightening going forward we must see a GDP growth rate roughly to b 6.5%-7.0%. Tht give me a worst tgt for SENSEX to be 16000 (my estimate 17500-18000)going forward by HY11.

Plzzz.... feel free to giv ur valuable comments...THNX...
 
#6
Many investors believe a successful strategy starts with a hunch about the economy. Based on this, they make an educated guess about what lies ahead for the stock market. This, in turn, leads to a theory about which stocks to buy. But a theory that's based on a guess that's based on a hunch may not be the best foundation for your investment portfolio.

Investors hate uncertainty. And history shows that they will pay brokers, hedge fund managers and investment gurus a lot of money to eliminate it.

The problem is they can't. Count yourself a sophisticated investor the day you wake up and say, "Given that no one can tell me with any certainty what the economy or financial markets will do, how should I run my portfolio?";) This is the beginning of investment wisdom.

As you learn more about this Eastern philosophy, you'll be struck by the similarities. Consider, for example, the following verses from China's ancient Tao Te Ching. They could be aimed squarely at economic forecasters, market timers, and metaphysical speculators:

The ancient Masters didn't try to educate the people, but kindly taught them to not-know.
When they think that they know the answers, people are difficult to guide.
When they know that they don't know, people can find their own way.

Or consider this verse:

Not knowing is true knowledge. Presuming to know is a disease.
First realize that you are sick; then you can move toward health.

Or even more simply:

Those who know don't talk.
Those who talk don't know.


The venerable Tao Te Ching is not an investment guide, of course. It's a 2,600-year-old collection of 81 brief poems that describe a vision of what our lives would be like if we lived in harmony with the way things are.

It's among the most translated books in the world, exceeded only by the Bible and the Bhagavad-Gita. The Tao itself represents a transcendent mystery, something we cannot name or even imagine. Interpreted literally, it is "the way" of the universe, an explanation of life.

It contains no moral code, however. In fact, the Tao Te Ching is rarely about taking action. More often, it's about the wisdom of inaction and accepting what you cannot change, be it the state of the economy, the death of a loved one, or the behavior of your adult children.

Tradition tells us the author is Lao Tzu, a keeper of the imperial archives in the ancient capital of Luoyang, who lived around 600 B.C. But more likely, he didn't exist at all. Like Homer, Lao Tzu is probably a combination of many ancient sages – and the Tao is a compilation of wisdom that came into being over a great period of time. (The wordslao tzu literally mean "old philosopher.")

Taoist philosophy challenges you to embrace paradoxical thinking. For example, you may believe an affront requires a forceful response. Lao Tzu encourages you to consider humility instead. A problem needs an effective solution? Consider the benefits of non-action first.

The ancient symbol of the Tao shows the two phases of the moon conjoined. This represents the yin and yang of the world: masculine and feminine, darkness and light, weakness and strength, action and inaction.

The West tend to think that opposites contradict. The Oriental view is that they compliment each other – and it is only when we change our ingrained ways of thinking that we begin to change our world.

Taoist philosophy requires an open mind and considerable reflection to be fully appreciated. It reminds us, for instance, that we may be so busy trying to get rich, change the world or improve ourselves that we miss life's essence. Verse 8 says:

Fill your bowl to the brim and it will spill.
Keep sharpening your knife and it will blunt.
Chase after money and security and your heart will never unclench.
Care about people's approval and you will be their prisoner.
Do your work, then step back. The only path to serenity.


Taoism offers an alternative view of abundance, one that values maintaining dignity over acquiring social position, and enjoying free time over acquiring possessions.

Culture, society and technology have changed a great deal over the last few thousand years. But the Taoist philosophy remains relevant. For example:

Knowing others is intelligence;
knowing yourself is true wisdom.
Mastering others is strength;
mastering yourself is true power.


Or consider this timeless nugget:

Wise men don't need to prove their point;
Men who need to prove their point aren't wise.


Lao Tzu said "we should have a nature like water. Water can be forceful, yet it is always the first to yield, moving quickly around obstacles and relentlessly seeking the simplest path. With time and persistence, water will wear away the tallest mountains and transform the landscape."

People who are confrontational – who remain dogmatic – never learn this lesson. They're more interested in being right than moving forward. The Tao Te Ching says:

People are born gentle and weak; at their death they are hard and stiff. All things, including the grass and the trees, are soft and pliable in life; dry and brittle in death.
Stiffness is thus a companion of death; flexibility a companion of life. An army that cannot yield
will be defeated. A tree that cannot bend will crack in the wind. The hard and stiff will be broken; The soft and supple will prevail.


One of the classics of Oriental literature, the Tao Te Ching is both simple and profound. And it's easy to follow. The secret is not to complicate it.

The Tao encourages you to stop feeding your ego and enjoy the fruits of your labor. It teaches that the experience of inner peace is the true gauge of accomplishment.

The Tao Te Ching deals with many of the most basic human experiences: birth, death, loss, gain, dignity in the face of challenge, how to judge the character of a person, when to move forward, when to retreat, how to deal with good fortune or ill fate. There is even sage political advice: Governing a large country is like frying a small fish. You spoil it with too much poking.

Despite his wisdom, Lao Tzu expected skepticism. He seemed to know his message would not always be well received:

When a superior man hears of the Tao,
he immediately begins to embody it.
When an average man hears of the Tao,
he half believes it, half doubts it.
When a foolish man hears of the Tao,
he laughs out loud.
If he didn't laugh,
it wouldn't be the Tao.


Our lives are full of responsibilities and obligations. Technology and the pace of modern life add even more pressure and anxiety. Yet it's possible to gain understanding from the Tao Te Ching, a more than 2,000-year-old discourse on the nature of existence.

Taoism teaches that to be truly free we must be able to work with change rather than against it. We should be humble, flexible and detached from most worldly concerns. The art of abundance is often a matter of recognizing, appreciating and celebrating life as it is:

If you look to others for fulfillment,
you will never be truly fulfilled.
If your happiness depends on money,
you will never be happy with yourself.

Be content with what you have;
rejoice in the way things are.
When you realize there is nothing lacking,
the whole world belongs to you.
 

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