|
Ancient Greek has a saying, “Whom the Gods wish to destroy, they first praise highly”. In the stock market, my saying is, “That which smart money wish to distribute, they will first push them up”. A
share has three values. There are: the market value; the net tangible
asset value, and the intrinsic value. The first two values are easy to
understand. Intrinsic value needs some explanation. Intrinsic value
means the real value. What actually is the real value of a company? To
know the real value of a company, we have to take into consideration
all the aspects of that company. First, it’s the management, its
capability; reliability, integrity, honesty and its moral values must
all be considered. Then it’s the earnings. Are the earnings sustainable? And what is the likely growth rate? Net
tangible assets and intangible assets, like goodwill, patents and
monopoly must also be taken into the calculation. The nature of its
business, its dividend policy and whether it has a high-entry barrier
is also important and must be considered. As
it is, the intrinsic value is indeed very hard to calculate. I think
ten accountants will come out with ten different answers. The important
thing to remember is that earnings are the lifeblood of a company. It’s
the future earnings per share (without the exceptional items) that
matter. Keep this in mind and do your own calculation. Because
of overly optimism or overly pessimism, manipulation, rigging, insider
trading and speculation, share prices can go up to great heights and
down to incredibly low levels every now and then. A
smart investor or speculator is able to exploit these situations. Can
you do it? If you can, someday you will be rich. If you can’t, better
start learning now, so that someday, you too can do it and be rich. Good luck and Merry Christmas.
|
