Thursday 9 July 2015

Owning a Business via Stocks




With the stock market showing weaknesses, it is wiser for me to prepare my data quickly. It doesn't really matter whether there is opportunity to buy now, but what matters is to get ready and strike any time opportunity arises.


I always aim to write in simple language. However, I have to consistently use these technical jargon for future stock analysis.

Fundamental Analysis: This is when you imagine yourself becoming a business owner of the company. As a business owner, you will want to know :

1) How does the company made money. I will look for the sustainability of the business (long term story on their business model). It must convince me that it has great demands, not easily replaced and possess ability to set its pricing against market competitors. I will also take reference on the major co-owners of the business.

2) Whether the company is selling at a reasonable price in comparison of its earning (P/E ratio, return on equity, diluted earning per share, earning yield) or via asset owned (net asset value)

3) The cash flow (Discount cashflow, free cashflow)

4) The profit and cost of running the business (Average Weighted Cost of Capital)

5) Total market value (market capitalisation)

6) How the company provide the business owners with rewards and cashflow (dividends)

7) Debt status (gearing ratio)

I pulled these data from :

a) SGX website from stockfact
b) Yahoo Finance

Other ratio, which is always good to know, are not so critical to me. As you can see, there are many ratios to look at for a single variable, such as earning. It is to look at "same variable" using different perspectives. What I have listed are comprehend enough, at least for my common sense and as a part time investor.

Technical Analysis : I would pull a longest chart for the company (>5-10 years). Identify historical peaks and valleys. Second, I will look at the resistance levels or support levels to "guess" where is the common long term buying and selling points. Third, i will pull a short term chart (1 year) to "better guess" the current buying and selling points.

This is hardwork but necessary if you wanted to invest knowing what you are investing.

I will usually buy on dip. You can read my post of asset allocation strategy.

There is no 100% guarantee to prevent losses in doing a business. Minimally, I should know what I are getting into.

I am investing for my future, what about you?

Frugal Daddy

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