Yogi Knowledge Sharing Hub

  Efficient Market Theory Vs Mr. Market In this article,  I explore to you the concept of Efficient Market Theory and what is Mr. Market as per  Benjamin Graham  the "father of value investor".   The  efficient market theory (EMT)  is a financial theory developed by  Eugene Fama  in 1960. In EMT it is said that : “It is impossible to beat the market because the price already incorporates and reflects all relevant information as soon as it becomes freely available.”  This means when information about a stock is available to one investor it will become freely available to all investors at the same time. Therefore the price of a stock will immediately reflect the knowledge and expectations of all investors. As a result, there is no way for investors to beat the market since there is no way for them to know something about the stock that is not already reflected in the stock price, except for insider information and insider trading whi...

  Valuation of a Company Valuation  is the assessment of a company before buying into the stock. Every stock has a price tag on it. So at what price is a stock considered cheap? Valuation of stock is not an exact science but it is the combination of art and science. So many valuation methods are available which will be used on the type of company. Here we discuss the valuation methods for determining  growth companies .      Price to Earnings to Growth rate ratio ( PEG Ratio)     Discounted Earning Model Price to Earnings to Growth Ratio (PEG) PEG is an important criterion for valuation for growth companies.  The ratio was introduced by  Peter lynch . The PEG ratio can be calculated by:   PEG ratio = PE Ratio / CAGR (Compound Annual Growth Rate) For example company, A has a PE ratio of 25 with a growth rate of 15%. It will have a PEG of 1.6= (25/15). Company B on the other hand has a PE ratio of 35 and a growth rate of 50%. It will ...

  Understand the Business model (how the company makes money ) Understanding the business model of the company is an important step in an  investor-type mindset . The business model means how the company makes money. What's a business model?  You are evaluating a company as a possible investment then you learn exactly how the company makes its money, after knowing the business model then you can think about how attractive and profitable that business model is. Understanding the business model gives you confidence in your investment decisions.  Knowing the business model inside out should provide you some level of certainty and reduce the risk when purchasing the stock. Basically, there are two types of the company either they sell products or provide services.  Fundamentally you must understand the inputs used to produce final products (or services) sold to the customers. identify the largest product or service contributing to the revenue and earnings of a busin...

  Understand the Management The future growth of a company is highly dependent on its management. They are  Board of directors,  CEO,  Chairman,  Executive or non-executive and  Independent directors  as well as the senior management team at the divisional level. Management trustworthiness is very important.  We have never succeeded in making a good deal with a bad person. There are some checkpoints that you can check to understand the quality of the management. They are One way to ascertain the management’s commitment is to gauge the percentage of ownership that individual managers have in a company. The percentage of shareholder patterns is found in the annual report of the company. Avoid boards with low ownership stakes because they are much more interested in taking their profits from the company than adding value to it. Access the management team through the compensation packages they receive. From an investor’s point of view, it is obvious t...

  Understand the numbers Check the financial or performance to confirm if the business and management have a good track record. 

  Margin of Safety (It is the best way to reduce the risk)                                         Three Important words in Investing are " Margin of Safety ". Capital preservation is the first rule in investing. Why everybody thinks we don't lose money in the stock market, in other words, we think everybody in the stock market wants to need to have good protection on their investments.  So we first understand the concept of margin of safety. The margin of safety is the core principle of  Benjamin Graham  the father of value investors. The future value of any investment is a function of its present price. The investment return is based on what we pay for that security. if we pay a higher price then we will get a lower return. No matter how careful we are, the one risk no investor can ever eliminate is the risk of being wrong. We can use the con...

  Where I got Investment Ideas &  what information do we collect to identify the company stock In the investment world,   it is very difficult for any investor how to get investment ideas. Investment ideas find in any source. Some of the sources are: 1.        Read Newspapers on daily basis-  Find company-related information, read policy articles, management interviews, etc. 2.       Read Business Magazine 3.       Research upcoming IPOs 4.       Research old IPOs last ten years.  In the above sources, we find several companies and note down the  general information and  categories of the company of stock in the present situation to the following categories  (which is Described  By Peter Lynch  ) Slow Growers Stalwarts Fast growers Cyclical Asset play Turn Around  Apply the criteria on the basis of the company stock categorie...