#investment during uncertain times #stockmarketcrash
Market turmoil can put even the most confident investors on edge. The nerves are totally understandable: This thread talks about going back to the basics: value investing - check ๐
What is Value investment?
A value investor buys assets that they believe to be undervalued (and sells overvalued ones). To identify undervalued securities, a value investor uses analysis of the financial reports of the issuer to evaluate the security.
Value investors employ accounting ratios, such as earnings per share and sales growth, to identify securities trading at prices below their worth.
Warren Buffett and Benjamin Graham are notable examples of value investors
The price to earnings ratio (P/E), or earnings multiple, is a particularly significant and recognized fundamental ratio, with a function of dividing the share price of the stock, by its earnings per share.
This will provide the value representing the sum investors are prepared to expend for each dollar of company earnings. This ratio is an important aspect, due to its capacity as measurement for the comparison of valuations of various companies.
A stock with a lower P/E ratio will cost less per share than one with a higher P/E, taking into account the same level of financial performance; therefore, it essentially means a low P/E is the preferred option.
An instance in which the price to earnings ratio has a lesser significance is when companies in different industries are compared.
For example, although it is reasonable for a telecommunications stock to show a P/E in the low teens, in the case of hi-tech stock, a P/E in the 40s range is not unusual. When making comparisons, the P/E ratio can give you a refined view of a particular stock valuation.
For investors paying for each dollar of a company's earnings, the P/E ratio is a significant indicator, but the price-to-book ratio (P/B) is also a reliable indication of how much investors are willing to spend on each dollar of company assets.
In the process of the P/B ratio, the share price of a stock is divided by its net assets; any intangibles, such as goodwill, are not taken into account.
It is a crucial factor of the price-to-book ratio, due to it indicating the actual payment for tangible assets and not the more difficult valuation of intangibles. Accordingly, the P/B could be considered a comparatively conservative metric.
In Summary
1. Understand the basics of investing and your tolerance for risk
2. Review your investments: diversification as a risk management
3. Take the long view when it comes to investing: Falling stock prices may present an opportunity
4. Consult a financial professional
Megan
@thetechiemegan
Data Scientist | Investor | Stocks Crypto | Software Engineer | Believer in "The first 5 days after weekend are always the hardest" | No financial advice |
