Rekindling the flame of analysing with Fundamental Analysis

As the year drew closer to year end, I started looking back at what I had wanted to achieve during the start of this year. I had realised that I had not been focusing on what I wanted to achieve this year; Looking into Fundamental Analysis and develop a systematic approach in evaluating a share’s valuation. The flame should start to rekindle again.

The spark came from last Friday’s wedding dinner. The first wedding dinner where I manage to get chit chat with the rest of the wedding attendees whom I am not so familiar with. We were like closely knitted friends that had not met each other for a long time. What brought us so close was the discussion on Finance and stock market. The spark was ignited as I was with a bunch of individuals whom are focusing on Fundamental analysis instead of Technical analysis. I realised that it is Fundamental analysis that can generate a whole world of discussions, in contrast of Techincal analysis where we just look at and adhering to the trading plans.

The discussion brought me to a thought; wouldn’t life be easier if I have a valuation model that will automatically adjust its’ value based any new earnings report. Then if the price is trading below the “valued intrinsic price” I will be looking to buy and if the price is trading above “valued intrinsic price” then I will be looking to take profit.

But the challenge is how to calculate a “valued intrinsic price”?

Let me share with you what are the various valuation models that is currently being practised in the market:

1) Dividend growth model (or known as Dividend discount model)

• Based on the discounted cash flow (DCF) concept to calculate the present value of future dividend to derive an intrinsic value

2) Capital Asset Pricing Model (CAPM)

• Based on identifying the relationship of risk (Beta) and expected rate of return which is eventually used to price risky securities

3) Graham valuation model

• Based on using earning per share (EPS) and earnings growth to derive a an intrinsic value

4) Buffet’s valuation model

• Based on using  combo of Dividend Discount Model and Graham’s valuation model. (This is really new to me)

Hence, in the next few days, I shall be going more in depth into explaining how these models works and I will be testing these models to Singapore market.

ONE DAY I SHALL CREATE MY OWN VALUATION MODEL !

Stay tuned ….