You do not need tons of IQ to do well in the stock market. What you need is emotional stability and a steady temperament. You can create massive wealth if you have the emotional aspects under control. To make big money, you just need to be able to stick to your decisions and to be disciplined in taking action towards them. Focusing on finding a gem is the key and this can take time. It takes months-years to find gems. They are a rarity, but once you've found one, you can put yourself in a position to accumulate massive wealth in the stock market. Key points: -Capitalize on fear, Be patient, Never speculate, stick to your area of understanding. - Focus, Look where others don't look, Model successful investors, Read a ton of annual reports.
Fundamental analysis is when you value a stock based upon it's dividends, earnings, assets and other factors.
How to value a stock
The most common way to value a stock is to compute the company's price-to-earnings (P/E) ratio.
How to calculate intrinstic value
Estimate all of a company's future cash flows. Calculate the present value of each of these future cash flows. Sum up the present values to obtain the intrinsic value of the stock.
Common stock valuation
To check this, an investor must determine a company's intrinsic value by analyzing a number of business fundamentals including earnings, revenues, and assets
The importance of valuation ratios
There are five basic ratios that are often used to pick stocks for investment portfolios. These include price-earnings (P/E), earnings per share, debt-to-equity and return on equity (ROE)
Discounting cash flows
Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows.
Asset based valution
The asset-based approach to valuation focuses on a company's net asset value (NAV), or the fair market value of its total assets minus its total liabilities, to determine what it would cost to recreate the business
Ratio analysis
Fundamental analysis relies on extracting data from corporate financial statements to compute various ratios
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