Trading With A View
(Tradeview 2017) - What Makes The Price Of A Stock Go Up?
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Publish date: Wed, 08 Mar 2017, 04:18 PM
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Author of Once Upon A Time In Bursa : The MONEY Equation. A corporate strategist, lawyer & avid investor who has two great passion in life: Financial Markets & Real Estate. A true fundamentalist and financial writer motivated to tip the scale in favour of retail investors. Believe the stock market can be force for good.
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Contact for update : tradeview101@gmail.com
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Dear fellow investors / readers,
Today, I would like to share with all a posting by Bernie Klinder, a Chief Investment Officer on the said topic. All credit to the author. I am sharing as I like the analysis and the author's view is in line with Tradeview philosophy.
Once again, these writings are just my humble sharing (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :
Telegram channel : https://telegram.me/tradeview101
or Email me at : tradeview101@gmail.com
Facebook : https://www.facebook.com/tradeview101/
Website / blog : www.tradeview.my
_________________________________________________________________________________
Bernie Klinder, MBA, Entrepreneur, and active investor for +15 years
Updated Aug 16, 2016 · Upvoted by Franklin Parker, Chief Investment Officer for an ultra high net worth family & investment group
When you buy shares in a firm, you own a percentage of that company. Or in accounting terms: (assets - liabilities = shareholder equity). The stock price however is based (theoretically) on the previous number, plus the discounted cash flow of future earnings.
I'll spare you the math on discounted cash flows and other value calculations, but most institutional professionals invest based on a common set of formulas that determine where the stock price should be in the future given some basic assumptions of growth, future earnings, economic outlook, etc. So if a company is worth $100 million today and they are expected to increase sales and profit margin, the value of the firm will increase, as well as it's share price. (Typically that outlook is 3-5 years, it's hard to predict longer term). So if the future value is estimated to be near $120 million, then the stock price would rise about 20%.
That is, if all investors were rational.
Most retail investors are not rational, and tend to overvalue a firm. A recent example would be Nintendo, and the rush of inexperienced investors "betting" that the Pokemon Go craze would make the company a fortune. Astute investors read the fine print and knew that Nintendo was only going to see about 30% of the profits. So the stock quickly became overbought by retail investors, and shorted by the pros. The typical cycle looks like this:
Like any market, if there are more buyers than sellers, the price goes up (regardless if the real value of the firm has changed or not.) If the current stock price is $50 and no one is willing to sell their shares for $50, then they may bid higher. Conversely, if someone wants to sell their shares and no one is buying, they will have to either lower their price or hold the shares until prices recover. Any time there are more sellers than buyers, the price will fall.
Professional investors make their money by calculating the real value of a stock (this is not an exact science) and buying it below that value, and selling it when it hits a threshold above that value. In the short term, stock prices are based on often irrational expectations. Sooner or later, they return to their actual value.
Another example is Tesla - its market cap (share price x number of shares) is over $30 billion. (In comparison, Ford and GM are each worth about $50 billion) Today's stock price is around $230 per share, but Tesla's actual book value is around $7.25 a share, or about $1 billion. The difference between those two numbers is the expectation of future earnings (that Tesla will be the next big thing). However, the + $200 a share difference (multiplied by 148 million shares) means that they need to sell a lot of cars. The professionals think that the stock is way overvalued, and as a result over half the shares of Tesla are currently being sold short (betting the price will fall dramatically.)
Dividends are typical paid by large, stable, mature companies that generate lots of cash. Growing companies reinvest their cash into the business in order to keep growing. Instead of offering a dividend with a yield of 2-4%, your "earnings" will be based on the gains in share price as the firm increases in value. It's easier for 1 billion dollar company to become a 2 billion dollar company, than for a 100 billion dollar company to double in size. So the behemoths reinvest a smaller overall percentage back into the business, and distribute the rest to shareholders.
Hope this was helpful.
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Discussions
5 people like this. Showing 43 of 43 comments
This article is better than value investing and those who believe stock prices are a discounting / forecasting machine
This is the real deal.
2017-03-08 16:59
Sound interesting, will read tonight.
------------------------------------
Posted by stockmanmy > Mar 8, 2017 04:59 PM | Report Abuse
This article is better than value investing and those who believe stock prices are a discounting / forecasting machine
This is the real deal.
2017-03-08 17:12
Posted by stockmanmy > Mar 8, 2017 04:59 PM | Report Abuse
This article is better than value investing and those who believe stock prices are a discounting / forecasting machine
This is the real deal.
------------------------------------------------------------
>Had zero idea what is Value Investing.
>Tries to act like a pro and criticize Value Investing.
The above article is talking about Value Investing, smartass.
-Above article: "When you buy shares in a firm, you own a percentage of that company. Or in accounting terms: (assets - liabilities = shareholder equity). The stock price however is based (theoretically) on the previous number, plus the discounted cash flow of future earnings."
= Discounted Cash Flow Analysis
-Above graph:
=Contents taken from Benjamin Graham's book: The Intelligent Investor.
"Better to remain silent and be thought a fool than to speak out and remove all doubt." - Abraham Lincoln
2017-03-08 18:21
Stockmanmy, baru kena amdui in pre mature selling of Ekovest ; now kena dui by Ezra.
Bad day or Bad luck ?
Want to have a touch with Excellent Good Luck ?
Follow me to boat on Rooster EGg ... be QUICK !!!
2017-03-08 18:30
It is good article, price movement is sometimes determined by demand & supply relationship. I always thinking trading in shares just like investment in property.
However, what is the meaning of price in property market? It's the value of property that you are hoping to buy for owning it or sell for cashing out.
How about sundry goods in a shop? You buy & pay for it because you need to use it later.
After all, it's the value of goods that determine the price, not the price that decide what should be the value of goods.
For stock market, if you think it as a business & do your own due diligence, then you will know how much you need to pay for owning it. It's the value of the business & future prospect that decide the price BUT not the price that determine the value of the company.
Price is temporaily in stock market, but you are judged y looking at the price if you are winner or loser later.
2017-03-08 21:22
Knowing the value & pay as low as possible, sell it when people willing to pay high for it, then you will be the winner
2017-03-08 21:25
So, do your homework to find out good value company which is still selling at cheap
2017-03-08 21:27
Ezra..
the only value investors are those portfolio managers making 5% or less p.a.
The real money is in Dynamic Investing and by super investors who sailang every thing
2017-03-08 21:37
what makes a share go up and down is hardly ever value........................
it is always the X factor that makes a share go up or down.
lets say....a company announces increase profits from 10 sen to 20 sen. ...the share goes up from $ 1 to $ 2.
value investing my foot.
the price has doubled but still the same old company making slightly more money with no assurance any thing is repeatable.
2017-03-08 21:49
Posted by stockmanmy > Mar 8, 2017 09:37 PM | Report Abuse
Ezra..
the only value investors are those portfolio managers making 5% or less p.a.
The real money is in Dynamic Investing and by super investors who sailang every thing
---------------------------------------------------
Another case of know nothing, talking b***shit again.
Please go find out what is the return of Berkshire Hathaway, OakTree Capital, Value Partners, Scion Capital before you open your big mouth.
Dynamic Investing, which fund practices that? What return did they have? Provide with numbers and facts.
You don't even have an investing record for your own investing returns.
2017-03-08 23:09
stockmanmy, I have seen you talking non stop promoting your so called "dynamic investing", which you admitted the core is to listen to news & rumours.
To me, you are just another apek in kopitiam pretending to be pro in stock market.
What Ezra said has sum it all for you.
Posted by Ezra > Mar 8, 2017 11:09 PM | Report Abuse
Another case of know nothing, talking b***shit again.
Please go find out what is the return of Berkshire Hathaway, OakTree Capital, Value Partners, Scion Capital before you open your big mouth.
Dynamic Investing, which fund practices that? What return did they have? Provide with numbers and facts.
You don't even have an investing record for your own investing returns.
2017-03-08 23:15
Different methods for different type of market players. Value investors go for DCF, ratio analysis, etc...Technical go for charts and indicators. As long as you able to earn a good return by applying the method(s) you are comfortable with, then it's a good strategy.
Being one of the value investors, I would say we have our own ways of looking at the market and it's definitely different from other schools, so why should we pay that much attention to the noise?
IMHO, just stop giving limelight to attention seeker, especially a tin-kosong one. Keep responding to those ambiguous statements are just a waste of time and life.
2017-03-09 00:27
Manmy, follow your way to Hoot kaw kaw in EG-wc, sure will proof your theory.
I follow your idea ... sailang till my last drop I even sold my underwear for it.
Come on don't lost this chance, u hv missed Jhm, ViS ... do not miss the Rooster EGg !
2017-03-09 01:11
dun play play i3 got plenty of real sifus - u can lie one time n get away with it but when u keep lying the sifus beh tahan huh u r PHARKED LOL - they will come out n take your dynamite investing in shove it up where the sun dun shine n BOOM it goes LOL
2017-03-09 05:19
my wife sailang D & O
She braver than me.
VenFx > Mar 9, 2017 01:11 AM | Report Abuse
Manmy, follow your way to Hoot kaw kaw in EG-wc, sure will proof your theory.
I follow your idea ... sailang till my last drop I even sold my underwear for it.
Come on don't lost this chance, u hv missed Jhm, ViS ... do not miss the Rooster EGg !
2017-03-09 09:32
do you buy a share and keep for life or 3- 5 years?
if not, don't BS me about value investing.
Frank Soweto > Mar 9, 2017 05:19 AM | Report Abuse
dun play play i3 got plenty of real sifus - u can lie one time n get away with it but when u keep lying the sifus beh tahan huh u r PHARKED LOL - they will come out n take your dynamite investing in shove it up where the sun dun shine n BOOM it goes LOL
2017-03-09 09:38
value investor? go buy IWCITY and keep for 25 years la.
Frank Soweto > Mar 9, 2017 05:19 AM | Report Abuse
dun play play i3 got plenty of real sifus - u can lie one time n get away with it but when u keep lying the sifus beh tahan huh u r PHARKED LOL - they will come out n take your dynamite investing in shove it up where the sun dun shine n BOOM it goes LOL
2017-03-09 09:41
all forecasting is too inaccurate to be useful.
Pick up phone talk to CEO more accurate.
yenhui_koh > Mar 9, 2017 12:27 AM | Report Abuse
Different methods for different type of market players. Value investors go for DCF, ratio analysis, etc...Technical go for charts and indicators. As long as you able to earn a good return by applying the method(s) you are comfortable with, then it's a good strategy.
2017-03-09 10:01
I think all have own method to invest. Value investing, Chartist, TA whatever. Thats why our market is always fluctuate.... If all same style, market may not move. Hence no point fighting over the method! Have fun investing with ur own style!
2017-03-09 11:30
See stockmanmy everywhere but no one can understand what he is talking about, except he himself kaki talk kaki song only
2017-03-09 20:08
One will not lose money if he or she kept the content of this article in mind before,while and after investing...throw in the ability to keep one's emotion in check.
2017-03-09 20:40
actually you don't have to know.
You know only when you are ready
MyGadangHuatBo > Mar 9, 2017 08:08 PM | Report Abuse
See stockmanmy everywhere but no one can understand what he is talking about, except he himself kaki talk kaki song only
2017-03-09 20:53
Malaysian stock market is mostly ruled by emotions. Want to get rich in the quickest time and do not exercise patience. I am one of them but learning to change gradually. Speculators and syndicates capitalize on this emotional behavior and almost all the time the losers are ones running from one counter to another when uptrend is detected. Typical herd behavior. However, a few sometimes make big money from this but in the end will also lose everything unless he can manage his wealth soundly.
2017-03-09 20:55
you think Wall Street is based on based and reality?
in many sense Wall Street is worse than Malaysia.
Alternative news elected a President in America.
I tell you want is fact... what is good for Wall Street short run is bad for economy long run.
Tripaka > Mar 9, 2017 08:55 PM | Report Abuse
Malaysian stock market is mostly ruled by emotions
2017-03-09 21:14
When Dinald Trump open his mouth
The next day the stock price drop
:))
2017-03-09 21:15
Talk abt IW City. Last QR is loss so people chasing now expect coming QR big profit? How many will hold for 25 years?
Posted by Tripaka > Mar 9, 2017 08:55 PM | Report Abuse
Malaysian stock market is mostly ruled by emotions.
Posted by stockmanmy > Mar 9, 2017 09:41 AM | Report Abuse
value investor? go buy IWCITY and keep for 25 years la.
2017-03-09 21:25
if you are not holding for 25 years, you are not value investor. You are buying for factor X
limch > Mar 9, 2017 09:25 PM | Report Abuse
Talk abt IW City. Last QR is loss so people chasing now expect coming QR big profit? How many will hold for 25 years?
2017-03-09 23:15
share up and down is not due to value investing.
it is due to X factor.
fake news just as important as real news.
2017-03-10 10:50
I don't see any difference between DCF, trend indicators and your suggestion - phone call to CEO. They are all forecasting and hence an estimation.
When you do DCF, you estimate the intrinsic value of a company based on its past financial performance;
When you draw support/resistance/zone/band, you estimate its TP and when to cut loss based on its past share price performance;
And when you ring the CEO, you ESTIMATE the company growth/future prospect based on the information provided by the CEO.
If audited financial report and/or market share price could not give you any sense of confidence, why would a conversation with CEO could when he/she has no say on the industry future?
stockmanmy > Mar 9, 2017 10:01 AM | Report Abuse
all forecasting is too inaccurate to be useful.
Pick up phone talk to CEO more accurate.
yenhui_koh > Mar 9, 2017 12:27 AM | Report Abuse
Different methods for different type of market players. Value investors go for DCF, ratio analysis, etc...Technical go for charts and indicators. As long as you able to earn a good return by applying the method(s) you are comfortable with, then it's a good strategy.
2017-03-10 22:58
Companies that consistently distributes good and increased dividend Q-by-Q and/or Y-by-Y will makes it price goes up.
Consistent good and increased dividend reflects all other factors or parameters - good management, efficient, business strategies, creative, innovative, valuing shareholders....
2017-03-10 23:08
yen
if you really look at what analysts do with their DCF, you will spit on it and tear up their work.
2017-03-10 23:20
that is what they tell you but not what happens in KLSE.
miker > Mar 10, 2017 11:08 PM | Report Abuse
Companies that consistently distributes good and increased dividend Q-by-Q and/or Y-by-Y will makes it price goes up.
Consistent good and increased dividend reflects all other factors or parameters - good management, efficient, business strategies, creative, innovative, valuing shareholders....
2017-03-10 23:21
Posted by stockmanmy > Mar 9, 2017 09:38 AM | Report Abuse
do you buy a share and keep for life or 3- 5 years?
if not, don't BS me about value investing
value investor? go buy IWCITY and keep for 25 years la.
err actually on my portfolio of stocks more than 70 % are over 2 years n in that 40 r over 5 n 10 % r over 10 years - 25 years ? sure why not - when I get as old as u or when I retire probably my muhibah,pantech,keuro,etc will be there or close LOL
by the way I missed on IWCITY coz I got tat stupeed KSL n I'm still underwater LOL
2017-03-11 03:21
Stockmanmy, your big talker only, don't try to talk rubbish, you are just a few percents better that John Lu & Calvin only.
133) stockmanmy +13.7% 113747.88 http://klse.i3investor.com/servlets/cube/stockmanmy.jsp
14% LEONFB 0.635 0.465 25700|13% AIRASIA 2.830 2.290 5200|12% SAM 5.860 4.900 2400|12% AAX 0.405 0.360 33200|12% SCIENTX 7.300 6.700 1800|11% MAGNI 5.070 4.190 2400|10% AEONCR 15.700 14.360 700|9% SCGM 3.570 3.400 2900|7% CSCSTEL 1.800 2.150 4600 (113476.50:271.38|240.12)
2017-03-11 07:51
Posted by Ezra > Mar 8, 2017 11:09 PM | Report Abuse
Another case of know nothing, talking b***shit again.
Please go find out what is the return of Berkshire Hathaway, OakTree Capital, Value Partners, Scion Capital before you open your big mouth.
Dynamic Investing, which fund practices that? What return did they have? Provide with numbers and facts.
You don't even have an investing record for your own investing returns.
2017-03-11 07:52
The best record of Dynamic Investing I know of is KYY.
A true practitioner.
Learning the Art of Sailang from a young age.
I guess with a record like Soweto, you can call your self a true value investor. Can a value investor go far in the long run? 10% per annum perhaps,
Value investor using all the tricks in investment books and CFA courses? Can they beat the Index? In the long run, not likely.
2017-03-11 12:11
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stockmanmy
good article.
2017-03-08 16:51