Warren Buffett emphasized buying quality companies rather than speculating about the direction of a stock price. Good companies are still good companies when times are bad. If you buy a good company and the price of its stock drops, that doesn’t signal anything more than a chance to pick up additional shares at a discount. [...]
Buffett determines the value of a company by projecting its future cash flows and discounting them back to the present with the rate of long-term U.S. government bonds. I’m sure that sounds about as much fun as extracting termites from your home with chopsticks, but that’s how he calculates a company’s value and I felt [...]
This is really the bottom line to investors. The only reason you own a business is to profit from it. The way you profit by owning stocks is through capital appreciation and dividends.
Through Capital Appreciation
Sometimes called capital gains, capital appreciation is the profit you keep after you buy a stock and sell it at a [...]
Value investors look for stocks on the cheap. They compare stock prices to different measures of a company’s business such as its earnings, assets, cash flow, and sales volume. The idea is that if you don’t pay too much for what you get, there’s less chance of losing money.
Value stocks have low prices compared to [...]
Evaluating stocks is actually quite easy. Once you’ve done it a few times you’ll develop a pattern of research that you can repeat with every new stock that interests you. But first, you need to understand the difference between growth and value investing, fundamental and technical analysis, know some basic stock measurements, and understand how [...]
This is the king of growth measures. Earnings per share, sometimes called EPS, takes what a company earned and divides it by the number of stock shares outstanding. It’s the last thing listed on a company’s income statement, the famous bottom line that everybody lives and dies for. Earnings per share is usually reported for [...]