Reblog: What Investors Need to Know About Investing in Low PE Stocks


Man and woman in business attire happily looking at computer screen
Value investing starts with low PE stocks, but it shouldn’t be an investor’s only financial metric.

What do Warren Buffett, Ben Graham, Seth Klarman, and Peter Lynch all have in common? Besides being wildly successful investors, they’re all are adherents to value investing, a method where one attempts to buy securities that have a higher intrinsic value than their current price.

One of the most basic forms of value investing is to find stocks with low price-to-earnings (PE) ratios. The PE ratio is a simple ratio that divides the current price per share of a company by the earnings per share over the trailing-12-month period. The logic behind buying low PE stocks is simple: As an investor, you are ultimately entitled to a pro-rata portion of company earnings, so paying the lowest cost, or multiple, for those earnings is preferable than paying a higher multiple. Essentially, your dollar is buying a larger portion of company earnings than it would with a high-multiple stock.

stockarchitect October 29, 2018

Ben Graham / Citigroup / fool.com / General Motors / Gilead Sciences / Goldman Sachs / IBM / Investing / Investor / Jamal Carnette / Low PE / Morgan Stanley / Peter Lynch / Price to Earnings / Seth Klarman / Verizon / Warren Buffet / Wells Fargo /

Reblog: How to use the P/E ratio


Valuations are looked at through the prism of cash flows, earnings, corporate governance, return ratios, debt-equity proportion and so on. Within these, the most primary valuation tool used by investors is the Price Earnings (P/E) ratio.

The P/E ratio is arrived at by dividing the stock market price with the company’s Earning Per Share (EPS). For example, a Rs 200 share price divided by EPS of Rs 20 represents a PE ratio of 10. Theoretically, it translated into the assumption that if we were to buy this company today it would take 10 years to earn back our investment.

The Trailing P/E ratio uses the earnings of the last 12 months, while the Forward P/E uses the expected earnings for the next 12 months, which means it requires estimating the forward earnings.

At Mumbai’s Morningstar Investment Conference in October, equity market strategist Ridham Desai and head of Morgan Stanley’s Indian equity research team tackled the subject of India’s high P/E.

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stockarchitect July 16, 2018

Aswath Damodaran / Cadence Capital / Karl Siegling / Morgan Stanley / morningstar.in / PE / Price to Earnings / Ridham Desai /

Reblog: 8 step basic fundamental analysis for beginners


In this post I will present a simple 8 step fundamental analysis template which can be used to analyze if a a stock is investment-worthy or not.

For any stock to merit investment, the most important thing is the financial stability of the business. It is important that a company has manageable debt levels and generates enough operating profits to easily pay interest on its loans and has sufficient cash for day to day operations while delivering decent growth in revenues and profits.

I use the first four ratios described below to assess the financial stability of a company when i consider investing in its stock.

  • Long term Debt/Equity Ratio –
    Debt/Equity Ratio is a debt ratio used to measure a company’s financial leverage, calculated by dividing a company’s total liabilities by its stockholders’ equity.
    Companies (excluding financial institutions) with D/E of less than 1 to be stable and can easily cope with short term downturns as they have higher reserves than what they have borrowed.
    D/E= Sum of non current debts/Shareholder Funds.

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stockarchitect September 6, 2017

Cash flow / Current Ratio / Debt to Equity / Fundamental / Interest Coverage / Investment / PE / Price to Book Value / Price to Earnings / Return on Capital Employed / Return on Equity / Sethinomics / Stock /

Reblog: YES, MUTUAL FUNDS CAN STAND OUT FROM THE HERD


Forbes Magazine, Dec. 19, 1994

At the typical stock-fund office, phalanxes of computer screens glow like the control room of a nuclear reactor. The portfolio manager is an intense young MBA. He can recite earnings estimates by rote for each of the 100 stocks in his billion-dollar fund. He’s a high-pressure guy, the atmosphere is electric with excitement, and the phones are always ringing. All this costs money, but the managers have to justify themselves. What are they for if not to trade in and out of stocks?

Yet all this striving does nothing for most fund investors. Although the industry has its good years, over long periods of time the average U.S. stock fund does worse than a market index. No wonder: Typical annual expenses run to 1.3% of assets.

George Mairs, 66, does things differently. Mairs & Power, Inc., founded by Mairs’ father in 1931, has nine employees and runs a total of $300 millon out of the old First National Bank Building in St. Paul, Minn. Nearly all that money is in separate accounts. Mairs & Power Growth Fund has $41 million in assets; a balanced mutual fund, Mairs & Power Income Fund, runs $13 million.

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stockarchitect May 10, 2017

Forbes / Jason Zweig / Mutual Funds / Price to Earnings / Returns /

How to hunt value and discounts in market!


The original post is by Mastermind, Megabaggers and appears here.

I find it ironic that more research is being done today than at any point in time in the past, yet a lot of value investors are failing to beat the market.

Ironically, the mountain of articles on popular investing websites just aren’t helping. Part of the problem might be due to the “more brains” problem Graham cited years ago. Since everybody on Dalal Street is so smart, all those brains ultimately cancel each other out.

This glut of brain power, investment research, and investors clamouring for bargains does not mean that you can’t beat the market. But, knowing how to pick value stocks is a key requirement, along with having a good strategy and being prepared to do things that most other investors aren’t.

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stockarchitect May 25, 2016

Ben / Buffet / Cash flow / Dividend / Graham / high / Investor / Megabaggers / PBV / PE / pick / Price to Book Value / Price to Earnings / small / Stocks / Value / Warren / yield /