young man eager to leran , page-14

Buick33

you probably know more about investing than most people here

there is no secret to stock market investing

as was advised to you, it is the same as investing in a business

______________________________________________________


if the company is a cash flow company, then you look at its dividend yield, earning per share & PE ratio (return on investment); its future earnings forecasts & its balance sheet for debt

if the company is a non-cash flow company, like most of us gamble on, you look at the value of its assets, the value of its potential assets & the value of its future potential earnings compared to its current share price & market capitalisation

_____________________________________________________


most on this website are mathematically illiterate when it comes valuing investments. generally, most people on this website follow 'ideas' (eg. this company will be a uranium producer) or 'trends' (eg. this stock has increased 200% in the last 2 weeks therefore I better buy) or other posters (eg. Timbartis is buying, I better buy)

_______________________________________________________


example: a company has a uranium resource & plans to mine uranium in 3 years time. when it starts mining, it expects to earn $30M in net profit pa, based on current uranium prices. its current market capitalisation (shares on issue x share price) is $150m. therefore, its forecast PE ratio (return on investment), based on forecast earnings, is 5 (20% per annum).

based on stock market norms, it would be expected the PE ratio be at most 10 (annual return on investment 10%) when the company is producing cash in 3 years time.

therefore, although the share price 50% lower than the forecast share price when producing cashflow, it is currently too expensive because production is 3 years away. 3 years before production, the share price should be 1/4 of its forecast share price rather than 1/2 of its forecast share price

this example, you already understand. there is not much more to it than that

________________________________________________________


as for the changes in the price of oil, this can help 'trading' but it cannot really help 'investing' because the price of oil is always changing due to factors such as US foreign policy about war, US foreign policy about war, US foreign policy about war, US foreign policy about war, etc, etc, etc

eg. the share prices of companies that produce oil have gone nowhere for the last 10 years

gambling in oil explorers results in more grief than success (eg. FAR, PCL, AED, KIK, NDO, TPT, MMR....the list is endless)

the current oil darling is PVD, which will also probably burn investors that dream of being the next Beverly Hill Billies. chance of success of any of these explorers is probably 5%

i used to play the oil stocks, which simply means buy in very early, when they announce project acquisition and then sell (to the dreamers) when they start drilling

regards