Saturday, December 11, 2010

Copied from Rekindling the flame of analysing with Fundamental Analysis from 'Time To Huat!' blog :

...wouldn’t life be easier if I have a valuation model that will automatically adjust its’ value based any new earnings report. Then if the price is trading below the “valued intrinsic price” I will be looking to buy and if the price is trading above “valued intrinsic price” then I will be looking to take profit.
But the challenge is how to calculate a “valued intrinsic price”?
Let me share with you what are the various valuation models that is currently being practised in the market:

1) Dividend growth model (or known as Dividend discount model)
• Based on the discounted cash flow (DCF) concept to calculate the present value of future dividend to derive an intrinsic value. Below are the detailed explaination :

Stock Valuation Models (Part1 – NAV model)

Stock Valuation Models (Part2 – Earnings & Expected Return)

Stock Valuation Models (Part3 – Discounted Cash Flow Model)

Stock Valuation Models (Part4 – Discounted Dividend Model)

2) Capital Asset Pricing Model (CAPM)
• Based on identifying the relationship of risk (Beta) and expected rate of return which is eventually used to price risky securities

3) Graham valuation model
• Based on using earning per share (EPS) and earnings growth to derive a an intrinsic value

4) Buffet’s valuation model
• Based on using  combo of Dividend Discount Model and Graham’s valuation model. (This is really new to me)

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