The most comprehensive educational resources for finance

Methods of Stock Selection by Graham-Newman

Graham-Newman Corp. was an open-ended mutual fund that Benjamin Graham ran in partnership with Jerome Newman. Their portfolio averaged about 20% returns on millions of dollars of capital that they managed on behalf of their clients. This article briefly discusses some of the specific methods they used for selecting stocks for their portfolio during the

Security Analysis: Important Lessons about Earnings Per Share

While evaluating a company using a multiple such as P/E ratio, an important question is what earnings one should use. There is too much clutter and differences in how companies report their earnings and if the security analyst is not careful, it’s very easy to get swayed by the hidden charges. Here are a few

Security Analysis: Financial Strength and Capital Structure

This is perhaps the most widely analysed section while selecting securities for investments. Let’s start with the basics. Suppose you were to make a choice between two companies both having the same market price and earnings per share. One has surplus cash and no debt, while the other has a large bank loan. The choice

Valuation Lecture 16: Relative Valuation

This video is a part of online course on Valuation by Professor Aswath Damodaran of NYU. This lecture discusses: Essence of relative valuation Relative valuation is pervasive Why relative valuation? Deconstructing Multiples Multiple: Price Earnings Ratio Multiple: Enterprise Value/EBITDA Multiple Multiple: price to Book value ratio The class is currently being taught by Prof. Aswath

Valuation Lecture 14: Advanced Valuation

This video is a part of online course on Valuation by Professor Aswath Damodaran of NYU. This lecture discusses: Valuing cyclical and commodity companies Valuation Lessons Valuing Vs. Pricing Three views of “the gap” Option 1: Margin of Safety Option 2: Collect more information Option 3: Build what-if analyses Option 4: Confront uncertainty Strategies for

Security Analysis: Four Ways to Evaluate the Quality of Management

While evaluating a company from the perspective of value investing, an important aspect is the quality of the company’s management. Almost everyone has a strong view about it but there is really no objective way of doing so. We do not have any objective, reliable tests to measure the competence of the management. Let’s say

Stock Analysis: Long-term Prospects – Good Signs

In the previous article, we looked at some of the bad signs that one should look for while evaluating the long-term prospects of a business. Let’s now turn our attention to the positive signs that strength an analyst’s belief in the long-term value of the business. The company has wide competitive advantage The first thing

Stock Analysis: Long-term Prospects – Red Flags

The future is uncertain and it’s a very difficult task to know the general long-term prospects of a business. However, an intelligent investor can look for signals and warning signs that could guide his analysis in terms of what the future holds for the company. Some of these red flags or warning signals are discussed

Stock Analysis: Factors Affecting the Capitalization Rate

While picking stocks, one of the most important factors that a value investor looks for is the capitalization rate, which is represented by the P/E ratio (Price to Earnings per Share). We place value on the companies based on what capitalization rate they are trading at. A value investor, in general, wants to buy companies

Valuation Lecture 13: DFC Valuation Tests

This video is a part of online course on Valuation by Professor Aswath Damodaran of NYU. This lecture discusses: A corporate governance discount The R&D effect The distress factor Lesson: Increasing growth is not always a value creating option Lesson: Financial leverage is a double-edged sword Dealing with decline and distress Adjusting the value of