How To Avoid Losing Money In The Stock Market http://www.profitableinvestingtips.com/stock-investing/how-to-avoid-losing-money-in-the-stock-market A common expression years ago, was playing the stock market. The expression came from the fact that many thought of stock investing as gambling on whether stocks would go up or down. Traders listened for stock tips with fond hopes of getting into a stock before it ran up in price and out of a stock before it went bust. After the stock market crash that ushered in the Great Depression, Benjamin Graham taught how to avoid losing money in the stock market by learning to calculate the intrinsic value of a given stock. What is intrinsic stock value? The intrinsic value of a stock is generally referred to as the forward looking value of the stock discounted to present circumstances. Mr. Graham devised a formula so that investors could make a rational decision about whether or not to buy or sell a stock. How to avoid losing money in the stock market is to use tools like the Graham intrinsic value formula and your own good common sense when investing in stocks. Intrinsic Stock Value Here is a thumbnail view of the Graham formula for calculating intrinsic stock value in 1962 and modified in 1974. The 1974 version considers the following: • Earnings per share, EPS, for the preceding twelve months • A constant of 8.5 representing an expected price to earnings ratio, P/E ratio, for a company that is not growing • An estimate of long term growth, five years = g • A constant of 4.4 which was the average yield of high grade corporate bonds in the early 1960 decade • The current yield of AAA corporate bonds = Y • Where V = intrinsic value The formula is as follows: V = (EPS x (8.5 + 2g) x 4.4)/Y The point of this formula is to calculate the RGV or Relative Graham Value. Do the calculation to find V. Then divide V by the current stock price. This gives you the RGV.
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How to Avoid Losing Money in the Stock Market
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market A common
expression years ago, was playing the stock market.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The
expression came from the fact that many thought of stock investing
as gambling on whether stocks would go up or down.
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http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Traders
listened for stock tips with fond hopes of getting into a stock
before it ran up in price and out of a stock before it went
bust.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market After the
stock market crash that ushered in the Great Depression, Benjamin
Graham taught how to avoid losing money in the stock market by
learning to calculate the intrinsic value of a given stock.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market What is
intrinsic stock value?
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The
intrinsic value of a stock is generally referred to as the forward
looking value of the stock discounted to present
circumstances.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Mr. Graham
devised a formula so that investors could make a rational decision
about whether or not to buy or sell a stock.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market How to
avoid losing money in the stock market is to use tools like the
Graham intrinsic value formula and your own good common sense when
investing in stocks.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Intrinsic
Stock Value
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Here is a
thumbnail view of the Graham formula for calculating intrinsic
stock value in 1962 and modified in 1974.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The 1974
version considers the following:
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Earnings
per share, EPS, for the preceding twelve months
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market A constant
of 8.5 representing an expected price to earnings ratio, P/E ratio,
for a company that is not growing
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market An
estimate of long term growth, five years = g
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market A constant
of 4.4 which was the average yield of high grade corporate bonds in
the early 1960 decade
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The
current yield of AAA corporate bonds = Y
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Where V =
intrinsic value
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The
formula is as follows:
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market V = (EPS x
(8.5 + 2g) x 4.4)/Y
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The point
of this formula is to calculate the RGV or Relative Graham
Value.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Do the
calculation to find V.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market Then
divide V by the current stock price.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market This gives
you the RGV.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market If the RGV
is less than one the stock is overvalued and a bad investment
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market If the RGV
is greater than one the stock is undervalued and may be a good
investment
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market The stock
market may seem crazy at times as prices swing up and down
according the mood of investors.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market However,
the eventual price of any stock will be determined by a given set
of fundamentals.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market How to
avoid losing money in the stock market and instead make a
comfortable income is to learn how to evaluate and act upon the
fundamentals.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market What
products and services does a company produce?
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market What is
their cost and how much of a profit do they make?
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market What is
their competition and does the company engage in research and
development to make new things?
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market How much
debt does the company have and is there any problem servicing that
debt.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market And, is
there hidden value in a company that protects it against losses and
could be exploited to increase returns?
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market This
process of investigation is called fundamental analysis and is how
to make money in stock and how to avoid losing money in the stock
market.
http://www.profitableinvestingtips.com/stock-
investing/how-to-avoid-losing-money-in-the-stock- market It is
important to remember that very successful investors never ever
invest in a company unless they know exactly how the company makes
its money and how it insures that it will do so in the future.