Hello you very wonderful and intelligent individuals that make up this forum. I sincerely hope things are going well for you.
I was kindly wondering for stocks like Amazon, after alot of research if you believe for instance the Amazon Web Services sector will continue to grow due to its large market share. Further leading to an increase in revenue, do you really need to carry out realistic valuations on the stock, such as Discount Cash Flow Analysis, Total Enterprise Value please? Could you go with the knowledge that you believe this sector will continue to grow and that you trust management? If anyone kindly had any thoughts on this i would be forever grateful and thankful for your support with this, it would be highly appreciated.
Sending you lots of good wishes and i truly hope you continue to have a wonderful life and achieve incredible success with your investing. All the very best.
The simple answer is you have to do what research you feel necessary to make your investment decisions. For some people that can be reading a bulletin board or social media, another person it is reading an analyst report, another it is their own impression of a company and gut instinct and for another person it is detailed analysis.
The reality is that a private investor will probably never have enough information to properly value a company and even if they did a valuation is highly dependant on highly subjective views of future earnings, growth, competition, etc.
Also the share price of most companies is highly dependant on sentiment rather than fundamentals. Tesla is perhaps a fairly extreme example of that. However, look at the UK banks this week. Pick a bank and consider doing the most detailed analysis you could >> what value would you have placed on it last week? They are the same businesses this week but the price is significantly different. Thus you can look at PE and do DCFA… and as much analysis as you want but the short term share price will be heavily driven by sentiment and volatility (and often by factors outside of the company - ie NVIDIA yesterday affected the share price of Intel and others).
Sometimes it is more obvious that a company is under or over valued. Eg a company that is unloved by the market but has very strong news or growth potential but the market can manipulate the price of some company even with strong news.
Thus do what you think is right and get to the point where you are happy making your own decisions
Thank you ever so much WakeMeUp for your reply, that was enormously helpful. I am forever grateful and thankful for your thoughts on this.
I think i am getting too caught up in what Warren Buffett uses for his realistic calculations of stocks, then asking others for ideas. Then this is over confusing things, as everyone has different strategies and ideas. I am very thankful for your reply, this is possibly the most helpful response i have had while i continue to learn about investing WakeMeUp.
I also understand that a private investor will never have enough information to properly value a company, as this is dependant on subjective reviews such as future earnings, growth and competition for instance. I will definitely work on formulating my own checklist for analysing stocks. I think for me running maybe one or two calculations on the stock and then possibly doing further reading on a company’s Annual Reports.
Thank you ever so much for your response WakeMeUp that was very helpful. Sending you lots of good wishes and i truly hope you continue to have massive success with your investing. Enjoy the rest of your week. All the very best to you.
Thank you for your lovely reply. I would recommend listening to earning conference calls. Some are terribly boring (perhaps don’t bother with them) but companies with more dynamic businesses (ie growth, pharma and tech companies) I find the earning calls very informative and often give you an idea of likely future news flow.
You also need to clearly differentiate between short term trading and long term investing.
You refer to Warren B. He looks at the long term. If you are looking at the long term you need to be able to believe in the fundamentals and ignore short term volatility (or look at it as opportunities to accumulate, average down or take profit). Warren Buffett isn’t necessarily a good role model. He has had the capital to build large enough positions where he can significantly influence the company business and strategy and he can build synergies or cross benefits between businesses.
In terms of your original question, look at Microsoft and Google today. Both announced good results. Google is down with good results. There are many many examples of where price movements are clearly based on sentiment rather than fundamentals. Yes look at the fundamentals as basis for long term investing but don’t expect the share price to reflect the fundamentals on a daily basis nearly every company is either over or under priced.