Lootman wrote:scrumpyjack wrote:The trouble is that the key issue in valuing a share is your forecast of the company's future (for many years!). Obviously the past is of interest and the state of their balance sheet may indicate if they can last til the future arrives. The market generally is looking at the future, not the past.
So get a really good crystal ballSalvorHardin wrote:What's the outlook for the company? Can I credibly visualise what the company is likely to look like in ten years time?
I avoid using complicated formulas. Valuing shares is as much an art as a science; too much maths creates a false sense of certainty in the valuation produced. I did enough modern portfolio theory to pass an exam but I've never used it.
I think there is a lot of truth in both those statements. And to express it a different way, you do not necessarily have to be able to value a share at all in order to be a successful investor. You simply need to develop a sense of where the business is heading, whereas fundamental analysis only really tells you where it has been.
Depending on the skills you have, and the skills you lack, it can be futile to spend hours poring over balance sheets. It's also rather boring. I would much rather invest using qualitative factors than quantitative factors, and use technical analysis over fundamental analysis. Not that I am saying it is better; only that it suits me better. And in fact I would rather look at price charts than company accounts.
I feel sure that there are some good answers in this topic about how to value a share, and that was the question being asked. But there are ways to invest that don't involve doing that at all. So to my mind the real question is one about your own skills and nature, and whether you should even try to value shares.
I must say I like reading company reports not so much for all the numbers but they can tell you a lot about the culture and I think that is vital. In fact i do not really set out to try to value a share but look at all the 'soft' factors. That kept me clear of Carillion and RBS, because the culture for both was just awful. No need even to attempt to do any valuation. I think that is more or less what Lootman is saying as well. So you can 'value' a share without any numbers involved.
Dod