robertbanking wrote:Thank you very much for your response Charlottesquare that was very kind of you, i truly appreciate the time you took to leave a response.
I have ordered the book Samuels, Wilkes Bradshaw "Management Company Finance" it seems like this book could be helpful so i am very thankful for your recommendation on this. I would not have found this book so it was helpful you mentioned this was a core finance book regarding a degree in accountancy and finance in the 80s/90s.
Can i kindly please ask lastly for growth stocks like Amazon, if you believe for instance that the Amazon Web Services section of the business, was undervalued at current, and due to its large market share felt this would grow in the future. Alongside lots of other research in to the businesses financials and management, could you buy the stock without doing some of these realistic calculations like Discounted Cash Flow please? If you kindly had time to answer this i would be forever grateful and thankful for your support with this.
Thanks again for being a wonderful person Charlottesquare and for your very amazing help. Have a wonderful week and hope things continue to go well for you.
Sometimes analysts workings can be found for bigger companies, I would more spend time poring through these rather than trying a DIY approach from scratch. Also company briefings can sometimes be found online, whilst biased ,as company directors tend not to trash their own companies, information from these can also be useful.
You need to build a toolkit e.g. accounts, do you really understand them, do you understand what companies need to report, how they must record certain things, have you looked at the particular accounting standards they use, do you understand the raw components of debits and credits etc, working capital cycles etc.
Frankly I doubt I would ever buy Amazon direct, I avoid shares that are not UK listed (the only one I own is Berkshire) and would prefer any Amazon exposure via an IT that owns Amazon shares, accordingly I cannot make any comments re Amazon as have never studied it. Talking about Berkshire, reading Warren's views in his annual address to shareholders might be very valuable education as to "How to Think"
My opinion is that for those without a solid grounding in reading accounts etc DIY share analysis is maybe a waste of time, and even when you can read what they say any time you try to use the accounting figures to estimate value you also make some big and bold assumptions and the more of these you make the more unreliable your valuation. In addition all the numbers and tidy calculations can fool you into believing there is rigour when there is really a lot of estimates and assumptions.
For example company has reported EPS of £0.50, I think a P/E of 10 is appropriate so value at £5.00. Is my 10 reasonable? Well that depends on the Share's peers, growth prospects, how the market is pricing etc, so maybe 10 fine but maybe 8 or 15 are better. I am merely assuming 10 and that is a very significant assumption, is it justified? In fact it may well be a more significant error than digging in the accounts etc and finding the EPS stated is in any way overstated with the more realistic EPS being say 46p , the accounts being "optimistic"
Frankly digging in the accounts to nth degree but then assuming other non accounts factors seems to be precision coupled with waving a wet finger in the air, all the precise accounts adjustments you make fool you into accepting your valuation with its glaring broad market assumptions inherent.
It is also imho hard to believe than the lone stock picker can spot a valuation error in a large cap share that 20 analysts have all missed, why do you believe any DIY Amazon valuation you or I do will be more accurate than the herd of analysts who make a living giving price guidance?
I am afraid I am a cynic, I believe individuals can rarely beat the valuation experts re large caps and when they do it is usually luck.
Good luck with your endeavours but do remember that whilst a DCF will spout out a value it will be very sensitive to discount rates , growth rates etc that you likely, somewhat arbitrarily, applied.