Value investing made easy free pdf

Right now, I want you to memorize the phrase below and stick it with your mind. How does paying yourself first really work? Let me show you an example. Juan received his salary amounting to P10, That would be P2, Now, Juan must learn to make budget plan on the P8, that is left.

How does Juan do it? He now decides that he would no longer indulge in expensive coffee sessions. He would also cancel his gym membership. He also started to ride jeepneys instead a taxi cab to go to work. He also cut down his cell phone prepaid expenses and started using those free text and call promos. Guess what happened? He manages to plan a budget, cut off unnecessary spending and was able to save P2, If you already done all the four things above.

I will teach you one of the most effective ways to build wealth in the stock market — that is, Value Investing. Value investors profit by the mispricing if the stock market realizes the true value of the business behind the stock. Juan is a value investor. He only invests in undervalued businesses that have high growth. He started studying them - digging out all the vital information he could find. He knows that the business is doing great and earnings and cash are increasing year on year.

After a year, the stock rose to P15 per share. After seeing this, Juan realized that the stock is now overvalued and decided to sell his position making him P, including the initial P50, he initially invested. He decided to buy 10, shares just like what Juan did. But after the 1st half of the year, the stock fell to P2. So instead of cutting losses, he bought another 10, shares worth P25, bringing his total investment up to P75, This purchase lowered his average price to P3.

Pablo believes that the business is strong, stable and that the stock will rise back. And he was right! After a year, the stock now trades at P15 per share. Upon seeing this, Pablo thought that the business is now overvalued so he sold his shares making P, including his initial investment of P75, This is what Value Investing is all about. Value Investing is pretty simple right? The key in this strategy is patience and the confidence that your purchase price is right. Find high quality companies.

Buy them at bargain prices. The reason is that it requires patience, hard work, discipline and the right mindset. Value Investing is therefore not for everyone. While other investing strategies are based on speculation, Value Investing is based on common sense. Graham believed that buying stocks of quality businesses when they are undervalued with respect to their fundamental value allows someone to make a good return on investment on a lower risk.

How to Look at Stocks the Right Way? What most investors fail to realize is that when you buy a stock, you are simply buying a portion of the business itself. Most investors look at stocks as numbers that move up and down on a ticker screen. This is not the right thing to do if you want to be a successful Value Investor.

If you look at a stock as a tiny part of a business, you can therefore say that the performance of the business is closely tied to the performance of your investment. It follows that to analyze the attractiveness of the stock, you should not look at the price but instead look how much money the business is actually making.

How Does a Business Work? Let me explain this simple concept in detail. Mina wants to start a Halo-Halo business. So the business opened and operations started. On the first day, a customer bought a glass of Halo- Halo for P This is what we call Revenue. To make a glass of Halo-Halo, Mina needs crushed ice, milk, sugar and a lot of toppings which costs around P This expense is what we call Cost of Revenue.

This is what we call Operating Expenses. Mina made P50 revenue. Subtract the cost of revenue from the revenue and we get P40 Gross Profit. Subtract the operating expenses worth from the gross profit and we get an Operating Income of P Let us also not forget that Mina needs to pay her taxes. Doing the math we arrive at a Net Income of P This is the number that we see at the bottom of an Income Statement. From here, Mina has two choices. She can choose to pay herself a Dividend of P5 and the other half to be reinvested back into the business as Retained Earnings to buy more inventories, hire more people or improve the shop; or she can reinvest all the earnings back into the company to speed up the growth of her business.

She decides to pay herself P50, The balance sheet consists of all the Total Assets and the Total Liabilities of the business. Subtracting the two, you get the Equity of the business. To understand this in the simplest way as possible, consider this example.

Then she keeps an inventory worth P10, Adding all that up, we get the total assets amounting to P, From what we see here, it seems that Mina has only paid P10, out of the P65, which explains why the liability is listed at P55, Same is true with the refrigerator. She has only paid out P5, out of the P20, loans. Adding all that up, we get the total liabilities amounting to P80, Subtracting both of these figures, we get the total equity of the business which is P20, So what do all these figures mean?

You can see that the business is making P, a year in profits but the equity in the business is only P20, Now think about this, if she decides to sell her business to you that earns P, a year but is only worth P20, in equity at P,, would you buy it? She said that she will reinvest the other half of the earnings back into the business. She decides to pay her loans and keep some of the cash. Her equity now is worth P70, compared to the previous P20, Would you buy it?

How to Determine the Right Price? At this point, you now know that her business makes P, a year with P70, of equity in it. Are you willing to buy it for P,? What about P,? How about P1,,? Based on equity, if you buy the company at P, , you risk losing P, if the company becomes unprofitable and liquidates.

If you buy it at P,, you risk losing P, If you buy it at P1,,, you risk losing P, It will also take a longer time to make a return on investment. In the second example it increased to 5 years. In the third example, it will take you 10 years. Now what does this tells us? If you overpay for the business, your returns diminishes, risk of losing money becomes higher and it will take you a longer time to gain back your initial investment.

In conclusion, the price you pay for the business determines how much money you are willing to make, the amount of risk you are willing to take and the time it will take to get back your initial investment. Stock Price vs. In order to solve this problem, she decided to split her company into , small pieces. These , shares are what we call Shares Outstanding. Mina values her business at P, We call this the Market Price. This means that if you buy one share of her business, it will cost you P5.

The best way to understand this is to look at that one share as a miniature sized business. As you can see from here, the market price is directly proportional to one share of stock. If you own the whole business, you own all the P, earnings and P70, worth of equity. This is the fundamental concept of why buying a stock is the same as buying a business. In , Ayala Land Inc. ALI is trading at P The recent EPS is P1. MEG is trading at P5. You only need to pay P We now decide that our money is best invested in MEG.

How to Find the Intrinsic Value? Based on historical data, MEG averaged at around We also need to find out the latest EPS in the four most recent quarters. I found this to be You can also use the 5- yr. What we want is to find out what the stock is worth today, not five years from now. To do that, we need to use a Discount Rate. What is a Discount Rate? This interest is what we call the Discount Rate. Right now, the return is at 2. Now what if we use a higher discount rate? I want to point out that when computing for the intrinsic value, the value will depend on how much money you want to earn every year.

Using a Margin of Safety Finding the intrinsic value is not an exact science. Sometimes, we can commit errors along the way. In the previous example the growth rate used is In the example above, we can arrive at a conservative growth rate of At a price of P5. Her business has earnings of P1 per share and a book value of P0.

If she decides to not pay herself a dividend and instead reinvest all that money back into the business buy new equipment, buy a larger stand, buy her own land , her book value will increase to P1. So after a year, she decided to reinvest all of her earnings back into the business. So what does this mean as a value investor?

A business that shows poor returns means that the business is doing a bad job of reinvesting their capital. In order to use this method of valuation, we need to gather all the data needed. We need the following data below; 1. Average ROE 2.

Average Dividend Payout Ratio 3. Recent book value per share 4. The Dividend Payout Ratio for the last 5 years is The recent book value is 3. The 5-yr. From that value, we derive the EPS by multiplying 3. We continue to do this calculation up to the 10th year. On the 10th year, the earnings are now at P1. We then also take the sum of all the dividends paid which is P1. Based on ROE valuation, we can now buy the stock.

It is also called the Liquidation Value. If the stock is trading at a price lower than the NCAV per share, it is considered undervalued. No proprietor or majority holder would think of selling what he owned at so ridiculously low a figure. With shares outstanding of 2. SGI traded between P1. Our owner- earnings equation does not yield the deceptively precise figures provided by GAAP, since c must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes All of these points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports.

These numbers routinely include a plus b - but do not subtract c. Net Income — found at the bottom of the Income Statement. Capital Expenditures - take the average of the last 3 to 5 years. We then arrive at Owner Earnings. After applying DCF analysis, the next thing to do is to add the tangible book value of the business. Divide that with the shares outstanding and you get the per share intrinsic value. The calculated Owner Earnings equates to negative P1.

To do so, we get the average for at least a 3-yr. In and , Owner Earnings calculated equates to P1. Thus, we get an average of P1. The concept is simple — a company that makes a lot of excess cash on its invested capital can expand, buy back shares, pay debt or acquire other businesses.

I recommend that you read the book as it is well explained there. In a nutshell, you basically calculate the present value of the future Owner Earnings. You then add the tangible Book Value to the figure to arrive at the value of the business.

The equity is P Storage and Stability - A Modern Ever-normal Granary Another obscure book on economics, Storage and Stability , dives into supply, demand, production, and consumption. Graham presents the case that commodity storage can provide stability for the national economy since storage can prevent periodic short-term price disturbances. Recommended Books About Ben Graham 1. Unsurprisingly, the man who inspired Buffett inspired others to write on and expand his principles. Along with practically birthing the idea of value investing, Benjamin Graham also created one of the most wildly successful investment strategies available today - net net investing.

While he never published a single guide on finding and valuing net nets, he did leave small bits of scattered writings about the strategy. This Benjamin Graham book covers diversification, dividends and shareholder rights. Additionally, readers will learn more about the man himself and his personal life, an area Graham famously ignored in his own books.

Many of these writings are from his earlier days or have never been published, allowing readers to get a rare peek into the mind of an investing genius. Benjamin Graham: The Memoirs of the Dean of Wall Street Rather than a Graham book on investing, this book serves as the true memoirs of Benjamin Graham , for a portrait of the man himself.

Books Graham Would Recommend 1. Financial Statement Analysis and Security Valuation - Stephan Penman Graham made the importance of interpreting financial statements clear when investing. He believed investors needed to understand company accounts and approach them in a business-like manner.

One of the self-styled modern Graham book s aims to update those classic views and principles with modern financial accounting, helping readers approach financial statements when investing. First, buy with a margin of safety. Investors should only buy a stock when it is trading at a discount to its intrinsic value, giving the investor downside protection. Graham believed that as long as humans participated in markets, prices would be victims to the human traits of euphoria and pessimism.

The smart investor can always take advantage of this, buying stocks at a discount due to pessimism to resell at higher prices later during a period of euphoria. Benjamin Graham: A Timeless Classic Benjamin Graham may have been the single biggest contributor to investment theory.

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He did a great job of laying it out in easy chapters to understand, and a very easy to read way, that makes it a great tool to not only the new investor but those that have been investing for years. So, what exactly is included in the PDF? Below is the table of contents included in the PDF: As you can see, it really is 7 simple steps to understanding the stock market.

He ends the section by talking about the Rule of 72, which is essentially a rule that tells you how long it takes to double your money and gets you your first introduction to compound interest and how amazing it is. Then he goes into some of the stock market basics, such as investing on analysis vs. I can tell you that ignoring any of these three important lessons can be a fatal flaw and I can also tell you that I have made each one of these mistakes when I first started investing.

Ok — you have the fundamentals down now, so what next? Time to buy your first stock! Andrew talks next about making that first purchase and getting your feet wet. He talks about the entire process of setting up an account, finding the stock and then physically purchasing it, which is a bottleneck that I see with a lot of aspiring investors. Once you buy your first stock, then the wheels will slowly start to gain traction and things will start to make much more sense to you.

The next topic that is focused on is fees. So what do all these figures mean? You can see that the business is making P, a year in profits but the equity in the business is only P20, Now think about this, if she decides to sell her business to you that earns P, a year but is only worth P20, in equity at P,, would you buy it?

She said that she will reinvest the other half of the earnings back into the business. She decides to pay her loans and keep some of the cash. Her equity now is worth P70, compared to the previous P20, Would you buy it? How to Determine the Right Price? At this point, you now know that her business makes P, a year with P70, of equity in it.

Are you willing to buy it for P,? What about P,? How about P1,,? Based on equity, if you buy the company at P, , you risk losing P, if the company becomes unprofitable and liquidates. If you buy it at P,, you risk losing P, If you buy it at P1,,, you risk losing P, It will also take a longer time to make a return on investment. In the second example it increased to 5 years.

In the third example, it will take you 10 years. Now what does this tells us? If you overpay for the business, your returns diminishes, risk of losing money becomes higher and it will take you a longer time to gain back your initial investment. In conclusion, the price you pay for the business determines how much money you are willing to make, the amount of risk you are willing to take and the time it will take to get back your initial investment. Stock Price vs.

In order to solve this problem, she decided to split her company into , small pieces. These , shares are what we call Shares Outstanding. Mina values her business at P, We call this the Market Price. This means that if you buy one share of her business, it will cost you P5. The best way to understand this is to look at that one share as a miniature sized business.

As you can see from here, the market price is directly proportional to one share of stock. If you own the whole business, you own all the P, earnings and P70, worth of equity. This is the fundamental concept of why buying a stock is the same as buying a business. In , Ayala Land Inc. ALI is trading at P The recent EPS is P1. MEG is trading at P5. You only need to pay P We now decide that our money is best invested in MEG. How to Find the Intrinsic Value? Based on historical data, MEG averaged at around We also need to find out the latest EPS in the four most recent quarters.

I found this to be You can also use the 5- yr. What we want is to find out what the stock is worth today, not five years from now. To do that, we need to use a Discount Rate. What is a Discount Rate? This interest is what we call the Discount Rate. Right now, the return is at 2. Now what if we use a higher discount rate? I want to point out that when computing for the intrinsic value, the value will depend on how much money you want to earn every year. Using a Margin of Safety Finding the intrinsic value is not an exact science.

Sometimes, we can commit errors along the way. In the previous example the growth rate used is In the example above, we can arrive at a conservative growth rate of At a price of P5. Her business has earnings of P1 per share and a book value of P0. If she decides to not pay herself a dividend and instead reinvest all that money back into the business buy new equipment, buy a larger stand, buy her own land , her book value will increase to P1. So after a year, she decided to reinvest all of her earnings back into the business.

So what does this mean as a value investor? A business that shows poor returns means that the business is doing a bad job of reinvesting their capital. In order to use this method of valuation, we need to gather all the data needed. We need the following data below; 1. Average ROE 2. Average Dividend Payout Ratio 3. Recent book value per share 4. The Dividend Payout Ratio for the last 5 years is The recent book value is 3.

The 5-yr. From that value, we derive the EPS by multiplying 3. We continue to do this calculation up to the 10th year. On the 10th year, the earnings are now at P1. We then also take the sum of all the dividends paid which is P1. Based on ROE valuation, we can now buy the stock. It is also called the Liquidation Value. If the stock is trading at a price lower than the NCAV per share, it is considered undervalued. No proprietor or majority holder would think of selling what he owned at so ridiculously low a figure.

With shares outstanding of 2. SGI traded between P1. Our owner- earnings equation does not yield the deceptively precise figures provided by GAAP, since c must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes All of these points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports.

These numbers routinely include a plus b - but do not subtract c. Net Income — found at the bottom of the Income Statement. Capital Expenditures - take the average of the last 3 to 5 years. We then arrive at Owner Earnings. After applying DCF analysis, the next thing to do is to add the tangible book value of the business. Divide that with the shares outstanding and you get the per share intrinsic value. The calculated Owner Earnings equates to negative P1. To do so, we get the average for at least a 3-yr.

In and , Owner Earnings calculated equates to P1. Thus, we get an average of P1. The concept is simple — a company that makes a lot of excess cash on its invested capital can expand, buy back shares, pay debt or acquire other businesses. I recommend that you read the book as it is well explained there.

In a nutshell, you basically calculate the present value of the future Owner Earnings. You then add the tangible Book Value to the figure to arrive at the value of the business. The equity is P Adding the two, we get to value the business at P Sell a product or a service that is a basic necessity. Is in an industry with very little competition. Sell a unique product that doesn't change much.

Provides a unique service that's difficult to replicate. Are a low-cost buyer and seller of products the public constantly needs. Spends very little or none at all on Research and Development. High return on equity 2. High return on invested capital 3. Increasing historical earnings 4. Little to no debt except for financial companies 5. Competitive product or service 6. No organized labor groups 7.

Product or service increase along with inflation 8. Low operational costs 9. Business buys back its shares Retained earnings are used efficiently thus adding value to the business and therefore increases the market value. Buffett said that a business with a DCA is a cash cow. Now, if you find an interesting company that you think has a DCA, then use valuation methods I taught in this book to identify the best price to buy the stock.

I recommend these services because I personally use them in my stock investing decisions and I find them useful and rewarding. The first resource where I get a lot of financial advice in stocks, entrepreneurship and proper mind setting is the Truly Rich Club Bro. Bo Sanchez. The second resource I use is PinoyInvestor. This is where I get a lot of buy and sell recommendations through stock reports.

The Truly Rich Club of Bro. All you have to do is follow the recommendations in the SAM Stocks Table and the Stock Alerts inside the club and let compounding do the rest! You can take advantage of this strategy by joining the Truly Rich Club now. You can learn more about it by clicking the link below. This is what PinoyInvestor is all about. I encourage you to try and become a FREE member to get access to the free stock reports. The reports contain a lot of information such as buy and sell recommendations which are very important to effectively maximize possible gains.

You can learn more about PinoyInvestor by clicking the link below. If you need help in signing up with these websites, you may send me an email at admin investingengineer. These methods require a lot of different assumptions and therefore, are not perfect. But knowing these kinds of calculations will give you trust and confidence in making investment decisions.

Thank you for the time reading this e-book. If you like it, please share it to people who you think will benefit from it. Value Investing is an investment strategy where stocks are selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued.

Investors who use this strategy believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company's long-term fundamentals, giving an opportunity to profit when the price is deflated. Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise.

It is the "top line" or "gross income" figure from which costs are subtracted to determine net income. The Cost of Revenue is the total cost of manufacturing and delivering a product or service. Cost of revenue information is found in a company's income statement, and is designed to represent the direct costs associated with the goods and services the company provides.

This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appear on the income statement and can be deducted from revenue to calculate a company's gross margin.

An Operating Expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance and funds allocated toward research and development.

One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting a firm's ability to compete with its competitors. Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Operating Income is an accounting figure that measures the amount of profit realized from a business's operations, after deducting operating expenses such as cost of goods sold COGS , wages and depreciation.

Operating income takes a company's gross income, which is equivalent to revenue minus COGS, and subtracts all operating expenses and depreciation. A business's operating expenses are costs incurred from operating activities and include items such as office supplies, heat and electricity. Net Income NI is a company's total earnings or profit ; net income is calculated by taking revenues and subtracting the costs of doing business such as depreciation, interest, taxes and other expenses.

Net income also refers to an individual's income after taking taxes and deductions into account. An Income Statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period. A Dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

Dividends can be issued as cash payments, as shares of stock, or other property. Retained Earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the balance sheet.

A Balance Sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. An Asset is a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Assets are reported on a company's balance sheet, and they are bought or created to increase the value of a firm or benefit the firm's operations.

An asset can be thought of as something that in the future can generate cash flow, reduce expenses, improve sales, regardless of whether it's a company's manufacturing equipment or a patent on a particular technology.

A Liability is a company's financial debt or obligations that arise during the course of its business operations. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues and accrued expenses.

Equity is the value of an asset less the value of all liabilities on that asset. A Stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings.

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