Monday, 13 August 2018

(Post 44/week 33)Learning investing/trading together part 2(Investment style)

Continuing on from last week(part 1), this week we will be learning about the different investment  style and the different between different type of stock



Growth investor

What you want from your investments
  • Capital gains and growth are more important
For an investor who...
  • Have shorter term horizons
  • Are seeking higher capital appreciation
  • Want to achieve a lump-sum investment amount that is larger than accumulated savings
Company and stock selection
  • Identify companies that have the potential to grow, or whose revenues and earnings are expected to increase at a faster rate than its peers
Relevant financial criteria
  • 5-year Revenue Growth
How to Calculate 1-year revenue growth?(just like calculating simple interest rate in school)

E.g A company reports  $10 million in total revenue last year and $12 million for the recent year. You take this year $2million divide last year's $10 million which gives you 0.2(0.2 * 100), which times 100 gives us 20%(remember percentage is *100). Therefore, this company had a 1-year revenue growth of 20% from last year to this year.

Total revenue for last year:$10,000,000($10 million)
This year for this million year:$12 million($12 million)
Difference between this year and last year:$12,000,000-$10,000,000=$2,000,000
1-year revenue growth:$2,000,000/$10,000,000=0.2*(100)=20%

Calculating 1-year revenue growth may seem chicken feet to some(at least not for me! haha), but what if you want to calculate 5-year revenue growth?


How to calculate 5-year revenue growth?(just like calculating compound interest formula in school)
Link:https://www.investopedia.com/terms/c/cagr.asp

The 5-year revenue growth is the same as the CAGR(compound annual growth rate)? I think?
P.S, I hate financial jargon as much as you do...

So what is CAGR(compound annual growth rate) anyway?

It is the mean annual growth rate of an investment period of more than a year, which in our case is 5 year!

It is also a representation number that describes the rate of the investment if it has grown steadily over the years, however, some years the company made more money or made less money(e.g company A make $2 million for the year 2018 and make $1 million for the year 2019)


For example, company A data:
The year 2013(Begin value, currently has):$10million
The year 2018(End value, currently has):$20million
Number of years=2018-2013=5 years

CAGR of company A is =(($20,000,000/$10,000,000)^(1/5))-1=14.8%
  • Price-Earnings Ratio
What is the Price-Earnings Ratio?
Image result for price to earning ratio formula

link:https://www.investopedia.com/terms/p/price-earningsratio.asp
Link:http://www.sharesinv.com/articles/2014/07/04/price-to-earnings-tutorial/

The Price-earnings ratio is one the popular ratio that measures the price of its current stock to its earnings. To put it in a simpler word, it is a ratio that identifies how expensive or how cheap a stock is.For example, a company currently trading at a P/E of 10, this means that the investor is willing to pay $10 for $1 current earnings. Below is an example of how to calculate the P/E ratio of SingTel currently (z74)

link:http://www.sharesinv.com/Z74/


As you can see in the above picture, the black circle show the P/E(price to earnings ratio), most of the websites will show the P/E, so there is no need for actual calculation(what a relief, eh?)

But let's verify the Price/Earning ratio via the formula above:)

P/E ratio(Black circle):9.6
Price per share(Red circle):$3.200
Earning per share(Pink circle):$0.3339
P/E ratio:$3.200/$0.3339=9.58370707697(round up)=9.6

As you can see above the P/E ratio is pretty accurate, hence there is no need to do self-calculation.

P/E ratio rule of thumb

  • Big and established companies(blue chip) normally have a P/E ratio of 15 of 25

Bear in mind that different industries in Singapore have different P/E ratio and that tech company such as facebook and google have very high P/E as you can below(Facebook P/E:28.44, Google P/E:53.56)


Will delve deep into P/E ratio for the different industries in a future post.

Risk to be aware of
  • This is a more aggressive form of investing which requires more active portfolio monitoring and management
Income investor

What you want from your investments
  • Having an income stream is more important
For an investor who...
  • Are depending on having a regular stream of income from their investments
Company and stock selection
  • Identify companies that pay dividend consistently
Relevant financial criteria

  • Dividend Yield
Image result for dividend yield formula
What is Dividend Yield and how to calculate it?

It indicates the percentage of your principal sum that the company is going to pay in the form of a dividend. It is similar to the bank interest rate(e.g DBS interest rate of 0.05%) that you earn annually but in this case, it is the stock interest rate that you will earn annually. Below is an example of how to calculate my dividend for Singapore bond index(A35)

Link:https://www.dividends.sg/view/A35(This is a very good link to check dividend by the way)

Using the formula to calculate dividend yield above

Annual dividend per share: $0.0261
Current share price:$1.125
Dividend yield:$0.0261/$1.125=0.0232(percentage always *100)=$2.32

As you can see it is the same as the dividend yield state above in the picture, so there is not a need to calculate too

Do look forward to part 3 where we explore the different investment product!

1 comment:

  1. Really got a useful blog to read today. Its very informative, keep posting more like this.
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    ReplyDelete