Following up on my recent post about Holy Grail of Investing I want to list values, ratios, and indicators to look at to help you with the decision making of single positions or sector themes.
Individual Position Selection
Fundamental Factors:
Earnings & Valuation RiskReward
It is especially important to compare the Status Quo in Revenue, Earnings, and current expectation versus possible future scenarios. How much of the future scenarios are already priced in?
- Price To Earnings (PE) Ratio
- Price to Earnings Growth (PEG) Ratio
- Price to Book (RB) Ratio
- Prices to Sales (PS) Ratio
- Past Earnings Growth
NAV – Net Asset Value
Ressource Intensive Stocks, or just Commodity Storage businesses sometimes trade at premium or discount to NAV. Just knowing the historical context of how that premium or discount develops gives you great insights into unique buying opportunities.
Margin of Safety
The Earlier you are in a narrative can also be a margin of safety. Simply communicating future scenarios that are not at all priced in can lead to substantial gains and be a margin of safety for holding longer.
Backtested Scores
Furthermore, there are some other scores that can be useful :
- Piotroski F-Score
- Beneish M-Score
- Sloan Ratio
- Altman Z-Score
You can read more about them in the book from Charlie Tian, the founder of gurufocus.
Technical Factors
Liquidity
Global Liquidity is currently playing a large role in how assets are priced. Liquidity shocks like in December 2018 lead to everyone simultaneously decreasing their nominal exposure, which results in a market with a lot of sellers and only very few buyers.
Valuation Ranges
Most things in nature move within a range. Whatever the factors behind might be: I found it useful over the years to look at Valuation Ranges in long-term historic charts to get perspective.
- Valuation Range of P/B
- Valuation Range of Price/FCF
- Valuation Range of ROA
I can’t go into detail about every indicator, but it should give you a decent headstart into researching ones you didn’t know before.
