I got the formula from Warren's letters to shareholders. I modifed the formula until in 2007 liked the current version. 49 percent of the companies have scores less than 2 and should fall, 49 percent have scores between 2 and 10 and could rise or fall. 2 percent of the companies have scores greater than 10 and should double. In 2009 I made a video on Internet stocks and correctly identified IACI to tripple which it did, INET to double which it did and EBAY to double which it did.
Warren says that you're supposed to buy stocks like a "Catholic marries - forever!". When you think of it like that, he argues, you start looking for quality and value. Companies so good that not even an idiot can ruin it - especially since eventually, an idiot WILL run it.
This is a great video. I must have watched it several dozen times. I've followed Alan's advice and so far all six companies I have bought on the ASX are doing well. What I really need to know is when I should be selling and what ratio I should be looking for.
i dont know much about all this, but i would like to understand a few things.. say warren buffet wants to buy shares in conoco phillips, when he plugs in all the numbers, and as seen in the video, he ends up with this figure of 14.4, what would be his next step? would he simply just buy how ever many shares he wants? and also, when would he sell the shares? when he feels he has made enough profit? some explain please :)
Warren learned from Benjamin Graham in a study of 100 years of the stock market that every 5.3 years on the average the stop market has a major crash of 40% or more and every 2 years on the average a correction of about 20%. It is during these panic times that Warren buys. Warren bought 20 billion of stock in January 2009 because the market had overcorrected to the downside making good companies a steal.
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online explanation will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book.
Warren says that the best holding period is "Forever" but I like to study the Weekly and Monthly MACD for sell signals. Warren picks low tech companies because he says that he cannot understand tech companies and that his best friend Bill Gates that knows a thing or two about tech companies cannot pick them either.
Hi Mr. Kendall, I was wondering which set of values from clearstation I would use for this calculation? I understand that in the numerator I use ("Profit Margin (TTM)"+Dividend Yield)/("Price/Book(MRQ)"), but which column do I take the values from? Each column gives me a different ratio...
I am a newbie and trying to learn in my spare time during my MSc. degree. :P
i also think its imperative to compare this ratio to the industry average (and maybe take the average net margin and average P/B ratio). Another thing to make sure would be that the margins have been increasing, and not steadily declining
Mr. Kendall, Ive seen that your formula holds true in some cases...in my research i havent seen a stock with ur ratio that has lost money...rule #1 dont lose money..so this is great for that philosophy...however, do you have an alternate formula for say technology companies...since some of the past decades big gainers liek apple and amazon and baidu would have been excluded using this formula...
I would figure that Buffett would follow the Grahamian philosophy since Buffet worships his principals. Even to this day when he talks to MBA graduates he sites numerous Graham principals. So wouldnt it make more sense to use Grahams Formula. I.V. = E.P.S. x (8.5 + 2g)x4.4 / Yield.
Mr. Kendall, is there a point where the average is too high? I just did this little screen on a company called JinkoSolar (JKS) with a 20.84% net profit margin, no dividend and a price to book value of 1.3 = 16.03
I also look at is the monthly MACD. For the djia and slow moving stocks, the Monthly MACD gives few but timely sell and buy signals. This works well if the stock is trending like mcd, dis, xom, f, ba, xom but will not work if the stock is in a sideways pattern like wmt. Ko was in a sideways pattern but has now broken out to the upside and the Monthly MACD will keep you in for the majority of the up-leg. The Monthly MACD gave 4 timely sell and buy signals for BA the last decade.
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online explanation will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola (KO) it is (33.77 + 3.0) / 4.64 = 7.9
If i want to look up all this information on a company, where would i find it? Are there any good resources online? I am trying to find each piece of information but i don't seem to know where to look. Any help would be appreciated.
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
The net earnings would be the amount of money left over at the end of the year but the Net Profit Margin is usually a percentage. I use the %net profit in the formula. Companies with more than 20% net profit are considered excellent. Coca Cola is showing more than 20% net profit currently. Companies with less than 5% are usually considered mediocre and are typically in high competition industries like most retail chains, most auto manufacturing and most airlines.
@MrAlanKendall Is this an answer? Is net earnings the same as net profit margin? The answer must be no because i found a company with a score of over 2000 using the net profit margin instead of the net earnings.
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the PERCENT net profit. The "Dividend Yield" I use for the PERCENT dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
@MrAlanKendall Two Questions: First, is the "Net Profit Margin" the same as "Profit Margin"? I use Yahoo Finance and they only list "Profit Margin". Second, which dividend do you use? Dividend Rate or Dividend Yield? Forward or Trailing? Thanks for your time. I liked your presentation.
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the PERCENT net profit. The "Dividend Yield" I use for the PERCENT dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
Price to book is the price of the sum of all the shares divided by the sum of all the assets. In the case of Citygroup, the value of all the assets of the company (land, bonds, stocks, cash, equipment) is 163 billion. The value of all the shares (the price of the company) is 141.8 billion. 141.8 / 163 = .87 so in the case of Citygroup, you are paying less than the value of the assets for the company. ratios less than 1 were considered "safe" to buy by Benjamin Graham.
So does that mean we need four pieces of information to calculate the ratio?
Net Earnings + Dividend Yield (Value) and Share Sum / Asset Sum (Price) = Ratio number?
Is it also correct to say that numbers in the ratio above ten we buy, and numbers in the ratio below two we sell?
Thank you for your speedy response to these comments! Math isn't one of my stronger suits, so I appreciate you bearing with me while I understand this process. :)
Usually the price-to-book is already calculated for you so you can use (Profit Margin + Dividend Yield)/ price-to-book. For Coca Cola it is (33.77 + 2.77) / 4.70 = 7.77
We want to buy stocks if the score is over 10 (should double in price). Many times Warren buys with the score over 15 (should tripple in price) and sometimes Warren buys when the score is over 20 (Should quadruple in price). He usually will wait till a big market crash like in 2007-2008 and then Warren bought Cop, Ge, NRG and Wfc in January 2009, several of which had scores at 18. A friend of mine already sold GE but I am still holding in 2011.
@MrAlanKendall Oh I see. It's just that if the stock prices fall on a good company then it's cheaper to buy lots of them, assuming they eventually rise of course. I am assuming that the higher the score (say above ten) then the more expensive the stock is to buy?
Warren is trying to get the most value for the least price so we divide value by price-to-book ( [%net + %div] /price-to-book ) the bigger the price-to-book, the lower the ratio. The smaller the price, the higher the ratio. For Apple Computers (21.81 + 0)/ 6.01 = 3.6 which is average because although 21.81 is a great % net profit, the high price to book of 6.01 is overpriced (According to Warren). Citygroup (c) is 12.65 + 0 /.87 = 14.5 which should tripple in price.
I sometime look at the "Price/Sales (TTM)" which is .67 and compare this key ratio with other companies and it does look like GNK is very undervalued.
I am missing some information in my head. If we take the Conoco Philips example in this video, I do not understand how you have reached 14.4 as a ratio.
If I take 7.47 add 3.91 that gives me 11.38 and then divided by 0.79 has given me 8.9902, so how do you reach 14.4 as a conclusion?
@MrAlanKendall I did 7.47 + 3.91 = 11.38 then 11.38 divided by 0.79 = 8.9902. Perhaps I was meant to convert 0.79 into a fraction first? I'm not sure how to do that.
@MrAlanKendall I tried it again and got 14.405 etc and I'm not sure why, swear I was pressing divide before! Strange, clearly I must of been pressing the wrong button, funny I was so sure I was pressing divide. Thanks for your help, and patience.
yeah, so successfully don't define net earnings, or the dividend. SO how am I supposed to use this formula if I have no idea how to calculate these? Also, aren't dividends paid from the retained earnings sooo aren't you counting it twice?
I looked on a company's balance sheet on Yahoo Finance and the net retained earnings shows up as a number in the thousands range. The earnings number(s) shown in this video seem to be represented as percentages.
At first I was calculating the formula using the price/earnings ratios for the "earnings," but I think this is incorrect. Any ideas on how to correctly determine the retained earnings value you have shown here?
Now I have searched for these ratios on the site you showed me. I have found the dividend yield ratio and the price-to-book ratio on the site when I look up a stock quote under "key ratios" search.
Now is the "net earnings" ratio here in this video read as the "Price/Cash Flow/Share" valuation ratio on clearstation? Just wanted to clarify it.
Value line is a good print source; I find it at the library, and yahoo has MOST of the data (can't be sure off the top of my head if it has all right now since I'm a newbie at lingo.)
I would advise you to go to the Library but bring a computer because it (at least in my case) provides a cool-down time from when you find the company to when you put money into it.
it is obvious that this guy has no clue of what he is talking about..So you are trying to determine the value of a company without discounting expected cash flows?
Let me teach you a lesson, net earning is not a percentage, it is an amount the same applies to dividends. What you are doing is adding (EPS + Dividend payout ratio) / P/B ratio. It seems that you have got a great imagination, stop watchin too much TV.
I got the idea of using the percent net profit, percent dividend yield and price-to-book from Warrens letters to his shareholders. He gives net profit a special name and calls it "retained earnings" and believes that it will grow the company over time. He believes that the percent dividend will grow his portfolio over time and Warren said not to use the share price so I use the price-to-book which is a an indicator of how expensive the business is.
Warren buffett has so much influence over the market with his trades. He also has significant influence on companies he owns. When all else fails, he takes over the company. The average Joe does not have the advantages he does. admittedly he is a smart guy and knows his stuff. bh
Yes and he invested in the railroads when they had scores of 8. But the formula will cause you to avoid companies that are less than 2 (low returns and high price. 50% of the companies fall in this category) and companies that are average (average returns and high price. 49% of the companies fall in this category) and concentrate on the 1% of the companies that have high returns and low prices. Warren waits years and even decades to buy a quality company at a low price.
Yes, from experience I have learned to admire Warren's wisdom on certain companies and industires. Warren will buy a central bank (that makes the majority of profit on checking account fees) and avoid savings and loans and avoid regional banks that make real estate loans. Warren avoids mining compaines buy buys silver. Warren avoids pharmaceuticals because they are irratic. Warren avoids airlines, auto manufacturers and food supermarkets due to unions but will buy a car parts manufacturer.
@robertlam18 ...One cannot ignore honest and talented management running these companies.....bad managers can still cost the company's bottom line big time. :)
how do you know this is Warren Buffet's formula for picking stocks? Did he tell you?
bgelb52 1 week ago
@bgelb52
I got the formula from Warren's letters to shareholders. I modifed the formula until in 2007 liked the current version. 49 percent of the companies have scores less than 2 and should fall, 49 percent have scores between 2 and 10 and could rise or fall. 2 percent of the companies have scores greater than 10 and should double. In 2009 I made a video on Internet stocks and correctly identified IACI to tripple which it did, INET to double which it did and EBAY to double which it did.
MrAlanKendall 1 week ago
These formulas are for people who wants to be in the market for a long time like 5 to 12 years. For day readers we teade on technical.
Jugdesi 2 weeks ago
Regarding when to sell:
Warren says that you're supposed to buy stocks like a "Catholic marries - forever!". When you think of it like that, he argues, you start looking for quality and value. Companies so good that not even an idiot can ruin it - especially since eventually, an idiot WILL run it.
yared94 4 months ago
This is a great video. I must have watched it several dozen times. I've followed Alan's advice and so far all six companies I have bought on the ASX are doing well. What I really need to know is when I should be selling and what ratio I should be looking for.
pfjschluter 4 months ago
@Im4theFuture Good luck with that...
moorecz1 5 months ago
hey, do you read annual stock reports?, if so, which one? thanks :D
thevulgurvlogger 5 months ago
Don't you subtract the dividends from the net earnings?
Glamis9587 6 months ago
i dont know much about all this, but i would like to understand a few things.. say warren buffet wants to buy shares in conoco phillips, when he plugs in all the numbers, and as seen in the video, he ends up with this figure of 14.4, what would be his next step? would he simply just buy how ever many shares he wants? and also, when would he sell the shares? when he feels he has made enough profit? some explain please :)
balaclava1110 6 months ago in playlist Business interviews
@balaclava1110
Warren learned from Benjamin Graham in a study of 100 years of the stock market that every 5.3 years on the average the stop market has a major crash of 40% or more and every 2 years on the average a correction of about 20%. It is during these panic times that Warren buys. Warren bought 20 billion of stock in January 2009 because the market had overcorrected to the downside making good companies a steal.
MrAlanKendall 6 months ago
is that dividend yeild or just standard dividend??
balaclava1110 6 months ago in playlist Business interviews
How do you find the "Net Earnings" of a company/stock? i can never find it...
TheAquaManH2o 8 months ago
@TheAquaManH2o neither can I. :(
b21492010 4 months ago
@TheAquaManH2o
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online explanation will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book.
MrAlanKendall 4 months ago
Mr Allan,after picking a stock with this formula ,how long will u hold ?also do u know why does wwarren himself picks a low tech company?
aditdhanio 8 months ago
@aditdhanio
Warren says that the best holding period is "Forever" but I like to study the Weekly and Monthly MACD for sell signals. Warren picks low tech companies because he says that he cannot understand tech companies and that his best friend Bill Gates that knows a thing or two about tech companies cannot pick them either.
MrAlanKendall 8 months ago
hi, im just curious for the most value formula are we usuing total net earnings for the
company? or net earnings per share. This question is for anyone. Thank You
snwbrdkd92 8 months ago
Hi Mr. Kendall, I was wondering which set of values from clearstation I would use for this calculation? I understand that in the numerator I use ("Profit Margin (TTM)"+Dividend Yield)/("Price/Book(MRQ)"), but which column do I take the values from? Each column gives me a different ratio...
I am a newbie and trying to learn in my spare time during my MSc. degree. :P
Any help would be great!
Thanks!
TheVESTORIN 8 months ago
i also think its imperative to compare this ratio to the industry average (and maybe take the average net margin and average P/B ratio). Another thing to make sure would be that the margins have been increasing, and not steadily declining
hartse7en 8 months ago
Mr. Kendall, Ive seen that your formula holds true in some cases...in my research i havent seen a stock with ur ratio that has lost money...rule #1 dont lose money..so this is great for that philosophy...however, do you have an alternate formula for say technology companies...since some of the past decades big gainers liek apple and amazon and baidu would have been excluded using this formula...
hartse7en 8 months ago
For the % of the net earnings do you use the ROE?
-Thank You
albania2001 9 months ago
I would figure that Buffett would follow the Grahamian philosophy since Buffet worships his principals. Even to this day when he talks to MBA graduates he sites numerous Graham principals. So wouldnt it make more sense to use Grahams Formula. I.V. = E.P.S. x (8.5 + 2g)x4.4 / Yield.
joeyjobear 9 months ago
Also, do you have any sources that show the performance of this formula? Or how you found out this is something buffet does?
AmericanCritiquer 10 months ago
Mr. Kendall, is there a point where the average is too high? I just did this little screen on a company called JinkoSolar (JKS) with a 20.84% net profit margin, no dividend and a price to book value of 1.3 = 16.03
Does it go, the higher the better?
AmericanCritiquer 10 months ago
how about entry or exit rules when do u decide to exit ?
barnchips 11 months ago
@barnchips
If the score goes below 2, it would be good to sell because the price is high and the profits are down.
MrAlanKendall 10 months ago
@barnchips
I also look at is the monthly MACD. For the djia and slow moving stocks, the Monthly MACD gives few but timely sell and buy signals. This works well if the stock is trending like mcd, dis, xom, f, ba, xom but will not work if the stock is in a sideways pattern like wmt. Ko was in a sideways pattern but has now broken out to the upside and the Monthly MACD will keep you in for the majority of the up-leg. The Monthly MACD gave 4 timely sell and buy signals for BA the last decade.
MrAlanKendall 10 months ago
Using google finance, how do you calculate %net earnings? Is it net income/total revenue? There's nothing that says profit margin or net profit.
Mcubed23 11 months ago
@Mcubed23
under "Margins" select "Net profit margin (%)"
MrAlanKendall 11 months ago
how do u calculate net earnings, dividend and price-to-book???
omarlives 11 months ago
@omarlives
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online explanation will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola (KO) it is (33.77 + 3.0) / 4.64 = 7.9
MrAlanKendall 11 months ago
@MrAlanKendall Thank you so much. See you at the millionaire's table.
omarlives 11 months ago
If i want to look up all this information on a company, where would i find it? Are there any good resources online? I am trying to find each piece of information but i don't seem to know where to look. Any help would be appreciated.
strattgatt 1 year ago
@strattgatt
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the percent net profit. The "Dividend Yield" I use for the percent dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
MrAlanKendall 1 year ago
Ummm.. Ok so I did this for 10 of Buffetts 2011 picks and only 1 comes out over 10 and thats BK. So...????
teamjohntiger 1 year ago
so "Net Earnings" is the same as "Net Profit Margin"?
eksistentialisti 1 year ago
@eksistentialisti
The net earnings would be the amount of money left over at the end of the year but the Net Profit Margin is usually a percentage. I use the %net profit in the formula. Companies with more than 20% net profit are considered excellent. Coca Cola is showing more than 20% net profit currently. Companies with less than 5% are usually considered mediocre and are typically in high competition industries like most retail chains, most auto manufacturing and most airlines.
MrAlanKendall 1 year ago
@MrAlanKendall Is this an answer? Is net earnings the same as net profit margin? The answer must be no because i found a company with a score of over 2000 using the net profit margin instead of the net earnings.
strattgatt 1 year ago
@strattgatt
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the PERCENT net profit. The "Dividend Yield" I use for the PERCENT dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
MrAlanKendall 1 year ago
@MrAlanKendall Two Questions: First, is the "Net Profit Margin" the same as "Profit Margin"? I use Yahoo Finance and they only list "Profit Margin". Second, which dividend do you use? Dividend Rate or Dividend Yield? Forward or Trailing? Thanks for your time. I liked your presentation.
Dufreyne--
dufreyne1 1 year ago
@dufreyne1
I get the key ratios by typing in the ticker symbol at clearstation and then selecting "Key Ratios". The Key ratios come up and if you click on one of the titles, an online definition will come up. I use "Profit Margin (TTM)" for the PERCENT net profit. The "Dividend Yield" I use for the PERCENT dividend. The "Price/Book (MRQ)" I use for the price-to-book. For Coca Cola it is (33.77 + 2.92) / 4.75 = 7.7
MrAlanKendall 1 year ago
Secondly Mr Kendall, is price-to-book the amount someone has to pay for one share in the company?
cardinalfire999 1 year ago
@cardinalfire999
Price to book is the price of the sum of all the shares divided by the sum of all the assets. In the case of Citygroup, the value of all the assets of the company (land, bonds, stocks, cash, equipment) is 163 billion. The value of all the shares (the price of the company) is 141.8 billion. 141.8 / 163 = .87 so in the case of Citygroup, you are paying less than the value of the assets for the company. ratios less than 1 were considered "safe" to buy by Benjamin Graham.
MrAlanKendall 1 year ago
@MrAlanKendall
So does that mean we need four pieces of information to calculate the ratio?
Net Earnings + Dividend Yield (Value) and Share Sum / Asset Sum (Price) = Ratio number?
Is it also correct to say that numbers in the ratio above ten we buy, and numbers in the ratio below two we sell?
Thank you for your speedy response to these comments! Math isn't one of my stronger suits, so I appreciate you bearing with me while I understand this process. :)
cardinalfire999 1 year ago
@cardinalfire999
Usually the price-to-book is already calculated for you so you can use (Profit Margin + Dividend Yield)/ price-to-book. For Coca Cola it is (33.77 + 2.77) / 4.70 = 7.77
MrAlanKendall 1 year ago
@MrAlanKendall Do we want to purchase stock when they are lower than five and sell when they are higher than ten?
cardinalfire999 1 year ago
@cardinalfire999
We want to buy stocks if the score is over 10 (should double in price). Many times Warren buys with the score over 15 (should tripple in price) and sometimes Warren buys when the score is over 20 (Should quadruple in price). He usually will wait till a big market crash like in 2007-2008 and then Warren bought Cop, Ge, NRG and Wfc in January 2009, several of which had scores at 18. A friend of mine already sold GE but I am still holding in 2011.
MrAlanKendall 1 year ago
@MrAlanKendall Oh I see. It's just that if the stock prices fall on a good company then it's cheaper to buy lots of them, assuming they eventually rise of course. I am assuming that the higher the score (say above ten) then the more expensive the stock is to buy?
Thanks again.
cardinalfire999 1 year ago
@cardinalfire999
Warren is trying to get the most value for the least price so we divide value by price-to-book ( [%net + %div] /price-to-book ) the bigger the price-to-book, the lower the ratio. The smaller the price, the higher the ratio. For Apple Computers (21.81 + 0)/ 6.01 = 3.6 which is average because although 21.81 is a great % net profit, the high price to book of 6.01 is overpriced (According to Warren). Citygroup (c) is 12.65 + 0 /.87 = 14.5 which should tripple in price.
MrAlanKendall 1 year ago
@MrAlanKendall so what about Genco Shipping (GNK) by your definition
32.85 / 0.25 equals 131.40 - company pays no dividends. could this be correct??
49fiori 10 months ago
@49fiori
Yes, if the price to book really is .25, then GNK is very undervalued and could be a real winner.
MrAlanKendall 10 months ago
@49fiori
I sometime look at the "Price/Sales (TTM)" which is .67 and compare this key ratio with other companies and it does look like GNK is very undervalued.
MrAlanKendall 10 months ago
Hello Mr Kendall,
I am missing some information in my head. If we take the Conoco Philips example in this video, I do not understand how you have reached 14.4 as a ratio.
If I take 7.47 add 3.91 that gives me 11.38 and then divided by 0.79 has given me 8.9902, so how do you reach 14.4 as a conclusion?
Thank you in advance. :)
cardinalfire999 1 year ago
@cardinalfire999
11.38 divided by a fraction should be larger. You must have multiplied by mistake.
MrAlanKendall 1 year ago
@MrAlanKendall I did 7.47 + 3.91 = 11.38 then 11.38 divided by 0.79 = 8.9902. Perhaps I was meant to convert 0.79 into a fraction first? I'm not sure how to do that.
cardinalfire999 1 year ago
@cardinalfire999
11.38 / .79 = 14.405063 (divided by)
11.38 * .79 = 8.9902 (multiplied by)
MrAlanKendall 1 year ago
@MrAlanKendall I tried it again and got 14.405 etc and I'm not sure why, swear I was pressing divide before! Strange, clearly I must of been pressing the wrong button, funny I was so sure I was pressing divide. Thanks for your help, and patience.
cardinalfire999 1 year ago
investutilsDOTcom has an utility to calculate the intrinsic value
susdash 1 year ago
test
susdash 1 year ago
Thank you for sharing this great formula! I've started to apply it to my stock research.
by the way, your voice sounds similar to Larry Ellison, Oracle CEO. very cool. =]
hpiracr7 1 year ago
Mr Kendall,how do you calculate a company w/o dividend?
topelz 1 year ago
@topelz
I just divide the %net earnings by the price-to-book.
MrAlanKendall 1 year ago
yeah, so successfully don't define net earnings, or the dividend. SO how am I supposed to use this formula if I have no idea how to calculate these? Also, aren't dividends paid from the retained earnings sooo aren't you counting it twice?
sigmayacht 1 year ago
Hi Mr. Allen, I have a question.
I looked on a company's balance sheet on Yahoo Finance and the net retained earnings shows up as a number in the thousands range. The earnings number(s) shown in this video seem to be represented as percentages.
At first I was calculating the formula using the price/earnings ratios for the "earnings," but I think this is incorrect. Any ideas on how to correctly determine the retained earnings value you have shown here?
etong2002001 1 year ago
@etong2002001
I get the ratios from clearstation
MrAlanKendall 1 year ago
I got it now.
Now I have searched for these ratios on the site you showed me. I have found the dividend yield ratio and the price-to-book ratio on the site when I look up a stock quote under "key ratios" search.
Now is the "net earnings" ratio here in this video read as the "Price/Cash Flow/Share" valuation ratio on clearstation? Just wanted to clarify it.
Thanks.
etong2002001 1 year ago
@etong2002001
The "Profit Margin (TTM)" is the percent net profit for the last 12 months.
MrAlanKendall 1 year ago
@MrAlanKendall
Thank you for everything. I can now do my extensive research!
etong2002001 1 year ago
HOW DO YOU CALCULATE STOCKS WITHOUT DIVIDENED......
devilious123 1 year ago
@devilious123 its just plus 0, 0 being the dividend
poopagore 1 year ago
thanks for that
joemols 1 year ago
Value line is a good print source; I find it at the library, and yahoo has MOST of the data (can't be sure off the top of my head if it has all right now since I'm a newbie at lingo.)
I would advise you to go to the Library but bring a computer because it (at least in my case) provides a cool-down time from when you find the company to when you put money into it.
bigbadbigfoot 1 year ago
it is obvious that this guy has no clue of what he is talking about..So you are trying to determine the value of a company without discounting expected cash flows?
Let me teach you a lesson, net earning is not a percentage, it is an amount the same applies to dividends. What you are doing is adding (EPS + Dividend payout ratio) / P/B ratio. It seems that you have got a great imagination, stop watchin too much TV.
theomarelneser 1 year ago
nice explanation here on warren buffet technique. but we gota remember warren buys companies. as small investors we only buy stocks.
jayangli 2 years ago
alan, how and why did you pick this combination of multiples over others? Has this formula worked for you?
bh from orange, california.
ssfbbh2 2 years ago
I got the idea of using the percent net profit, percent dividend yield and price-to-book from Warrens letters to his shareholders. He gives net profit a special name and calls it "retained earnings" and believes that it will grow the company over time. He believes that the percent dividend will grow his portfolio over time and Warren said not to use the share price so I use the price-to-book which is a an indicator of how expensive the business is.
MrAlanKendall 2 years ago
Alan,
Warren buffett has so much influence over the market with his trades. He also has significant influence on companies he owns. When all else fails, he takes over the company. The average Joe does not have the advantages he does. admittedly he is a smart guy and knows his stuff. bh
ssfbbh2 1 year ago
I dont get the '% Net Profit' figure, how do you work it out???
brentfromnz 2 years ago
I don't see how (growth + dividends/ PB ratio) can determine whether a stock is undervalued, so could you please explain?
and by the way, Buffett has invested in Exxon Mobil, a stock to which you assigned a score of 3.7
MasterFrooby 2 years ago
Yes and he invested in the railroads when they had scores of 8. But the formula will cause you to avoid companies that are less than 2 (low returns and high price. 50% of the companies fall in this category) and companies that are average (average returns and high price. 49% of the companies fall in this category) and concentrate on the 1% of the companies that have high returns and low prices. Warren waits years and even decades to buy a quality company at a low price.
MrAlanKendall 2 years ago
But couldn't your formula sometimes indicate that a company has very poor underlying economics, but also has a low price, or some sort of mixture?
For example, let the net earnings be 3, the dividends be 2 and the P/B ratio be 0.5. Then according to your formula, the score would be 12.
And wouldn't these scores be varying from industry to industry?
MasterFrooby 2 years ago
Yes, from experience I have learned to admire Warren's wisdom on certain companies and industires. Warren will buy a central bank (that makes the majority of profit on checking account fees) and avoid savings and loans and avoid regional banks that make real estate loans. Warren avoids mining compaines buy buys silver. Warren avoids pharmaceuticals because they are irratic. Warren avoids airlines, auto manufacturers and food supermarkets due to unions but will buy a car parts manufacturer.
MrAlanKendall 2 years ago
Looks good. But this only half the picture he is now a qualitative guy this does not explain why he buys byd.
robertlam18 2 years ago
@robertlam18 ...One cannot ignore honest and talented management running these companies.....bad managers can still cost the company's bottom line big time. :)
1cherrylane 2 years ago
yeah, i guess he bought byd (10percent) because byd has a very strong edge and is the future.
jayangli 2 years ago