₦airaland Forum

i hope all this helps and that i havent swamped anyone. just trying to make a difference.

omo these oyinbo people no get mind o, small stress dem don kolo finish, haba. this call na wa, bleep has been quiet a bit today thank God.

feel free to ask anything not understood and query me o, as i no be fountain of knowledge, i am fallible too. i could have made some mistakes that i myself need clarification on

the remaining ratios and gist are on their way as tobechukwu and im mama allow!! . in the mean time i think we have enough to chew on.

next ratio.

EPS: aka earnings per share. the "koko" for the growth investor. it is calculated as the name suggests, by dividing the latest quarter or yearly earnings (whichever is most current) by the number of outstanding shares of a company. example, if company A has 1000 outstanding shares and makes N10000 in profit for 2007, the eps is earnings/oustanding shares ie 10000/1000 ie 10.
for EPS the higher the better.

a word of caution on EPS is that it can be manipulated using the accounting laws which are flexible and open to individual interpretation by companies example Enron, need i say more? company A can report earnings on goods sold on credit when payment isnt made yet but is being expected. if for any reason there are defaults in the future, the reported earnings won't hold true.
some companies may have exceptional items and others may not, it goes on and on

having said all that, EPS is still a very useful and important ratio to use but its probably wiser to back it up with other ratios to get a more correct story on the stock. Remember too that it is the denominator we use when calculating PE ratio so we will always need it.

EPS too can be trailing and forward like PE ratio using previous and projected earnings to calculate respectively

Next ratio

P.E ratio- the tell all for a value investor. Calculated by dividing the price of a stock by the earnings per share. the lower it is the better. reason being that it tells you how much u are paying for every naira of a companies earnings. It can be trailing PE where the eps for the last fiscal yr or quarter is calculated (ie past tense) or it can be forward PE calculated by dividing the share price by the projected eps. projections of earnings are done by companies and analysts and unless they are bigboylarry, can be wrong.
Another way of assessing PE ratio is to look at it as the time it would take u to recoop ur investment. so if company A has a PE ratio of 10, technically speaking, it would take u 10yrs to recoop ur investment. u see why the smaller the PE is the better?

companies with high PE and high share price- investors may be willing to pay for the future of a company with a high PE ratio if they feel it has potential. example, in the dot com era of the nyse, u had companies with no proven track record of earnings but who were thoughtto be the next big thing with the sky being their limit and investors threw cash at the stocks causing their share prices to rise but with the denominator ie eps being low, the PE ratios for these companies were astonomically high and as they were unable to live up to the earning expectations of the market u know the rest of the story.

so for pe ratio, the lower the better. buying companies with pe ratios that are high is riskier than buying companies with low pe ratios.
Always remember to compare only companies in the same sector when comparing and evaluating stocks.

A small note on dividend yield i ommitted in my earlier post is that if the dividend as i said remains relatively stable at for example N1 per share and the price increases, as i explained the dividend yield drops and that may help to identify stocks that are or becoming overvalued at that price

@bigjay01

u are a fast learner bro. u are absolutely right. a ratio of 0.5:1 is the worst case scenario i would be comfortable with but different people have different risk appetites.

@gudchoice

as i am writing this i just finished seeing a patient with a chest infection, sorted him out. it doesn't take that long really. i wrote the post u quoted before i left home this am and thanks to u and nairaland wifey dey vex for me now say i dey chat online when i suppose dey prepare for work. the price i pay i guess, will make it up to her when i get home.

as i said, its sunday and my in-patients have been sorted out so i am not skiving so to say .

Ur views and comments are and will always be appreciated man. Lets thank God our minds are intact and we can think to invest, u wouldn't believe what a blessing it is if u've seen what i've seen working as a psychiatrist my brother. The lord is to be praised o!!

A book worth owning is A neat little guide to stock market investing by Jason Kelly, it has a lot of the info u need really but i will continue to try to give my digested thoughts on what he and others have so beautifully written

Oh, just to say that growth investors search for their "players" using earnings, that is, raw earnings and EPS (earnings per share). A groeth company is said to have earnings momentum whaen it increases earnings yr on yr or quarter or quarter.

to the Ratios now:

1.Current ratio:
Calculated by dividing the current assets of a company by its current liabilities. the word "current" isnt used in its everyday parlance here. Current assets refer to the assets of a company that can be immediately converted to cash eg accounts receivable, inventories, raw cash itself of course, etc.
Current liabilities refer to a companies debts that are required to be paid usually within one year, eg accounts payable.
Current ratio measures a companies ability to keep short term commitments. U want the ratio of current assets:current liabilities to be anything from 0.5:1,1:1,2:1, etc, as long as the current assets are more than or equal to the current liabilities side (at least no less than 0.5 preferably)

2. Dividend yield:
a favorite for nigerians is dividends but more importantly, dividend yield is more helpful. It is calculated by dividing the annual dividend a company pays out to share holders by the price of the share. example company A. it pays its shareholders a total dividend (adding all the dividend they paid per quarter together) of N1 and its share price is N20. its dividend yield is 1/20=.05, .05*100=5%.
U will notice that there are only 2 parameters used in calculating dividend yield, dividend and share price. Annual dividend for most companies remains relatively stable with little variation yr to yr. the price of the share on the other hand, changes daily, so if for example the share price of company A goes up to N40, the dividend yield becomes 2.5%. this ratio is best used for large cap companies and can help u choose btw them

got to run for now, patients to see. will continue as time allows

by the way, before i go on i would like to thank the wrters peter lynch, Jason kelly, warren buffet, benjamin graham et al for their great books on investing.

WARNING: THE MARKET WARNS THAT LEARNING THESE AND OTHERS LIKE THESE IS LIABLE TO MAKE YOU WEALTHY

Here is a small instalment of the "tutorial" i spoke of late last year for my fellow nairalanders. I'm only able to do this cuz i'm on call and it's not so busy being sunday plus of course wifey & my son arent here!! .

here goes nothing.

How to evaluate a stock:

Before we go into the ratios to observe, let me just first say a few words on growth and value investing. First lets be clear, they are not mutually exclusive and ideally should be combined in the individual investors portfolio.
Growth investing is when u buy a stock whose earnings are high and forecasted to get higher. As a result of the current high earnings and the markets expectations, the prices of growth stocks are likely to be high. allow me to use football as an example as i'm sure we have many premiership fans here. Growth investing is like buying the finished product like Chelsea football club did when abrahamovich went and bought players who are already stars (mercenaries). When u buy the ready made product u expect it to perform week in week out or in our case, fiscal year to fiscal year. these players are expensive but will probably deliver most times. the same way growth stocks are solid and experienced and will deliver 8 times out of 10. they may therefore be expensive.
Value investing is like what that yeye manager at Arsenal football club does by coming to Africa and other 3rd world countries to search for young, largely untested players who he hopes will go on to become world stars like the players in Man united . ASSENE (notice i intentionally spelt his first name wrong ) searches ivory coast, togo etc for players he hopes will develop to world beaters. The same way value investors search for companies that are really yet to attain their potential or are only in the very early stages of doing so. He uses the price/earnings ratio most for this search amongst other ratios. example. If i may be so bold, when easi or pumping say company X is expensive for example, they can only be talking in terms of the companies earnings and performance. The current price of Company X's share on the NSE divided by the earnings per share (will talk on EPS a little later) gives the P/E ratio, the king of ratios for value investors.

An individual investor in my humble but certain opinion would do well to combine both growth and value investing strategies in his portfolio, with value strategies carrying the largest chunk, probably in a 70:30 or 65:35 percentage.

Now to the ratios used in fundamental analysis of a stock

@Gudchoice

please understand
i have asked people which stock they think i can invest in from time to time when i am unable to sit down and do some checking myself for any number of reasons. If they do oblige (and most times they do , cuz i ask nicely ) i then take the suggestion and find time to build the story around the stock before throwing my hard earned dosh at it, if i concur. there are too many companies on the NSE for anone to be an expert on them all but then thats why we have this thread and guys like wanajo, fof2,pumping,easi,yodi windy, etc

catch my drift

@Gudchoice

to reply ur post and answer ur "how to", and "how do we know", i have a question too, "how do the more experienced investors aka gurus know as well? do u know?
i think i have a rough idea of the answer to that question and it is that they learned, and learned and applied and learned some more.
Fellas have blessed us all with their knowledge on this thread but it didn't just fall on them as i'm sure u know.
The info and insights have as someone said earlier just made the learning curve of anyone interested in learning less steep but shouldn't take the place of individual learning.
As u must have read in my post i said the expertise being shared here has been excellent, selfless educative and quite supportive. Some of the questions u asked on ur post about stocks are learnable(if there's such a word). its the technical stuff of uploading, tech indexes, software manipulation tha have enriched the whole process as an add on and doesn't and shouldn't replace the study and learning.

here are some more important questions i think would further help the learning of the game for people who are still learning:

How do i evaluate a stock pls anyone?
ho do i read and understand a companies financial report to get the gist in my evaluation?
how do calculate p/e ratio, eps,cash flow per share, dividend yield,current ratio,rsi,macd etc
how do u know when a stock is under or overvalued?
how do i handle my relationship with broker X?
what types of brokers are there
what is all share index?
please explain bid, offer system anyone?

all of these questions have been asked and answered in the early and mid parts of this great thread for peple willing to learn and i'm sure its helped fellas not only learn but feel more confident in themselves to make their own investment decisions.
Many of us don't even know we have to have an investment plan preferably before we begin to invest and just go with the latest hot pick on the current page being discussed.
there is a wealth of knowledge already divulged and still waiting to be divulged on this thread but we won't get it if we don't ask for it by asking questions to enrich our arsenal(did i just add that useless team's name in my post)       (MAN. U 4 LIFE!!, CHAMPIONS BABY)

The learning continues. happy investing

it has been so interesting reading the threads for the last 2-3 weeks, really eye opening and very scary!
i for one am really worried that the ethos behind beginning to invest in the first place is being played down and lost, to be replaced by discipleship, (bordering on sychophancy). I thought we were trying to bring heads together to teach each other how to fish. its alright if you ask questions cuz thats the only way u learn but some the questions are downright scary, like which stocks would you recommend for tomorrow, or next week or the next 4 weeks etc.
fellas, any investment takes time to develop and grow. for individual investors who have limited funds (i'm sure very few people on this thread are billionaires), the best approach is still to choose good companies to invest in. if u make an investment and then cant sleep at night becausse ur broker couldnt sell on friday nko? Blood pressure tablets, here i come time be dat o!!. How many of the new brothers and sisters on this forum have even learnt how exactly their brothers and sisters who have been investing for long in the NSE evaluate a stock?
to think that some fellas even get upset when people who have taken time to look at a stock and analyse it post their thoughts and for whatever reason, it doesn't pan out. thtas the imperfection of the market.

Lets get the foundation right first brothers and then the rest will follow.

A lot of fellas here have learnt including me and we're all still learning. many folks have joined with their great expertise and moved us all to a new level in many ways. but never exchange learning for spoon feeding, don't do it cuz its never worth it. it will end up being the case that "i've taught u everything u know but i've not taught u everything i know".

its hard and time consuming yes but its not impossible as this forum proves.

keep up the good work guys. hopefully i'l be back in full force in a few weeks but i always cherish ur insights and ideas.

heads up pumping, easi, wanajo, windy, yodi, fof2,olulufemi,naijadr, temmie10 et al.

@samstone

first bank are really unlikely to return any interest on their much delayed and drawn out P.O in my opinion for the reason that it would set an uncomfortable precedence for other companies in the NSE to live up to, something they really can't do. plus there hasn't been any precedence of this before in ANY market that i know of.

what needs to happen is for the SEC to reign in these companies and get them to sign some sort of code of conduct of carrying out P.Os. people's hard earned funds shouldn't be tied up for so long and then be returned without them getting the shares they paid for.

sooner or later, this has to be looked at. Unfortunately(and i hate to say this), our lawmakers are not informed or savvy enough it seems to make these changes effectual. they make pronouncements they can't effect (like commanding MTN to immediately stop selling SIM card when the law clearly states that the regulation of the telecomms sector lies soleley with the NCC

something has gotta give soon, investors can't keep getting punished like this.
and about the goodwill thing u mentioned, don't think the companies really care that much cuz there's noone to make them care really.People will grumble, yes, but then it will only get swept away and its business as usual.  Eventually some sort of class action may be the eventual way to go.

@samstone4

i may have missed something, but how will IGI going public (if they do) make u any money? are u hoping to buy more from the P.O at a susidized price or are u hoping for a post TS bull run?

@samstone

hey. happy new year.

got the heads up on IGI from sources at proshareng.com. i elieve it to be a credible source. as i said earlier, a good number of the insurance companies will be making forays into the primary market this year. for many, it just seems like they think they have to (kinda like keeping up with the joneses). especially with the supposed return of their recapitalization dosh from the CBN announced late last yr.

for a lot of them i suppose the just can't get enough of OPM (OTHER PEOPLE'S MONEY). but then again, i can't really blame them especially as hte banks have been occupying something of a monopoly in the primary market, the ins coys feel their time has finally come with the recap process in their sector and are hoping it does for them what the same process has done to the banking sector, making them the new darlings of the investors in '08

@diva4eva

if i may, the simple answer to ur question is NO. Only time will tell

anyone who knows the answer to that question would probably keep his own counsel and make his millions quietly.

the thing to do is buy good companies and wait for the market to realise what u found out in ur research. the market is not perfect and neither is it usually quick.but then that's why patience is a virtue well worth seeking, especially in the stock market (and more so in the NSE for that matter)

@kpineo

about ur comment on Mbenefit, not to worry, as long as u met ur exit point when u sold it( from ur tears, i'm guessing u didn't).

things like that will happen to the best of us and its really about ur plan at the time u bought the shares.

not to worry, the opportunities will come round again in some other form. at that time, remember, set an exit price suitable for u and close ur eyes thereafter should there be any price appreciation once u've sold.

like any thing else in life as i'm sure u're aware, investing is a plan, not a product(eg shares, bonds, real estate, etc) or procedure(eg day trading, puts, fundamental or technical analysis). it is a plan to get u from where u are now to where u want to be and once u have the plan u've done the hardest part.

all the best man

@kpineo

IGI may come out in january, Aiico as u know are currently doing a P.O, crusader have mentioned their intentions.

its quite feasible that just like the banks, once the bar is raised by the above companies et al, others will join the parade

happy new year everyone

wish eveyone a great new year.

on insurance shares, it would be prudent to take ur positions now if u'all haven't already but remember that a few of them will be coming to the market this year so if u're not the type that likes ur cas tied up get in and out quickly(IF THERE'S SUCH A THING) to avoid TS.

on oceanic, i think it will do well especially in the mid to later part of the year, once the share listing palaver is done and dusted.

my money is on Nig-german to go strong as well

thanks barge, hope u are well. hope malaga is warmer than our weather here
happy new year

p.s, is the market open today anyone

heads up people.

here's wishing all the house a god-filled new year.

it's been interesting reading so far, keep up the good work and remember, there are only 2 kinds of money problems in the world, the problem of not enough money and that of too much money. the question we all have to answer is, which problem would we rather have?

think about it and decide.

will continue reading to learn more.

by the way, a big welcome to all the new fellas on this thread.

@windywendy
tamilore says thank you for the "baby of the forum" honor.
i am becoming "nappy changer" of the year, i get to do all the cleaning up since i don't have mammary glands to feed him. he is such a beautiful boy, but then wetin i for talk before  

here's wishing everyone of the guys on this thread a happy happy christmas and a prosperous, rewarding new year from the topgun family.

p.s i haven't forgotten the tutorial for our new members. some of it is ready and will post it soon (tried unsuccessfully once already)

@roughcut
i get it

fellas cycling in and out.

i'll be watching

@roughcut

i got it man. don't know if this is the case with cutix but with the kind of volume of shares we're dealing with its no wonder individuals can do it.
will just watch them and not bother with the daily gyrations. the company is fundamentally sound.

if i remember correctly, FCMB's fluctuations have been touched on previously and it's been said that these may be temporary. then again, wanajo did make the point about the new belief kicking in amongst us investors about ther always being a bull run post TS but as a student of history that he is, he rightly pointed out that this is a recent and probably unsustainable pattern.

FCMB is still a good company anyway so even if there isn't a post TS it will stii appreciate. as a friend of mine on this forum addresses himself, no shaking.

@roughcut
yarn me bros, what does technical analysis on cutix say

cutix in a bit of a free fall for now. yr end is dec 31st. lets wait and see. still a good company overall but unfortunately quite illiquid.

@roughcut, lets hope they can be co-owners (my son of course having the larger of the majority holding      )
if i am to go by the way the kid eats then he's going to need a lot of income streams to keep up with his appetite.
i am going to soon start reading the book "one up on wall street" to him as bedtime story      .
winnie the pooh ko winnnie the pooh ni!!

@ollolufemi
market is still open. wait a while and we'll see

by the way, i placed a buy order for a small amount of the zenith P.O (don't want my dosh returned) for my new son
so u and Jim better deliver

@texas543

i meant to write," i couldn't write all the names of the people i appreciate"

sure u know i appreciate u and everyone else on the forum.

on a quick note (before i am thrown out to sleep on the couch)


i am not sure what the anxieties are about share reconstruction for intercontinental (assuming its true that is).
it is not necessarily a negative thing at all. it depends on the way and manner in which its done and the details of it
bottom line is that ur investment is protected really. its even better if it involves a share buy back by the bank, decreasing outstanding shares.
we don't know for certain yet what the details are in full but it shouldnt cause anxieties.

back to baby duties.

will be watching as much as i can (madam willing).

@ windywendy

i holla girl!!
u know that's not what i meant. i appreciate all the prayers and thoughts, honest i do.

in between nappy changes and the likes, i just could only post all the names of the people i admire and appreciate.

to the whole forum

i holla!