Recently Parth asked, “How to learn value investing in a simple way?”
With his permission, I’m sharing this with all fellow value investors.
I am new to investing, in a learning phase, most unfortunate to be in science field. But I am trying to learn the fundamental theme of the value investing. Net profits, EPS, PE, book value, debt equity ratio.
Now what baffles me are the concepts of DCF, FCF, Margin of safety and Intrinsic value.. I have been googling this since months but not able to find something which is easy to understand. Please throw some light on these subjects. And also suggest some books through which I can get it in layman terms.
Thanks in advance.
Since you insist that the resources be simple, I’ll keep the reply simple too. At least, I’ll try. 🙂
Q1. Which is the simplest starting point for all investing?
Basic accounting, without a doubt. You rightly hint at its role, in your mail.
Start with the NCERT textbook series for classes XI and XII. You can begin with this chapter in this simple series of books on accounting
Q2. Which is the simplest resource for linking accounting with investing?
The best resource for a strong understanding of the process is either of these two:
- Prof. Dan Gode’s framework of accounting, finance and valuation
- Prof. Stephen Penman’s framework of accounting, finance and valuation
Are they simple? I find them to be!
But you may not necessarily feel the same, if you’re just starting out. Not a big fan of what’s available on the internet though. So here’s my attempt to make simple some of these concepts and apply to Indian stocks:
Q3. Which is the simplest resource for value investing?
The best books for value investing are without a doubt by Benjamin Graham, Warren Buffett, Charlie Munger and Stephen Penman.
- Here’s a list of perhaps the best books on value investing
Here’s my attempt to make simple some of these concepts:
- How to Calculate Intrinsic Value for an Indian Stock?
- How to Calculate Margin of Safety for an Indian Stock?
- And finally to put them all together: 7 Steps of Value Investing: How To Pick Stocks For Your Portfolio
Five second summary: Check out the links marked as make simple. 🙂
Hope this helps.
Happy Value Investing!
Flickr Creative Commons Image via Dmitry Baranovskiy