Value Diary

SURVEY AND APPROACH

Chapter 1) Scope and Limitation of Security Valuation -  Concept of Intrinsic Value

Scientific Method- Analysis connotes the careful study of available facts with the attempt to draw conclusions therefrom based on established principles and sound logic.

Important factor in determining success or failure are chance and art.

Three functions of analysis:

(1) Descriptive Function

(2) Selective Function

(3) Critical Function

Every stock has a intrinsic value(IV) that is different from its market value. It is a challenge to find the intrinsic value, but it can be estimated within certain ranges.

Obstacles to successful analysis:

1. Inadequate or Incorrect Data
2. Uncertainties of the Future
3. Irrational Market Behaviour

Chapter 2) Fundamental Elements in the Problems of Analysis – Quantitative and Qualitative

Four factors that an analyst should consider before making an investment or an investment decision:

a)      The Security

b)      The Price

c)       The Time

d)      The Person

It’s better to invest in an unattractive security with an attractive company than an attractive security with an unattractive company.

Investment Analysis can be divided into two headings:

(1)    Quantitative Factors – Companies’ statistical exhibits

a)      Capitalization

b)      Earnings and dividends

c)       Assets and liabilities

d)      Operating statistics

(2)    Qualitative Factors, on the other hand, deal with such matters as:

a)      the nature of the business,

b)      the relative position of the individual company in the industry

c)       its physical, geographical and operating characteristics

d)      the character of the management

e)      outlook for the unit, for the industry, and for business in general

In the mathematical phrase, a satisfactory statistical exhibit is a necessary though by no means a sufficient condition for a favorable decision by the analyst.

Chapter 3) Sources of Information

An analyst seeks data regarding

(1) the terms of the specific issue

(2) the company

(3) the industry

Data on the company:

(1) Reports to stockholders – monthly statements, quarterly statements, semiannual reports, annual reports, the income account, the balance sheet

(2) Periodic Reports to the Public Agencies

(3) Listing Applications

(4) Registration Statements and Prospectus

(5) Miscellaneous Official Reports

(6) Statistical and Financial Publications

(7) Request for direct information from the company

Chapter 4) Investment vs. Speculation

The below mentioned differences have been discussed in the chapter:

Investment	Speculation
(1)    In Bonds (2)    Outright Purchases (3)    For Permanent Holding (4)    For Income (5)    In safe securities	(1)    In stocks (2)    Purchases on Margin (3)    For a “quick turn” (4)    For  Profit (5)    In Risky Issues

5) Classification of Securities

Securities are generally divided into two different classes – bonds and stocks (stocks in turn are again divided into preferred stock and common stock)

But there are the following objections to the above classification:

a)      Preferred Stock grouped with common

b)      Bond form identified with safety – Safety depends upon and is measured entirely by the ability of the debtor corporation to meet its obligations.

c)       Failure of titles to describe issues with accuracy-numerous deviations from the standard pattern – income bonds, convertible bonds and preferred stocks with preferential features, nonvoting common stock, option and callable features.

New classification suggested:

Class	Representative Issue
(1)    Secrities of the Fixed Value type (2)    Senior Securities of the variable value type (A)    Well protected issue with profit possibilities (B)   Inadequately protected issue (3)    Common stock type	(1)    A High Grade bond or preferred stock (2) (A) A high grade convertible bond (B)       A lower grade bond or preferred stock (3)    A common stock