Fundamental analysis

Chapter 7: Prospective Analysis: Valuation Theory and Concepts Copyright (c) 2008 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Chapter 7: Prospective Analysis: Valuation Theory and Concepts Palepu & Healy Key Concepts in Chapter 7 • Forecasts (Ch. 6) are converted into estimates of value. • Discounted future dividends, cash flows, and abnormal earnings may be used to estimate value

Introduction There is a fierce debate on whether stock market is efficient all these years. Some people advocated Fama’s research in 1960s, and they believe that the Efficient Markets Hypothesis has been well established. However, others do not agree with. They found some evidence to prove market inefficient by empirical researches. This essay mainly focuses on the Efficient Markets Hypothesis, and there are six parts to discuss. Firstly, it will compare the random walk theory and the weak-form of

end up becoming well known for being a founder and developer of fundamental analysis and for using a using a system which ultimately measured a company’s intrinsic value to determine what the company’s stock price should be. Williams attended Harvard as an undergraduate and studied chemistry and mathematics. Williams went on to graduate in 1923 and proceeded to attend the Harvard Business School, where he first dove into security analysis as well as economic forecasting. Williams first job was as a

psychology. After three weeks’ simulation of trading on Australian Stock Exchange, in retrospect, I amazingly find there are substantial bias impacts on my decision with respect to choosing, selling and keeping stocks. The following table lists the most fundamental heuristic or bias I had during the time I made decisions for stocks: Table 1: Decision Heuristic/Bias Heuristic/Bias Buying Holding Selling Regression to the Mean +/- + - Gambler’s Fallacy + + 0 Confirmation Bias 0 + + Efficient Market Hypothesis

Dimensional Fund Advisors Case 1. Describe the investment strategy employed by DFA. Does DFA consider itself an active or passive manager? What aspects of its strategy are active? What aspects are passive? DFA’s investment strategy was centered on academic research, specifically on the findings of Banz’ “size effect” and Fama and French’s “book-to-market effect.” In Banz’ research, he found that small stocks consistently outperformed large stocks over the entire history of the stock market from

knowledge is illegal because it makes outsiders feel cheated (Brigham and Houston 2009). Investments analysts who want to determine the intrinsic worth of shares based on underlining information undertake fundamental analysis, which according to Pike and Neal (2009,p.36) “is the analysis of the fundamental determinants of company

has experienced that there is high volatility in their earnings due to their single product offering and hence would like to integrate the production of fabrics by installing air jet looms at a cost of Rs 150 mn. CORPORATE GOVERNANCE: CRISIL’S fundamental grading methodology includes studying of corporate governance along with other key factors and states the following points: 1. The board has eight directors of whom 4 are independent thus meeting the Government requirements. 2. The company’s

Case One: Warren Buffett From Warren Buffett’s perspective, what is intrinsic value? Buffett defines intrinsic value as “the present value of future expected performance” or “”the cash that can be taken out of a business during its remaining life” (Bruner 2010). It is a subjective value based on the analysts’ estimates of future cash flows and interest rates. Why is it accorded such importance? It identifies mispriced shares and whether or not “an investor is indeed buying something for what

I. Executive Summary The purpose of this report is to evaluate the stock price of Wal-Mart Stores Inc. (which ticker symbol in NYSE is WMT) by fundamental analysis. According to this analysis, I recommend that Wal-Mart is worth to invest in the long term because of the potential growth of market shares and revenue. Besides, based on P/E method and Gordon model, WMT price is undervalued; therefore, if investors buy the stock, they will get benefit not only in capital gain but also in dividend cash

Miller is an adherent of fundamental analysis, an approach to equity investing he had gleaned from a number of sources. Miller’s approach was research-intensive and highly concentrated. Nearly 50% of Value Trust’s assets were invested in just 10 large-capitalization companies. While most