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Stock Analysis: Technical and Fundamental Analysis. By Jiroj Buranasiri, CFA. I. Technical analysis II. Fundamental analysis. I. Technical analysis: outline. A. What is it about? B. Analysis C. Sources of information E. For further study. A. What is it about?. - PowerPoint PPT Presentation
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Stock Analysis: Technical and Fundamental Analysis
By
Jiroj Buranasiri, CFA
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I. Technical analysis
II. Fundamental analysis
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I. Technical analysis: outline
A. What is it about?
B. Analysis
C. Sources of information
E. For further study
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A. What is it about?
Technical analysis focuses on demand & supply by studying the movement of price and volume.
Its objective is to find market trend and how long the trend will continue to make investment decision – Buy, Hold, or Sell.
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A. What is it about?
Trends: up-trend, down-trend, or sideway (sideway-up, sideway-down)
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B. Analysis
Graphs: Bar
Line
Candle
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B. Analysis
Graphs: bar, line, candle Techniques:
Moving Average (MA) Exponential Moving Average (EMA) Moving Average Convergence/Divergence
(MACD) Money Flow Index (MFI) Rate of Change (ROC)
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B. Analysis
Techniques: Relative Strength Index (RSI) Stochastic Volume Volume +MA William % R Parabolic Bollinger bands
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B. Analysis
Techniques Fibonacci Dow theory Elliot wave
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Remarks
Price moves in trend. History repeats itself. Volume normally goes with trend. Volume typically leads price during bull
move. Rising price with falling volume is abnormal.
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C. Sources of information Efinancethai, Reuters, Bloomberg, Etc.
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C. For further study Book
Technical Analysis: The Complete Resource for Financial Market Technicians by Charles D. Kirkpatrick and Julie R. Dahlquist, FT Press,
The Investor's Guide to Technical Analysis by Curt Renz and Curt Renz, McGraw-Hill,
Etc. Website: http://finance.yahoo.com,
http://stockcharts.com
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II. Fundamental analysis: outline
A. What is it about?
B. Analysis
C. Sources of information
D. For further study
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A. What is it about?
Finding fair value of stocks. Objective is to check if market price is
cheap, fair, expensive for investment – Buy, Hold, or Sell or to explain the change of market price.
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B. Analysis: stock valuation process
1. Understand firm and stock’s nature
2. Forecast
3. Choose valuation method
4. Make decision
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1.Understand firm and its stock’s nature
From company itself Financial statements, IR
From other sources Research paper, Firm’s competitors Etc.
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2. Forecast Make assumptions Information, information, information
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Information’s issues What information is relevant? News
concerning risk and return When will it come out?
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Getting start (use consolidated)
Restate statements and work from restated statements.
Analyze relevant data and forecast: revenue break-down, cost break-down
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Analysis:
Top down Bottom up Top down and bottom up
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Top down / Bottom up Top down:
Economy -> industry -> firm -> stock Globalization – impact.
Bottom up Firm -> industry -> economy
Top down and bottom up: Economy <-> industry <-> firm <-> stock
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Economy Economic variables: GDP growth rate,
unemployment rate, etc. Economic life cycle: changing Domestic & international: globalization
impact
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Industry Porter’s 5 forces Boston matrix: star, dog, cash cow,
question mark Change in external factors: social,
regulations, consumer’s taste, etc. Industry life cycle: sun-rise, sun-set
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Company Management quality Accounting – clean, dirty Business nature - income, cost, margin’s
volatility, key success factors, position, strength, weakness etc.
Financing Growth opportunity
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Company
Dream & do
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Remarks
If the success (failure) is consistent or temporary.
Past success doesn’t guarantee future success.
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Understand the stock’s nature Major investors Sensitive to foreign fund flows Defensive or cyclical Etc.
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3. Choose valuation methods Choosing criteria:
Characteristics of firm Data: availability, quality
Valuation methods Discount cash flows Price multiples
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Discount cash flows Discount rate
CAPM, APT
Cash flows Dividends, Free cash flow for firm (FCFF), Free
cash flow for equity (FCFE), Residual income (RI)
Growth rate = ROE x b
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Price multiples Price Multiples
Link to competitors, industry, past Link to company’s fundamentals – discount cash
flows
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Price multiples: PE multiple Trialing PE (Current PE)
Po/E1 = (D1/E1)/(r-g) = (1-b)/(r-g)
Leading PE (Forward PE or Prospect PE)Po/Eo = {[Do(1+g)]/Eo)}/(r-g) = [(1-b)(1+g)]/(r-g)
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Price multiples: PBV multiple Book Value is unlikely to be negative. Compared to earnings, book Value is less
manipulated. PBV = (ROE-g)/(r-g)
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Price multiples: P adj BV multiple Adjusted BV = BV – (NPV – Acc. Provision)
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Price multiples: PS multiple No negative sales Sales is less likely to be manipulated.
Po/So =(Eo/So)(1-b)(1+g)/(r-g)
But sales might not mean profit. (No information on cost structure)
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Price multiples: PCF Cash flow
EPS + non-cash charge CFO FCFE EBITDA
Less manipulation
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4. Make decision Buy (undervalued, buy, trading buy, strong
buy) Sell Hold
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Some technical terms in fundamental analysis ARPU GRM Baglog BDI NIM L/D ratio CAR CASA CAPEX OPEX P&L B.E.1.1
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C. Sources of information
Anything affecting company’s earnings(growth, volatility)
Newspaper: local (Bangkok Post, The Nation, Bangkokbiznews, etc.) and international (The New York Times, Financial times, etc.)
Internet: www.settrade.com, www.set.or.th, www.sec.or.th, www.bot.or.th, www.nesdb.go.th, www.worldbank.org, www.imf.org, http://www.efinancethai.net, etc.
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C. Sources of information
Reuter, Bloomberg, Setsmarts, E-financethai Analyst meeting, opportunity day Company presentation
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For novice What data?
To under stand a company’s nature, start with 56-1 form, company’s
presentation, investment analysis paper, opportunity day meeting and
company’s annual report Where to find? When it will be release?
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Financial data (SEC, SET) Why SEC, SET?
To be fair to public, companies should not provide financial data to a particular investor (or group) before public.
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SEC_ financial statements
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SET_ latest news
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Opportunity day_ meet company’s management team
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Company’s presentation From company’s website.
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Investment research paper
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Where to find research paper? Brokers
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Where to find research paper? Free?
•Free?
•Free?
•Free? •Free?
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For further study Books:
Security analysis, Benjamin Graham and David L. Dodd, McGraw-Hill,
The intelligent investor, Benjamin Graham, HarperCollins Publishers,
Analysis of equity investments: valuation, John D. Stowe, Thomas R. Robison, Dennis W. McLeavey, Association for Investment and Research, etc.
Research paper Websites:
www.tsi-thailand.org, www.ft.com, etc.
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Q & A
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Thank you