How to Invest at a Good Price.
Please read the following chapters from the Charlie Tian book Invest like a Guru, and write a ONE-page summary of key points (post the summary here in attachment and also bring to class for discussion). While reading, try to get the key ideas of each chapter using the guide below without being bogged down into details. Don’t forget to exercise critical thinking and build upon/adapt the ideas in the book to formulate a framework/approach that is best fit to our own circumstances and characteristics. You may need to refresh some key financial concepts on your own if rusty.
This summary should include:
- key lessons to take away (in bullet points)
- Use the DCF calculator on Gurufocus.com and calculate the intrinsic value of a fast growth public company you are interested in, modifying the parameters such as growth rate for next 10 years, terminal growth rate, and discount rate using your own assessment based on past trend (you can use Mergent Online from Library databases to check out growth trend of past 5, 10, 15 years) and your judgment of the potential of its business model, e.g. market potential, current saturation, stage in the product life cycle (use what you learned in the Strategy class to understand the company’s business model and competitive advantage)
Here are the chapters to read and the guide on what to focus on:
Ch3 Buy Only Good Companies
- What is a good company
- Why is it easier to invest in good companies?
Ch5 Buy Good Companies at Fair Prices
- Understand DCF as the ultimate theory in valuing a company and the rationale and key assumptions behind it – not necessarily all the math because you can use a DCF calculator e.g. on Gurufocus.com
- Understand the key concept of margin of safety and how to calculate it
- Use Fair P/E ratio as a rough rule of thumb in valuation
Ch9 How to Evaluate Companies
- Understand PE, PEG, and earnings yield as key valuation tools, and can skim through the others
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