Post Category → Investing for Beginners

What is the best way to use the Total Addressable Market (TAM) to value a business?

The Total Addressable Market (TAM) is the total demand for a product or service that a company can go after. It is the estimated revenue opportunity should a company be able to capture 100% market share and sell its offering to every available customer.

The Total Addressable Market (TAM) is the total demand for a product or service that a company can go after. It is the estimated revenue opportunity should a company be able to capture 100% market share and sell its offering to every available customer. TABLE OF CONTENTS: The Total Addressable Market explained. The Total Addressable… Continue reading →

What is the best way to use the Dividend Discount Model (DDM) to value stocks?

The Dividend Discount Model (DDM) is a valuation method that uses Dividends instead of Free Cash Flow to calculate Intrinsic Value. The Intrinsic value of a stock is the sum of all the expected future dividends, discounted back to a present value.

The Dividend Discount Model (DDM) is a valuation method that uses Dividends instead of Free Cash Flow to calculate Intrinsic Value. The Intrinsic value of a stock is the sum of all the expected future dividends, discounted back to a present value. Table of Contents: The Dividend Discount Model explained. The Dividend Discount Model (DDM)… Continue reading →

What is the best way to use the Multiples Valuation approach to value stocks?

Multiples Valuation Analysis is a relative valuation method using financial ratios such as the P/E ratio or the EV/EBITDA ratio. This approach values a company based on specific operating metrics, such as earnings or cash flow. It is also referred to as the market-based approach, as it suggests that similar companies should have comparable valuations based on underlying assets.

Multiples Valuation Analysis is a relative valuation method using financial ratios such as the P/E ratio or the EV/EBITDA ratio. This approach values a company based on specific operating metrics, such as earnings or cash flow. It is also referred to as the market-based approach, as it suggests that similar companies should have comparable valuations… Continue reading →

What is the best way to use the Reverse DCF Model to value stocks?

The Reverse DCF Model is an excellent tool for valuing a stock based on the market’s pricing rather than your own forecast. This model uses the Inversion concept which is a modified version of the Discounted Cash Flow model. By beginning with the current stock price and adjusting the expected growth of the business, we can determine the amount of growth that is factored into the share price.

The Reverse DCF Model is an excellent tool for valuing a stock based on the market’s pricing rather than your own forecast. This model uses the Inversion concept which is a modified version of the Discounted Cash Flow model. By beginning with the current stock price and adjusting the expected growth of the business, we… Continue reading →

What is the best way to use the (DCF) Discounted Cash Flow Model to value a stock?

A Discounted Cash Flow Model is a method used to determine the value of a business by projecting its future cash flow and discounting that value back to the present value. This technique assists investors in making informed decisions about whether the future cash flow is worth investing in at the current market price.

A Discounted Cash Flow Model is a method used to determine the value of a business by projecting its future cash flow and discounting that value back to the present value. This technique assists investors in making informed decisions about whether the future cash flow is worth investing in at the current market price. TABLE… Continue reading →

Using this powerful formula is one of the best ways to estimate your expected returns on stocks.

Estimating expected returns is a crucial aspect of valuation. After using one of the valuation models, I calculate the estimated yearly return by running a simple formula. Expected Returns = Shareholder Yield + Earnings Growth +/- Multiple Expansion or contraction.

In this article, we will be using a powerful formula to determine the expected returns of an investment. I use this formula in combination with my preferred valuation method the reverse DCF model. TABLE OF CONTENTS: Although the formula is easy to apply to past data, it can be quite challenging to create a forward-looking… Continue reading →

One of the main reasons stocks go up is the powerful impact of Multiple Expansion.

Multiple expansion happens when the value of a stock rises faster than the stock's Intrinsic value. Multiple Contraction is the opposite | The Stoic Investors

* When I first started investing, I just didn’t understand the concept behind the Multiple and how it contributed to returns (or losses) for a stock. This is not about the investing strategy you adopt such as buying undervalued companies based on P/E or buying growth companies based on P/S. This is just a simple… Continue reading →

Is learning Financial Modelling one of the most valuable first steps in stock valuation?

Financial Modelling is a process that recreates a hypothetical forecasted scenario of a company’s future operations and financials. Financial modelling uses past data and creates a summary of the company’s likely projected expenses and earnings that can guide investment decisions. Modelling is most used in corporate finance and includes using various models such as the three-statement model, merger model, DCF, Leveraged Buyout Model (LBO), comparable company analysis and the Sum of the parts model.

Financial Modelling is a process that recreates a hypothetical forecasted scenario of a company’s future operations and financials. Financial modelling uses past data and creates a summary of the company’s likely projected expenses and earnings that can guide investment decisions. Modelling is most used in corporate finance and includes using various models such as the… Continue reading →

Mean Reversion is one of the more interesting investing theories you need to understand.

Mean Reversion is a financial theory that suggests that the prices of assets tend to move back to their long-term average or mean level. Price momentum fluctuates around the average mean, overswinging both up and down before eventually returning to the mean. This theory is based on the belief that extreme price movements are not sustainable over long time horizons.

What is Mean Reversion? Mean Reversion is a financial theory that suggests that the prices of assets tend to move back to their long-term average or mean level. Price momentum fluctuates around the average mean, overswinging both up and down before eventually returning to the mean. This theory is based on the belief that extreme… Continue reading →

Using a Margin of Safety can be one of the most practical ways to invest.

Margin of Safety is a term used to describe the difference between the current share price of a stock and its intrinsic value. In other words, it is the discount at which the stock is trading in comparison to its actual worth. The Margin of safety is not necessarily an equation but a guiding philosophy grounded in investment discipline. It invokes logical decision-making, fundamental analysis, a long-term mindset with a focus on risk management.

Margin of Safety is a term used to describe the difference between the current share price of a stock and its intrinsic value. In other words, it is the discount at which the stock is trading in comparison to its actual worth. The Margin of safety is not necessarily an equation but a guiding philosophy… Continue reading →