So far, my investment strategy is still based on the dividend yield. Therefore, how I value a stock is depends on how much the dividend yield or annual return I can get from the dividend. Basically, I try to maintain the annual return at above 5%, which is higher than the normal fixed deposit rate in the bank that is about 3.8% as the highest I know.
In fact, I am targeting to achieve 10% annual return. However, it’s hard to achieve unless I can dig out every single stock to check one by one. Because, whenever there is such high return, the price will eventually goes up.
So, this is how I calculate my buy-in price:
Price = History annual dividend/10%
The stocks I found were always lower than 10%. And I know, since there is always the wave in the market (up and down trend), the price always fluctuate. Hence, what I can do is just buy and keep, accumulate when the price went down, and average down the price to slowly achieve 10%. This is my long term strategy.
Base on NTA
Another way I value a stock is base on the Net Tangible Asset, or Net Asset per Share. This can be found in the financial report. As what I can observe, normally those stocks with the price lower than the NTA are unpopular, which mean not active in the market. Therefore, less fluctuation, hence less risk.
However, less active means less people will trade. Therefore, it’s quite difficult to buy this kind of stock in the market, and it’s quite difficult to sell it too. Hence, buying such stock should always be along with a long term plan in financial. Because, in anytime, your money will be frozen in that stock and can’t be sold out like anytime you want. Hence, only buy stock with the extra money that will not be unused in long term.
I’m certain there are many other ways to determine the stock price, as what I have learn from my financial course. Such as Free Cash Flow, discounting method, and what else? It really depends on portfolio. So far, I don’t have much modal. And what I use is the money that I earn extra and unused. I’m ready to put it in the market, without worrying any fluctuation, but receiving dividend as like auto-income every year.