Hello Friends, in today’s article we see chapter 10 of One up on wall street book. In chapter 10 we see the earning process of investors. let’s see one by one.
Earning, Earning, Earning:-One Up On Wall Street: Chapter 10
You read the before all chapter and you get the idea of investment to make money or say earn money. So to this process, you have to ask some thought to yourself in this earning process. this process as follows: (One Up On Wall Street: Chapter 10)
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Think to ask yourself:
- What makes a company values and also why will it be more valuable tomorrow that is today: At this point, you have to see the company status and ask yourself the value of a company that is whatever is today, it may be changed in the future and which criteria that change in the positive way of company value. If you have a good answer in your thought they buy that company you get the absolute result of that company. (One Up On Wall Street: Chapter 10)
- Earnings and Stock price move together: If some company stock price is more than the earning value then it is the market fluctuations. So long terms Earnings and Stock price is moving together. If earnings go higher or the stock price is low, then don’t worry the stock price follows the earnings price. that’s why Peter Lynch says Earnings and Stock price is moving together. (One Up On Wall Street: Chapter 10)
- About the P/E Ratio: There are so many people who make the decision on the P/E ratio. So if you do also then you have to know there are three types of P/E ratio affect the stock. 1)Overprice stock: If the P/E ratio is maximum then, the stock is overpriced by the crowd of investors. 2)Underprice Stock: If the P/E ratio is minimum then, the stock is underpriced. 3)Fairlypriced: The stock price is medium than that stock is fairly-priced. That’s the common people things on the P/E ratio.
- The author says,” To think about the P/E ratio is like how much time to take the company to recover our investment principle.” if we assume a company on P/E constant means a medium grower company then, 10 to 14 years is required to recover our money. The company is a fast grower then your money is recovered in the 7-9 years, and if the company is a slow grower, then it takes 14-20 years to recover your money. (One Up On Wall Street: Chapter 10)
- Compare P/E ratio with industry and historical data: That you the right value of P/E which is not be followed by a crowd of investors. If you compare the P/E with historical and industry P/E then you the P/E ratio is bargain able or not. so always compare yourself with others.
- Avoid stocks with high P/E: This type of company is followed by the big institutional investor and you have to wait in this situation time. Here our Patience quality is checked. (One Up On Wall Street: Chapter 10)
So Peter Lynch gives 5 ways that increase the earnings of the company. if the company is earning then the stock value is increased. that way as follows
5 ways to increase earnings:
- Reduce cost: If you want to increase earnings of your stock then, check the company expending in which area that can be reduced by any reason, if the company is doing, then your price earning is increased. So check to reduce cost.
- Raise Prices: If a company is increasing the price of the product, then they are directly proportional to the earnings. So check for the product price and also see the price of the limit of the product can be increased. (One Up On Wall Street: Chapter 10)
- Sell more product in the existing market: Check for the company sales rate, if the company is doing great sales and sell more product then it’s ok for the earnings purpose.
- Expand into the new market: If a company is moving and expand the whole over the country and globe then the price of earning is increasing because the company gets more sales and sells the product. So check for this purpose also. (One Up On Wall Street: Chapter 10)
- Close or dispose of a losing operation: Check for the unworkable machine, or the department and this company is tried and close all of his department then the price of earnings is increases.
This is all about the 5 ways of earning in the company, and also chapter 10 of one up on wall street book.
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