Security analysis is the analysis of tradeable financial instruments. For our purposes we will restrict ourselves to the analysis of the financial health of companies in order to buy or sell their shares in the stock market.
You can apply the principles of "security analysis" as spelled out by Ben Graham and some of his followers (Warren Buffett and Charlie Munger for example).
That's the goal of this project. We will do the analysis by following the recipe in Ben Graham's book "The intelligent investor" of some companies that can be traded in the Peruvian stock market.
We will show a simple table with the following information:
Company, Value per share, Price per share, Margin of safety
Note that value and price are not the same thing. For value, we understand that amount that reflects how much the company is worth, taking into account assets, liabilities and income. For price, we understand that it is what the stock market says that this company is worth.
We know that most of the time price and value are roughly the same. However, sometimes the market over estimates ridiculously high prices (during bull markets) and even ridiculously low prices (during bear markets).
We hope that by having a list of companies and the value next to the current price we can take advantage of the miscalculations in value of the stock market. A time of global economical crisis is a time of opportunities.
- Panic of 1901, a U.S. economic recession that started a fight for financial control of the Northern Pacific Railway
- Panic of 1907, a U.S. economic recession with bank failures
- Depression of 1920-21, a U.S. economic recession following the end of WW1
- Wall Street Crash of 1929 and Great Depression (1929–1939) the worst depression of modern history
- 1970s energy crisis
- OPEC oil price shock(1973)
- Secondary banking crisis of 1973–1975 in the UK
- Early 1980s Recession
- Chilean crisis of 1982
- Japanese asset price bubble (1986–2003)
- Bank stock crisis (Israel 1983)
- Black Monday (1987)
- Savings and loan crisis of the 1980s and 1990s in the U.S.
- Early 1990s Recession
- 1991 India economic crisis
- Finnish banking crisis (1990s)
- Swedish banking crisis (1990s)
- 1994 economic crisis in Mexico
- 1997 Asian financial crisis
- 1998 Russian financial crisis
- Argentine economic crisis (1999–2002)
- Early 2000s: Dot-com bubble
- Late-2000s Financial Crisis or the Late-2000s recession, including:
- 2000s energy crisis
- United States housing bubble and United States housing market correction
- 2008–2012 Icelandic financial crisis
- 2008–2010 Irish banking crisis
- Russian financial crisis of 2008–2009
- Automotive industry crisis of 2008–2010
- European sovereign debt crisis
- Greek government-debt crisis
- 2014 Russian financial crisis
- 2015 Chinese stock market crash
[Source: Wikipedia]
During a crisis some effects are remarkable: the stock markets around the world crash and some good companies get hit in the stock prices and become very cheap, almost as peanuts.
While people lose their shirts during this periods (bear markets), this is actually the time to invest and pour money in stocks. As Warren Buffett once said: "This is the time to become rich".
How do I know that the share price is cheap because of investors fear and not because this is a lousy company. To answer these questions one might have to evaluate each company to estimate its value and after a comparison with the price (number of shares multiplied by share price) one might recognize good investment opportunities.
For each company:
- Estimate its proxy value by analyzing available public data
- Calculate its market value by multiplying the total amount of shares times share price
- Make the buying decision based on the comparison of proxy and market values
- Python 3