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How to Value & Pick Shares · She's On The Money

0:00
Speaker 1: Hello.
0:01
Speaker 2: My name's Santasha Nabananga Bamblet. I'm a proud yr the
0:05
Speaker 2: Order Kerni Whalbury and a waddery woman. And before we
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Speaker 2: get started on She's on the Money podcast, I would
0:11
Speaker 2: like to acknowledge the traditional custodians of the land of
0:14
Speaker 2: which this podcast is recorded on a wondery country, acknowledging
0:18
Speaker 2: the elders, the ancestors and the next generation coming through
0:23
Speaker 2: as this podcast is about connecting, empowering, knowledge sharing and
0:27
Speaker 2: the storytelling of you to make a difference for today
0:31
Speaker 2: and lasting impact for tomorrow.
0:33
Speaker 1: Let's get into it.
0:34
Speaker 3: She's on the Money, She's on the Money.
0:57
Speaker 4: Hello, and welcome to Money, the Podcast for millennials who
1:01
Speaker 4: want financial freedom. My name is Georgia King, and joining
1:05
Speaker 4: me as she does each and every week, is Victoria
1:08
Speaker 4: Divine V.
1:09
Speaker 1: How are we you, lucky duck? I am so good because,
1:12
Speaker 1: to be really honest, we are recording two episodes this week.
1:16
Speaker 1: We just did one, we had a lunch break and
1:18
Speaker 1: now we're doing this one, which I'm really excited about.
1:20
Speaker 1: But I'm really good because we just had a like
1:23
Speaker 1: panco crusted egg plant barn me mouth ordering. If you've
1:28
Speaker 1: never had that you're missing out.
1:30
Speaker 4: You are missing out, So we're feeling energized, is what
1:32
Speaker 4: we're challenging.
1:33
Speaker 1: We are so ready to talk about shares and EBIT
1:36
Speaker 1: ratings and what a PE ratio is. But let's go
1:39
Speaker 1: back to the investment series that we did a couple
1:41
Speaker 1: of months ago. Was ages ago. I feel like it
1:43
Speaker 1: was only two months ago, but I feel like it
1:45
Speaker 1: would have been like six months ago. But in saying that,
1:46
Speaker 1: we do lots of investing contents, so I'm not surprised
1:49
Speaker 1: that I'm confused. But we looked at the difference between
1:51
Speaker 1: different types of investing platforms, and I feel like that
1:54
Speaker 1: would be a really good precursor to today. Right, So if
1:57
Speaker 1: you haven't listened to that episode, I would recommend going
1:59
Speaker 1: back and having a listen to that because I feel
2:01
Speaker 1: like this is the next level. We're not talking about
2:03
Speaker 1: ETFs or managed funds or different product We're actually talking
2:07
Speaker 1: about what it means to assess an individual company. And
2:10
Speaker 1: I get asked this all the time, like how do
2:12
Speaker 1: I look at a share that I'm going to buy?
2:14
Speaker 1: And it's like, okay, well, if you've gotten to the
2:16
Speaker 1: point where you've done your risk profile and you've worked
2:18
Speaker 1: out what you want to invest in, and that investment
2:21
Speaker 1: strategy includes individual shares. How do you pick it?
2:25
Speaker 2: Like?
2:25
Speaker 1: What happens if you log onto shares is and you're
2:27
Speaker 1: trying to pick shares? Like, how do you do that?
2:30
Speaker 1: So that's what this is about today. If you're new
2:32
Speaker 1: to being a shared trader, you might be like WHOA well,
2:34
Speaker 1: hold back, like, this is not my thing. We did
2:37
Speaker 1: do a four part investment series which I would absolutely
2:39
Speaker 1: recommend you go back to. But we're at a point
2:42
Speaker 1: in life, Gee, where the community is saying, vee, we
2:44
Speaker 1: really want to know more about how to individually value
2:47
Speaker 1: stock and value a company, and that's what this episode
2:50
Speaker 1: is all about. Now we're in a bear market, terrifying
2:53
Speaker 1: but also really normal, Like the investment world and the
2:57
Speaker 1: investment markets have cycles, and we're going through them. We've
3:01
Speaker 1: sen this time and time again. Gee, We've been through
3:03
Speaker 1: market corrections, We've been through bear markets, and we've been
3:05
Speaker 1: through recessions before. It's not new. It's just so scary
3:10
Speaker 1: that I think people tend to jump up and down
3:12
Speaker 1: a little bit more than they need to, which puts
3:15
Speaker 1: you in a position where consumers and us like basically
3:18
Speaker 1: people who use the stock market to buy and sell trades,
3:21
Speaker 1: we lose a bit of confidence. So I think now
3:23
Speaker 1: is a really good time to start honing in and
3:25
Speaker 1: focusing on it and going, yeah, you're right. The media
3:28
Speaker 1: is jumping up and down and making us really scared.
3:30
Speaker 1: But is this a bad thing? No, because shares could
3:32
Speaker 1: be on sale, you could get a really good deal.
3:34
Speaker 1: It could be a good time for you to start
3:37
Speaker 1: your investment journey if you haven't before. So today we're
3:40
Speaker 1: talking about tips and tricks that day traders use, not
3:43
Speaker 1: necessarily tips and tricks I want you to necessarily use
3:46
Speaker 1: because you might turn around g and go all right, well, actually,
3:49
Speaker 1: after all that, that sounds like a lot of responsibility.
3:51
Speaker 1: I actually just want to go buy an ETF or
3:53
Speaker 1: I want to go and sign up to six Park
3:55
Speaker 1: and have a robo advice platform because that aligns to
3:57
Speaker 1: my values. But I use these tips every single day
4:01
Speaker 1: when I am picking client portfolios, because I think a
4:04
Speaker 1: good precursor to this is I am not just a
4:07
Speaker 1: financial advisor. I am a direct share financial advisor, which
4:11
Speaker 1: not all financial advisors are. It's not a flex it's
4:14
Speaker 1: just part of your job of what you focus on
4:16
Speaker 1: so my focus with my clients is often about creating
4:20
Speaker 1: comprehensive investment portfolios made up of direct shares that I
4:23
Speaker 1: then manage on their behalf. So a lot of my
4:25
Speaker 1: clients don't have ETFs or managed funds. They actually have
4:29
Speaker 1: direct shares, and we have a platform of maybe eight
4:32
Speaker 1: to twelve different shares at any point in time. And
4:35
Speaker 1: I usually deal with I guess you could say high
4:38
Speaker 1: net wealth individuals, and I say that right here, G
4:40
Speaker 1: not so I can go, hey, G, I work with
4:42
Speaker 1: really rich people, Like, that's not it at all. I
4:45
Speaker 1: say that because did you hear the number I said before?
4:48
Speaker 1: Eight to twelve individual shares. That's what people with a
4:51
Speaker 1: million dollar portfolio have. They're not picking thousands of companies.
4:56
Speaker 1: They're not picking hundreds of companies. They are making sure
4:58
Speaker 1: they have good diversification across the portfolio that makes sense
5:01
Speaker 1: to them. But I don't think it's as comprehensive as
5:04
Speaker 1: people think it's going to be, because I think if
5:07
Speaker 1: I put up a pole, I really should have done this.
5:09
Speaker 1: Maybe we'll do this another time. But if I put
5:11
Speaker 1: up a pole on cheese on the money and said
5:13
Speaker 1: how many different shares do you think someone with a
5:16
Speaker 1: million dollar portfolio would hold. I guarantee you people be
5:19
Speaker 1: like fifty one, one hundred and fifty because that's what
5:22
Speaker 1: they think diversification entails, when it's not actually the case.
5:25
Speaker 1: So I say this because I use these tips and tricks,
5:28
Speaker 1: but I also say this as a hey, you can
5:31
Speaker 1: go and be an individual share trader. These are some
5:33
Speaker 1: tips and tricks that might help you along the way,
5:35
Speaker 1: but it doesn't necessarily mean you'll get instant diversification because
5:39
Speaker 1: to get good diversification you actually have to have a
5:41
Speaker 1: fair bit of money behind it if you're picking. So
5:44
Speaker 1: I think that's enough disclaimery.
5:45
Speaker 4: Stuff's good, that's good.
5:47
Speaker 2: Yeah.
5:47
Speaker 4: I definitely am one of the people that would have
5:49
Speaker 4: said fifty.
5:50
Speaker 1: To eighty because it makes sense, right, because I think
5:52
Speaker 1: if we look at ETFs and managed funds, and when
5:55
Speaker 1: we talk about funds and indexes, I'll say things like, oh, yeah, gee,
5:59
Speaker 1: the S and P three and you'll be like, oh,
6:01
Speaker 1: that makes sense, that's the three hundred top companies. But
6:04
Speaker 1: when you get into the nitty gritty of it, a
6:06
Speaker 1: lot of more high net wealth clients actually have less
6:10
Speaker 1: shares but more of them, And it just depends on
6:12
Speaker 1: what they are, they're usually more blue chip stocks, So
6:16
Speaker 1: we're not talking about buying an after pay here. We're
6:18
Speaker 1: talking about buying one of the big four banks, and
6:21
Speaker 1: they're usually high dividend, so good dividend paying shares that
6:25
Speaker 1: don't have massive amounts of growth. Because if you're at
6:28
Speaker 1: that point where you have a million dollars in an
6:30
Speaker 1: investment portfolio, it's very likely that your tenacity to take
6:35
Speaker 1: on risk is very low because you don't want to
6:37
Speaker 1: lose what you already have. It's about maintaining capital stability
6:40
Speaker 1: and about keeping cash in the bank, even if it
6:43
Speaker 1: means you're not chasing those you know, sexy twenty percent
6:46
Speaker 1: returns that some people are getting. My client's usually like
6:49
Speaker 1: the the AM's five percent, Like that's that's what it is,
6:52
Speaker 1: because we want to stay rich, like we don't want
6:55
Speaker 1: to put that wealth at risk. So yeah, that's where
6:58
Speaker 1: we're at today, and I feel like it could get
6:59
Speaker 1: a little bit complex, and I do apologize, and I'll
7:01
Speaker 1: try my best.
7:02
Speaker 4: As always, we'll explain it, we'll break it down on
7:05
Speaker 4: the complex note fee, there are a lot of acronyms
7:09
Speaker 4: in today's episode. You just said S and P three
7:11
Speaker 4: hundred you said ETF at the top you were like
7:14
Speaker 4: EP trader or something like that, pe ratio. That's what
7:17
Speaker 4: I meant to say, Why so many acronyms, Because.
7:20
Speaker 1: Gee, there's a technical reason and the reason I believe
7:23
Speaker 1: it exists. So we'll start with the reason I believe
7:25
Speaker 1: that exists. And I believe that exists because mediocre, middle
7:28
Speaker 1: aged white men want to make it seem more confusing
7:31
Speaker 1: for young women to get into the investment market. Or
7:34
Speaker 1: did you see the S and P five hundred today
7:36
Speaker 1: It's at one point six percent, which is today great,
7:39
Speaker 1: But like then if I said to you, well, actually
7:42
Speaker 1: that is unnecessary, Like we just don't need this added
7:45
Speaker 1: level of complexity. Let's shorten it. SMP means the Standard
7:49
Speaker 1: and Pause and it's literally just the five hundred top
7:53
Speaker 1: tracking companies in the American market as listed on the
7:56
Speaker 1: US Exchange, and it's just tracking the average EBB and
7:59
Speaker 1: flow of that. And the SMP five hundred is used
8:03
Speaker 1: as a very normal index in our industry of how
8:06
Speaker 1: the market's performing, because like, what are the top five
8:09
Speaker 1: hundred companies doing? Like if it's up one percent, you're like, oh,
8:11
Speaker 1: that's like one percent across five hundred companies. That must
8:14
Speaker 1: mean there's something pretty okay going on in the market.
8:17
Speaker 1: If it was down ten percent, you'd be like, wow,
8:19
Speaker 1: what's happening in the industry kind of vibes. So I
8:21
Speaker 1: feel like there's a lot of confusing acronyms, and as
8:24
Speaker 1: you know, I try to steer away from them because
8:28
Speaker 1: it's just not necessary, Like I don't need to use
8:30
Speaker 1: an acronym to make myself seem smarter so that you
8:33
Speaker 1: don't feel educated. But it's important for you to be
8:36
Speaker 1: educated and know what these things are and when they're
8:39
Speaker 1: used and how they're used. And ebit is one of
8:41
Speaker 1: those things where I'm like, look, this is just what
8:42
Speaker 1: it's going to be called on a balance sheet. So
8:44
Speaker 1: if you're at a point in your investing journey where
8:46
Speaker 1: you're like, I'm gonna invest in individual shares, cool, You're
8:49
Speaker 1: probably gonna look at an annual report from a company
8:52
Speaker 1: and ebit will be on it. So I need you
8:54
Speaker 1: to know what to look out for. But I also
8:56
Speaker 1: don't want you to think that they exist to make
8:58
Speaker 1: you feel overwhelmed or confused us because how many times
9:02
Speaker 1: I don't know about you, but I was on Tinder
9:04
Speaker 1: before I met Steve and the amount of people that
9:07
Speaker 1: I would meet that would try and be like, oh,
9:08
Speaker 1: I'm an investor. I'm maybe it's more of a reflection
9:12
Speaker 1: of the type of guy. I go, yeah, maybe Steve's
9:14
Speaker 1: not like that. It's okay, bank time. He's a different kind.
9:17
Speaker 1: But like the banker types would always like use complex
9:20
Speaker 1: terminology and I'd be like, do you know what I
9:23
Speaker 1: do as a job?
9:24
Speaker 2: No?
9:24
Speaker 1: Okay, no problems.
9:25
Speaker 4: Yeah. I think it's a signal of a smarter person
9:28
Speaker 4: to use simpler language that's much more accessible. But you
9:32
Speaker 4: always talk about starting a journey of investment when you're
9:34
Speaker 4: ready for it and not being influenced by other factors,
9:37
Speaker 4: not trying to time the market and so on. Why
9:39
Speaker 4: should I value shares before I buy them and not
9:42
Speaker 4: just jump in if I feel like I'm ready or
9:44
Speaker 4: if the prices are down.
9:46
Speaker 1: Because as much as we can't time the market, and
9:48
Speaker 1: we shouldn't be trying to toe the market because again
9:51
Speaker 1: I'd be really really rich, we don't want to be
9:53
Speaker 1: overpaying for shares that are driven by hype. We don't
9:56
Speaker 1: want to be in a situation where you're ready to
9:59
Speaker 1: invest in your like you know what I want to
10:00
Speaker 1: do I want to get some blue chip shares G.
10:03
Speaker 1: And when I say blue chip, blue chip shares are
10:06
Speaker 1: companies that are really well known and highly respected, so
10:09
Speaker 1: it's by customers and the market and business analysts. We're
10:13
Speaker 1: not talking businesses that have just come out of nowhere.
10:16
Speaker 1: We're talking about those tried, true resources. We're talking about
10:20
Speaker 1: the big four banks G. We're talking about you know,
10:22
Speaker 1: things like Macquarie and West Farmers, businesses that have been
10:26
Speaker 1: in the Australian economy for a really long time. They
10:29
Speaker 1: might not be shares that are completely outperforming the market,
10:33
Speaker 1: but they're are tried and true and steady, like Telstra
10:36
Speaker 1: is another blue chip stock. And the reason we say
10:40
Speaker 1: that these are blue chip stocks is one because they
10:42
Speaker 1: are literally just well known companies respected have good businesses
10:46
Speaker 1: behind them. Blue Chip is a term used in the
10:49
Speaker 1: financial services industry as a term that's kind of perceived
10:53
Speaker 1: as being safe havens due to their stability during times
10:57
Speaker 1: like now where you know, the markets might not be
10:59
Speaker 1: doing well. So those fancy tech stocks people are going
11:02
Speaker 1: to sell up. But West Farmers, what do they own?
11:04
Speaker 1: Their own Bunnings and they own Kmart and Target and
11:08
Speaker 1: those are all things that people still need during times
11:10
Speaker 1: of economic downturn, banks, people still need Woolworths, people still
11:15
Speaker 1: need to go to the supermarket. So these are shares
11:18
Speaker 1: that are going to perform. I mean, they might be down,
11:21
Speaker 1: but they're going to still exist because they're basic human
11:24
Speaker 1: needs at the end of the day. So you'll often
11:26
Speaker 1: see a lot more fluctuation in shares, like again, fancy
11:29
Speaker 1: tech stocks, where if people have money and they have
11:32
Speaker 1: a lot of confidence, they're like, oh, I'm buying all
11:34
Speaker 1: these after pay shares where are second the market turns,
11:37
Speaker 1: they're like, oh, better pull back on that, Whereas people
11:40
Speaker 1: are less likely to pull back on a Woolworths share
11:42
Speaker 1: because they're like, oh, pandemic toilet paper sales throw the roof.
11:46
Speaker 1: Does that make sense?
11:47
Speaker 4: Yeah, yeah, gotcha. So would you say it's like the
11:51
Speaker 4: best way to value a company's worth.
11:54
Speaker 1: Toilet paper they sell.
11:56
Speaker 4: No, would it be to compare it to a company
11:58
Speaker 4: that's similar and see how their stock is.
12:01
Speaker 1: Yeah, you absolutely can. And that's why I find it
12:03
Speaker 1: so interesting talking about share prices, because the share prices
12:08
Speaker 1: across the big four banks are quite significantly different. You
12:11
Speaker 1: would assume big four bank right, very similar share price,
12:14
Speaker 1: but that's actually not the case at all. So it's
12:17
Speaker 1: not like comparing apples with apples where you go bank
12:19
Speaker 1: good cheap. They all have different business structures behind them
12:23
Speaker 1: and performance analytics and dividend yields and performance that drives
12:28
Speaker 1: their perception in the market as to what they're worth.
12:30
Speaker 1: So a good example of this is combank shares are
12:33
Speaker 1: really expensive. So today as of recording combank shares and
12:37
Speaker 1: ninety one dollars and sixteen cents per share, you go,
12:40
Speaker 1: all right, no problems. But that is going to be
12:42
Speaker 1: built up of you know, their historical data, how well
12:45
Speaker 1: they've done in the market. It's going to be built
12:47
Speaker 1: up of what their dividend payart is, so how much
12:50
Speaker 1: money you make from owning that share. It's going to
12:52
Speaker 1: be made up of you know, consumer demand and how
12:54
Speaker 1: much somebody wants that share and what their past performance was.
12:58
Speaker 1: So if I then said, well, it's a NAB share
13:00
Speaker 1: worth George, what would you say?
13:02
Speaker 4: You'd assume similar?
13:04
Speaker 1: Right, So a NAB share is twenty seven dollars fifty
13:06
Speaker 1: eight much cheaper exactly. So are we saying that one
13:10
Speaker 1: bank's better than the other?
13:12
Speaker 2: No?
13:12
Speaker 1: Do they both have the government guarantee of two hundred
13:15
Speaker 1: and fifty thousand dollars for everybody. Yes, they do. Do
13:18
Speaker 1: they all have similar business practices at the crux of it,
13:21
Speaker 1: yes and no, But they all have different marketing strategies
13:25
Speaker 1: like banks now are bringing out different after pay options
13:28
Speaker 1: or buy now pay later options. Banks are doing different things.
13:31
Speaker 1: They all are different businesses. So you can't just go
13:34
Speaker 1: bank compared with bank and assume that that's going to
13:37
Speaker 1: be like a good deal, because if you look at it, go,
13:40
Speaker 1: oh my gosh, Well, if combank shares are ninety one dollars,
13:44
Speaker 1: it's a money win to buy NAB shares. Past performance
13:47
Speaker 1: over the last five years for a NAB share is
13:49
Speaker 1: actually down seven point four percent. You go, okay, no problems.
13:53
Speaker 1: Well what does that compare to this ninety one dollar
13:55
Speaker 1: one This one's so much more expensive. Past performance on
13:59
Speaker 1: a combank share If today it is ninety one dollars
14:01
Speaker 1: and nine cents, past performance actually up ten point nine
14:06
Speaker 1: two percent. Oh wow. So you go, all right, this
14:08
Speaker 1: clearly isn't apples with apples. When we start to get
14:11
Speaker 1: into it, and I'm not saying this to confuse you,
14:13
Speaker 1: I just don't want you lumping all banks in with
14:15
Speaker 1: one and going, oh, they must be equal. I've got
14:17
Speaker 1: a bank, because it actually becomes a little bit more
14:19
Speaker 1: finicky than that. And we're having this conversation off air
14:22
Speaker 1: right before we started recording, and we're talking about how
14:25
Speaker 1: Combank shares over the last month have absolutely decreased, like
14:29
Speaker 1: they've gone over the last month down thirteen point five
14:32
Speaker 1: eight percent. And in the investment world, there's a lot
14:35
Speaker 1: of conversation about whether it's worth adding to your portfolio
14:38
Speaker 1: at the moment. So when I go and talk to
14:40
Speaker 1: my stockbrokers, because as a financial advisor, I obviously pulled
14:44
Speaker 1: together a portfolio for my clients, but a lot of
14:48
Speaker 1: that happens because I'm having back and forth conversations with
14:50
Speaker 1: different stockbrokers and different research houses and understanding what that
14:54
Speaker 1: means and how to pull it together. And that seems
14:56
Speaker 1: to be a common topic at the moment. What's going
14:59
Speaker 1: on with Combank? How does that work? Does that mean
15:01
Speaker 1: we should be adding it, should we be selling some
15:03
Speaker 1: of it? What does that mean for clients? So I
15:04
Speaker 1: think it's interesting, Ge when you ask me a very
15:07
Speaker 1: clean question of like, all right, will you do just
15:09
Speaker 1: compare it to a like business that makes sense yeah,
15:12
Speaker 1: but unfortunately it's not as clean car as that.
15:15
Speaker 4: So basic question from me be surprise, surprise, but I
15:18
Speaker 4: think it's probably a good place to start before we
15:20
Speaker 4: get into the thick of things. What's an undervalued share
15:23
Speaker 4: versus an overvalued share?
15:25
Speaker 1: So, and this gets confusing because I'm going to talk
15:28
Speaker 1: about intrinsic and extrinsic value here. So an overvalued asset
15:33
Speaker 1: is an investment that's trading for more money than what
15:35
Speaker 1: its intrinsic value is. And an undervalued share is a
15:39
Speaker 1: financial term for referring to a security or any other
15:41
Speaker 1: type of investment that's selling in a market for a
15:44
Speaker 1: price that's presumed to be below the investment's true intrinsic value.
15:48
Speaker 1: So when we talk about intrinsic and extrinsic it's I
15:52
Speaker 1: feel like these words get really complex, really quickly. So essentially,
15:56
Speaker 1: intrinsic value is like the fundamental objective value of that object. Right,
16:01
Speaker 1: So the intrinsic value of a one dollar coin, what
16:04
Speaker 1: is it? G one dollar? So if you paid a
16:07
Speaker 1: dollar ten for a one dollar coin, are you undervaluing
16:11
Speaker 1: it or overvaluing it? Over over over over over. But
16:15
Speaker 1: you're overvaluing it because you're paying more than what that
16:18
Speaker 1: value of that asset is. Same for a two dollar coin, right,
16:21
Speaker 1: So a two dollar coin is worth two dollars. If
16:23
Speaker 1: you want to paid two dollars fifty for that coin
16:25
Speaker 1: to get it in your possession, you've paid more than
16:28
Speaker 1: what it's worth. Because when the market settles down, and
16:30
Speaker 1: maybe I don't know, maybe you're a coin collector and
16:32
Speaker 1: you will want to jump down my throat. But this
16:34
Speaker 1: was a good example. But when the market comes down
16:37
Speaker 1: and there's heaps of two dollars coins out there, it's
16:39
Speaker 1: not going to be worth two dollars fifty anymore. It's
16:41
Speaker 1: going to go back to what it's genuinely worth. Right,
16:44
Speaker 1: So fundamentally base value, it's base value. Fundamentally what is
16:48
Speaker 1: it worth? And fundamentals in the world of investment are
16:53
Speaker 1: really important to understand because they sit under market hype,
16:57
Speaker 1: they sit under what's going on, and that's what investment
17:00
Speaker 1: advisors are looking for. So like I want in a
17:03
Speaker 1: perfect world, right, I want a client to come to
17:05
Speaker 1: me and be like they want to start an investment portfolio.
17:07
Speaker 1: I've got this amount of money and I go shopping
17:09
Speaker 1: for shares and I'm like, oh, my God, all these
17:11
Speaker 1: companies are undervalued because they're Intrinsic value is telling me
17:15
Speaker 1: I should be paying ten dollars a share for this,
17:18
Speaker 1: but they're asking eight dollars a share. This is a
17:20
Speaker 1: money win. So it's one of those things where it's
17:23
Speaker 1: not as confusing so intrinsic value, it's that innate internal
17:27
Speaker 1: value of just what that asset is worth. Does that
17:31
Speaker 1: make sense?
17:31
Speaker 4: It does make sense? And am I right in thinking?
17:34
Speaker 4: This is Warren Buffett's investing strategy. He buys the undervalued shares,
17:39
Speaker 4: who likes the underdog.
17:40
Speaker 1: To contrast that, though, the opposite is called an extrinsic value,
17:44
Speaker 1: So intrinsic internal, extrinsic external yep, and extrinsic value is
17:49
Speaker 1: the difference between the market price of an option and
17:52
Speaker 1: it's premium. So often if we're talking about the extrinsic
17:55
Speaker 1: value of a share, well, that's that two dollar coin
17:57
Speaker 1: that was once touched by Taylor Swift. So therefore you
18:00
Speaker 1: guys are paying two dollars fifty for it. Is that
18:02
Speaker 1: asset actually worth two dollars or is it worth two
18:05
Speaker 1: dollars fifty? Probably two dollars, But you're willing to pay
18:08
Speaker 1: a premium. Take t swift, she touched it.
18:10
Speaker 4: And more people want it, so the price is increased.
18:14
Speaker 1: Does that make sense?
18:14
Speaker 4: Making sense?
18:15
Speaker 1: Extrinsic value is how it's driven by the market, and
18:18
Speaker 1: intrinsic value is its genuine, fundamental base price.
18:22
Speaker 4: So is it always safe, then, to buy an undervalued stock.
18:26
Speaker 4: That sounds like the right way to go.
18:28
Speaker 1: It sounds like a really good way Laaren's doing it.
18:30
Speaker 1: But what makes it undervalued? So how do you actually
18:33
Speaker 1: know that that's a good deal or not. You might go,
18:35
Speaker 1: all right, well, it's a blue chip stock, it's undervalued.
18:38
Speaker 1: Oh what a money win, And then you find out
18:41
Speaker 1: that you didn't know something that you needed to know
18:44
Speaker 1: to make that decision, and you already purchased those shares.
18:47
Speaker 1: For example, you might purchase shares and think it's a
18:49
Speaker 1: great money win, but the market's been really slowing down
18:52
Speaker 1: and you haven't known why. And then later an annual
18:54
Speaker 1: report comes out and that business has not performed as
18:57
Speaker 1: well as you thought it would. So it's intrinsic value
19:00
Speaker 1: is not as much as you actually thought it would be.
19:03
Speaker 1: So it might not actually be undervalued. It's been deemed
19:06
Speaker 1: undervalued because of the research and information that's available about
19:10
Speaker 1: it right now. Same thing happens when we find out
19:13
Speaker 1: a company's done something really cheeky or naughty or abused
19:16
Speaker 1: the situation or made use of something they shouldn't have
19:19
Speaker 1: made use of. When it comes out, they go, well,
19:21
Speaker 1: your intrinsic value is going to go down. Because intrinsic
19:24
Speaker 1: value is made up of things like, you know, the
19:26
Speaker 1: balance sheet and the profit and loss statement and all
19:28
Speaker 1: those financial things, but it's also like brand reputation. Yeah, Like,
19:32
Speaker 1: if you look at Telstra, what's their brand reputation in
19:36
Speaker 1: the industry for service they provide when you compare it
19:38
Speaker 1: to any other phone carrier, right, Like, there's a reason
19:41
Speaker 1: their consumers are willing to pay more for that product.
19:43
Speaker 1: And it's not just about coverage, Like, guys, it's twenty
19:46
Speaker 1: twenty two coverage not that hard to sort out anymore.
19:50
Speaker 1: But people are still willing to pay more for that
19:52
Speaker 1: service because they align it with quality. So intrinsic value
19:57
Speaker 1: is obviously those fundamental things. You've also got to have
20:01
Speaker 1: your hat on the right way and know that it's
20:04
Speaker 1: not just about the financial sometimes, gotcha, that makes sense.
20:07
Speaker 4: It does make sense.
20:08
Speaker 1: The ones would all just be buying Cole's home brand everything,
20:11
Speaker 1: wouldn't we.
20:11
Speaker 4: Yeah, exactly right? So on that, how do you actually
20:15
Speaker 4: analyze the market though, Like, how do you know what's
20:17
Speaker 4: undervalued and what's overvalued?
20:19
Speaker 2: Where?
20:19
Speaker 4: Like where do we begin?
20:20
Speaker 1: Are you ready? Are you ready? All right? So there's
20:23
Speaker 1: two schools of thought on this when it comes down
20:26
Speaker 1: to it. There's technical and fundamental analysis And what did
20:29
Speaker 1: I teach you before? Fundamental is intrinsically valued nice and
20:35
Speaker 1: technical sits more on the extrinsically valued side of things. Ah,
20:39
Speaker 1: Investors and financial advisors and traders use both of these
20:43
Speaker 1: to research and work out what stock price is. And
20:46
Speaker 1: from my perspective as a financial advisor, I think that
20:49
Speaker 1: they go hand in hand. But you will meet some
20:52
Speaker 1: financial advisors or some investment advisors or some economists that
20:56
Speaker 1: only subscribe to one of those schools of thought, and
20:59
Speaker 1: they'll be like, we are look at fundamental or we
21:01
Speaker 1: only like technical or whatever it is, because sometimes people
21:05
Speaker 1: get really caught up in the semantics of it. Go figure,
21:08
Speaker 1: So we've got the intrinsic and the extrinsic and it
21:11
Speaker 1: kind of goes back to when I was doing my
21:13
Speaker 1: psych degree, just way back when I feel like it
21:16
Speaker 1: was yesterday, the same time as being told that we've
21:18
Speaker 1: got a ten year reunion coming up.
21:20
Speaker 4: So what.
21:22
Speaker 1: But we spoke a lot about qualitative versus quantitative measurement
21:26
Speaker 1: and the different ways that you can measure things. So
21:29
Speaker 1: qualitative data is like that kind of more fluffier data gee,
21:34
Speaker 1: So it's not necessarily a numerical value. Whereas if we
21:37
Speaker 1: talked about quantitative quantity, like the number associated with it,
21:43
Speaker 1: so it might be, you know, a scale of one
21:44
Speaker 1: to five, where do you sit on this? Most people
21:47
Speaker 1: were three. It is very fact based, whereas quantitative is like, well,
21:51
Speaker 1: how did the podcast make you feel? Or how did
21:54
Speaker 1: this business make you feel? And then we collect a
21:56
Speaker 1: whole heap of data and we actually just look for
21:58
Speaker 1: similarities in it. There's no hard and fast rule or
22:02
Speaker 1: number associated with it. So there's like the soft and
22:05
Speaker 1: the hard, and from my perspective, we're making a good
22:08
Speaker 1: investment decision. We need to take both of these things
22:10
Speaker 1: into a consideration. Right, Because I'm quite vocal not online,
22:15
Speaker 1: but just quite vocal in my everyday life about you know,
22:18
Speaker 1: the importance of ethical fashion. So if we looked at
22:21
Speaker 1: a company like Sheen, right, they at their crux of it,
22:25
Speaker 1: they probably have really good financials. They probably are blowing
22:28
Speaker 1: it out of the water. They are a fast fashion
22:30
Speaker 1: brand who have managed to capture a massive part of
22:32
Speaker 1: the market. They are churning out shitloads of clothes and content,
22:37
Speaker 1: and from their perspective, they're probably doing really well. Then
22:41
Speaker 1: you look at the quality of data on that and
22:43
Speaker 1: you go, but they're abusing the system. They aren't doing
22:45
Speaker 1: the right thing when it comes to child labor, they
22:48
Speaker 1: aren't doing the right thing when it comes to you know.
22:50
Speaker 4: The environment.
22:51
Speaker 3: Yeah.
22:51
Speaker 1: So for me to make a good decision as to
22:54
Speaker 1: whether Geking on Tour should be buying that as a share,
22:58
Speaker 1: I don't want to just look at their fine I
23:00
Speaker 1: want to look at the holistic picture. And I think
23:02
Speaker 1: that when it comes to looking at shares and putting
23:05
Speaker 1: something in your portfolio, I think everybody should be doing that,
23:08
Speaker 1: not just because of your values, but because values often
23:12
Speaker 1: drive economies, and I think that that should be really
23:15
Speaker 1: taken into consideration. But that is my take. You might
23:18
Speaker 1: be like, V love Sheen and I'll be like, we're
23:20
Speaker 1: probably not friends, But that's.
23:22
Speaker 4: Okay, okay in terms of value something on Sheen. No, Yeah,
23:26
Speaker 4: for good reasoning or not, you're a nagnata kind of gal.
23:29
Speaker 4: I just can't see you buying fast fashion ge King,
23:32
Speaker 4: But I mean, I understand why people do, but I
23:34
Speaker 4: think it's something that we're really turning away from as
23:37
Speaker 4: a society, which is brilliant because it's.
23:39
Speaker 1: A huge I agree, and I think that's maybe a
23:42
Speaker 1: really good point for me to just drop in there.
23:45
Speaker 1: I'm not actually against fast fashion. I think that there
23:48
Speaker 1: is a place for it. I'm not actually against fast
23:51
Speaker 1: fashion in the way you think that I might be,
23:53
Speaker 1: because I think that accessibility is really important, and I
23:56
Speaker 1: think that if you're starting to crucify people just for
23:59
Speaker 1: buying cheaply, there's something fundamentally wrong with our economy and
24:03
Speaker 1: our system and our community. Like some people genuinely need
24:06
Speaker 1: access to clothing items that are at a kmart price point,
24:11
Speaker 1: like at the end of the day, that is what
24:13
Speaker 1: it is. And I think it's really beautiful that there
24:15
Speaker 1: is a level of quality there that they can be
24:18
Speaker 1: assured of so that they can get wear out of
24:20
Speaker 1: clothes if that's you know, that's aligned to their budget.
24:23
Speaker 1: What I don't like is the consumerism behind fast fashion,
24:26
Speaker 1: where it's like we're that top onees and throw it
24:28
Speaker 1: away exactly. That's what we're crucifying when we talk about
24:31
Speaker 1: fast fashion, not about companies who are selling cheap clothes.
24:34
Speaker 1: Does that make sense?
24:36
Speaker 4: Back to finance, So, yes, we've got fundamental analysis speed,
24:40
Speaker 4: and we've got technical analysis. Tell me a little bit
24:42
Speaker 4: more about technical analysis.
24:43
Speaker 1: I know you don't mean that. I know you're just
24:45
Speaker 1: like looking at it. Going V mentioned this, I probably
24:47
Speaker 1: should follow up because people are interested.
24:49
Speaker 4: On behalf of the listeners.
24:50
Speaker 1: Thank you, you are so kind. So technical analysis is
24:53
Speaker 1: all that like stats and algorithms that analyze the share
24:56
Speaker 1: price movement over time to find out the underl lying
25:00
Speaker 1: market trends or what we call market sentiment based on
25:03
Speaker 1: the number of people that are buying and selling that stock.
25:05
Speaker 1: So you know, if it's really popular, it might be
25:07
Speaker 1: worth more, not necessarily because the business is doing better,
25:10
Speaker 1: but because everybody's talking about after pay. Does that make sense.
25:14
Speaker 4: Yeah.
25:14
Speaker 1: So analysts then use stock charts to identify patterns which
25:18
Speaker 1: maybe will suggest future trends for stocks and shares and
25:22
Speaker 1: stuff like that. Also clarify stock and share same thing.
25:26
Speaker 1: I use them interchangeably. I much prefer the word share
25:29
Speaker 1: only because I feel like it's a little bit more Australian,
25:32
Speaker 1: whereas stock feels very stock. Mard Yeah, I just feel
25:35
Speaker 1: like it's got like a mansplainy vibe to it. So
25:38
Speaker 1: often shy away from it. But the core assumption is
25:41
Speaker 1: that all known fundamentals from fundamental analysis are already factored
25:45
Speaker 1: into price, and thus there's no need to pay close
25:47
Speaker 1: attention to them. I don't particularly subscribe to that, you
25:50
Speaker 1: know how I said before, some people will like poopoo
25:53
Speaker 1: fundamental and be like it's a waste of time. I
25:55
Speaker 1: just don't think it is. I just want to know
25:57
Speaker 1: what's going on. I want to know when I'm getting
25:59
Speaker 1: a good deal. I want to genuinely be able to
26:01
Speaker 1: explain that to my clients as well. I don't want
26:03
Speaker 1: to just say I know what I'm talking about, trust me,
26:05
Speaker 1: Like it's just it's not enough for.
26:07
Speaker 4: Me, okay, perfect, I feel like I grasp what a
26:09
Speaker 4: technical analysis is. Thank you so much for me. I
26:12
Speaker 4: think we should press pause here, go to a little break,
26:14
Speaker 4: and then on the other side we are going to
26:16
Speaker 4: dive into exactly how it can value stocks, How to
26:20
Speaker 4: make sense of all is that.
26:20
Speaker 1: About pe ratios? The pig ratio We're going to talk
26:23
Speaker 1: about the price book ratio, which is the PB ratio,
26:26
Speaker 1: which is not a PB and jelly sandwich, which is
26:28
Speaker 1: kind of disappointing.
26:29
Speaker 4: A little bit, but there's so much fun to come.
26:31
Speaker 4: Don't go anywhere, guys, All right, straight back into it. VD,
26:39
Speaker 4: tell me how on earth do I begin it to
26:42
Speaker 4: value a share? Seems overwhelmed, Okay.
26:44
Speaker 1: So let's strip it back. There are three different ways
26:47
Speaker 1: that you're able to put a value or a relative
26:50
Speaker 1: value on a share. So the first is the PE ratio,
26:53
Speaker 1: that is the price to earnings ratio, the second is
26:57
Speaker 1: the price to earning growth ratio, and then the third
27:02
Speaker 1: is the price book ratio. There are going to be,
27:05
Speaker 1: if you google it, a million different ways to value
27:08
Speaker 1: a share, but in the industry in Australia, these are
27:11
Speaker 1: the most common or the top three most common ways
27:15
Speaker 1: of valuing a share. Yes, there's more. Do you need
27:18
Speaker 1: to know more at this point in your journey? Probably not,
27:20
Speaker 1: So we're just going to focus on getting these three right.
27:23
Speaker 1: So first things first, I know you are on the
27:25
Speaker 1: edge of your seat, Georgia.
27:26
Speaker 4: King, price earnings ratio, what is it?
27:29
Speaker 1: PE ratio?
27:30
Speaker 4: PE ratio?
27:31
Speaker 1: So it looks at a company's recent or forecasted so
27:34
Speaker 1: recent or predicted earnings per share so against what the
27:38
Speaker 1: current market price of the share is, and it has
27:40
Speaker 1: a look at that and says, is what we are
27:42
Speaker 1: predicting they are worth in the future actually similar to
27:47
Speaker 1: the current market priuce of what people are paying for
27:49
Speaker 1: this share. And sometimes that'll be really low or sometimes
27:53
Speaker 1: that'll be really high. But that ratio gives people a
27:56
Speaker 1: really good indicator of whether it's a good deal or not.
27:59
Speaker 1: So the earnings per share, or what the industry calls
28:01
Speaker 1: that the EPs, is the proportion of the company's profit
28:05
Speaker 1: allocated back to each individual share. To figure out a
28:09
Speaker 1: company's PE ratio, we need to do some really quick maths.
28:12
Speaker 1: We need to look at the company's earnings per share,
28:15
Speaker 1: which is really readily available in their annual report or
28:18
Speaker 1: their quarterly report, or it's usually on their website. It's
28:20
Speaker 1: not a hard number to find. Then you divide the
28:23
Speaker 1: current price per share by the earnings per share to
28:27
Speaker 1: find your PE ratio. So if a company has a
28:31
Speaker 1: quote adjusted EPs figures or earnings per share figures, use
28:35
Speaker 1: these instead. Is they going to take into account any
28:38
Speaker 1: major expenses that were incurred during that period that might
28:40
Speaker 1: affect the EPs. So for example, if they acquired a
28:43
Speaker 1: new factory, or they bought something really big or invested
28:47
Speaker 1: in a new database or something like that, that's an outlier,
28:51
Speaker 1: like that's not a common thing to happen each and
28:52
Speaker 1: every single year, so they might have an adjusted figure
28:55
Speaker 1: fit used so that you can still value the company
28:57
Speaker 1: without absolutely blowing it out of border. So to run
29:00
Speaker 1: a quick example for you, if a company currently has
29:02
Speaker 1: a share price of one hundred bucks, so close to
29:05
Speaker 1: what Combank has, but like imagine if Combank got to
29:07
Speaker 1: one hundred, I think my group chat for financial advisors
29:10
Speaker 1: would go off. It would be a fleet. Anyway, company
29:13
Speaker 1: has a share price of one hundred dollars and an
29:15
Speaker 1: earnings per share of ten dollars as stated in its
29:18
Speaker 1: latest report. If we use the formula, the company's PEE
29:22
Speaker 1: ratio would then be ten. Pretty quick maths.
29:24
Speaker 4: Pretty quick maths.
29:25
Speaker 1: Feel like it was so confusing, guys. It's podcast will
29:28
Speaker 1: do a whole lot of post on this, and it
29:30
Speaker 1: will be in the blog post because it's in front
29:32
Speaker 1: of me. We've already done the work. We will share
29:33
Speaker 1: it with you. But the pe ratio works best when
29:36
Speaker 1: comparing apples with apples. So most investors would argue that
29:39
Speaker 1: a share price with a lower pe ratio compared to
29:42
Speaker 1: its peers is cheaper and could be undervalued. So that's
29:46
Speaker 1: a way of having a look at it and going
29:48
Speaker 1: what does this mean? How does that work? But see
29:50
Speaker 1: how now we're into talking about a price per earning ratio,
29:54
Speaker 1: not a price per share George, So before I gave
29:57
Speaker 1: you the example and said, wow, twenty seven dollars for
29:59
Speaker 1: a NAB share but ninety one for a Combak share,
30:01
Speaker 1: and you go, well, that makes no sense. How do
30:03
Speaker 1: I pick? But then we introduce something like this price
30:06
Speaker 1: to earnings ratio and you go, oh okay. So I
30:10
Speaker 1: would just take the share price and what it actually
30:12
Speaker 1: paid and I'd get a score. And then the lower
30:15
Speaker 1: the score, the quote cheaper it is. So it doesn't
30:18
Speaker 1: actually matter that one's twenty seven dollars and one's ninety one.
30:22
Speaker 1: We kind of put them on a level playing field,
30:25
Speaker 1: and that's the way we do that. Does that make sense?
30:27
Speaker 4: Does make sense?
30:28
Speaker 1: Makes you go, oh, that's not as overwhelming. I don't
30:30
Speaker 1: have to go ones expensive or one's cheap. You go, well,
30:33
Speaker 1: what is that twenty seven dollars returning if that's what
30:36
Speaker 1: we're paying for a NAB share, or what is that
30:38
Speaker 1: ninety one dollars returning for that combat share? Does that
30:41
Speaker 1: make sense? I hope I'm making sense. This is really hard.
30:43
Speaker 1: But gee, at the end of the day, there's no
30:45
Speaker 1: definitive what's quote good ratio when it comes to it,
30:49
Speaker 1: I can't be like, hey, a five is good and
30:50
Speaker 1: a ten's bad, Like that's not how it works. So
30:53
Speaker 1: over the last forty years, that all ordinaries, which you've
30:55
Speaker 1: probably heard, like you know when you watch TV or
30:57
Speaker 1: when you were younger, you used to watch TV and
30:59
Speaker 1: your mom and dad had the new on there, like
31:00
Speaker 1: the all lords are up? Who are rah?
31:02
Speaker 4: The all odds?
31:04
Speaker 1: Yeah, the all odds. That's just an index. It just
31:06
Speaker 1: tracks the market. It's like the S and P five hundred.
31:10
Speaker 4: Sure, okay, but the Australian.
31:11
Speaker 1: Verse, like the Australian version oka tracking shares in Australia
31:15
Speaker 1: and seeing what the average price of the share market's
31:17
Speaker 1: looking so that they can say, oh my god, all
31:20
Speaker 1: the all ords are down, which means the share market
31:23
Speaker 1: across the board is a bit down, not oh, nabs
31:26
Speaker 1: up and combanks down like nobody. Nobody can conceptualize that
31:30
Speaker 1: we need one common measure, and in Australia we use
31:33
Speaker 1: the all odds. Okay, but if we look at the
31:35
Speaker 1: all odds over the last forty years, it's averaged a
31:38
Speaker 1: PE of about fifteen, which is sometimes seen as a
31:41
Speaker 1: broad threshold. Is kind of fair value to give you
31:45
Speaker 1: a bit of an indicator.
31:46
Speaker 4: Very good. I'm going to keep an eye out for
31:48
Speaker 4: the all odds with the news is on and.
31:50
Speaker 1: I know exactly what that is. Yes, yes, we're educated, queen,
31:54
Speaker 1: exactly right.
31:55
Speaker 4: Now we have the PEG ratio and the price book
31:57
Speaker 4: ratio to get to. So let's start with PEG. Tell
31:59
Speaker 4: me about that.
32:00
Speaker 1: So the PEG ratio or the price earnings to growth ratio.
32:03
Speaker 1: So it's taking that first ratio and building off it.
32:06
Speaker 1: So before we had the PE, so the price earnings.
32:10
Speaker 1: Now it's the PE to growth, which is comparing its
32:13
Speaker 1: price earnings to growth. Does that make sense? I feel
32:15
Speaker 1: like it was obvious if you really think about it,
32:19
Speaker 1: but no one's going to really think about it. They
32:20
Speaker 1: just look at it and go, peg ratio, What the hell?
32:23
Speaker 1: So the PEG ratio considers the company's earnings growth, so
32:27
Speaker 1: to figure this out. You need to find out the
32:28
Speaker 1: company's estimated earnings per share, which we talked about just before,
32:31
Speaker 1: which will be in the latest down your report or
32:34
Speaker 1: on the website, all really accessible if they are listed company.
32:37
Speaker 1: And then to calculate the PEG ratio, you use the
32:40
Speaker 1: PE that we just did and you divide by the
32:43
Speaker 1: growth in earnings per share or the EPs. So I
32:47
Speaker 1: feel like this is getting really complicated, but I know
32:49
Speaker 1: you guys are following, and if not, just go back
32:51
Speaker 1: listen to it again. I'm lucky for you to have
32:53
Speaker 1: to listen to me more and more. But a good
32:55
Speaker 1: example of this is let's say the company has an
32:57
Speaker 1: EPs of eleven dollars over the next year as stated
33:00
Speaker 1: in its report. You go, great, no problems, thank you.
33:03
Speaker 1: This is an increase of ten percent on its current
33:06
Speaker 1: EPs of ten dollars. Because we're using the same example
33:08
Speaker 1: as we had before, so using the PEG formula, So
33:11
Speaker 1: the price to earnings growth formula of the PE, so
33:14
Speaker 1: the PE was ten as we spoke about before, and
33:17
Speaker 1: you divide it by the growth in EPs, which is
33:20
Speaker 1: ten percent. We then have a PEG ratio of a one.
33:23
Speaker 1: You go, he that makes absolutely no sense, but he
33:27
Speaker 1: out here, me out, sit down. Just like a PE ratio,
33:30
Speaker 1: the PEG ratio compares peer performance, so it's trying to
33:33
Speaker 1: compare apples with apples. Again, there's no set PEG ratio
33:36
Speaker 1: that's considered to be like the gold standard, or this
33:38
Speaker 1: is like a by signal. If you get a PEG
33:41
Speaker 1: ratio of x, like bye bye bye. That's not how
33:43
Speaker 1: this works. These are all just ratios that we use,
33:45
Speaker 1: We write them down, we take them into consideration of
33:48
Speaker 1: our larger piece of research. But fundamentalists, so people who
33:52
Speaker 1: are really subscribed to that school of like fundamental analysis,
33:55
Speaker 1: they might treat that share with a PEG ratio of
33:58
Speaker 1: less than one as an UNDERVAALP share, so they might
34:01
Speaker 1: go less than one undervalued over one overvalued one on par.
34:06
Speaker 1: Does that make sense?
34:07
Speaker 4: It does.
34:07
Speaker 1: So, it doesn't necessarily mean it absolutely is or it
34:09
Speaker 1: absolutely isn't that.
34:10
Speaker 4: It's an indicator indicata.
34:12
Speaker 1: We have a little look at it.
34:14
Speaker 4: The I really thought peg was going to be more
34:15
Speaker 4: fun than that. I'm not gonna lie to you.
34:17
Speaker 1: Really you have more fun.
34:19
Speaker 4: It took me back to your eleven maths anyway, let's
34:22
Speaker 4: move on.
34:23
Speaker 1: That's what you were doing in your eleven maths.
34:25
Speaker 4: Let's move on to the final method of valuing a stock,
34:29
Speaker 4: the price book ratio. Tell me all about it in
34:32
Speaker 4: twenty seconds or less.
34:33
Speaker 1: PB ratio. I always think of peanut butter and jelly.
34:35
Speaker 1: I don't know why. I'm not even American. I don't
34:37
Speaker 1: even eat peanut butter and jelly. Sandwich has had them
34:39
Speaker 1: one time? Terrible. Why would you mix those two things together?
34:44
Speaker 1: But I really do like the price book ratio. So
34:48
Speaker 1: the price book ratio gives us a little bit of
34:49
Speaker 1: a snapshot of company's value according to the book value
34:53
Speaker 1: of assets on its balance sheet. So it kind of
34:55
Speaker 1: makes sense, like price book, what's on its book? Let's
34:58
Speaker 1: have a look a little, right, I'm going to put
35:02
Speaker 1: myself in the bin. We really do need that break.
35:04
Speaker 1: But a price book ratio is calculated by dividing the
35:07
Speaker 1: current share price by the stocks book value divided by
35:11
Speaker 1: the number of shares that have been issued. So the
35:13
Speaker 1: book value is worked out from the balance sheet as
35:16
Speaker 1: the total assets minus the total liabilities, and so liabilities
35:20
Speaker 1: is costs. So you take what they own and then
35:23
Speaker 1: minus what they owe or what they have in costs,
35:25
Speaker 1: and then you get that number. So the balance sheet
35:28
Speaker 1: with these figures is super easy to locate if you're
35:30
Speaker 1: looking for it. It will be on the company's website,
35:32
Speaker 1: it will be in their annual report. It's a very
35:35
Speaker 1: large part of the report. They are legally not allowed
35:37
Speaker 1: to skip on. So to give you an example of that,
35:40
Speaker 1: because we love an example in this community, let's take
35:42
Speaker 1: an example of a company's market price being currently two dollars,
35:46
Speaker 1: and they have fifty million shares in the market, all
35:49
Speaker 1: issued out. They're all bought right, So the total assets
35:53
Speaker 1: are eighty million dollars. I'd love this business. I'm glad
35:56
Speaker 1: we did this example. So the total assets in this
35:59
Speaker 1: business at eighty million dollars, and then the total liabilities
36:03
Speaker 1: in this business are twenty million dollars. That then equals
36:06
Speaker 1: a total book value of sixty million dollars. So the
36:10
Speaker 1: price book ratio is two dollars divided by the eighty
36:14
Speaker 1: minus twenty million dollars, rich is sixty divided by fifty
36:17
Speaker 1: million dollars, which equals one point seven. And I know
36:20
Speaker 1: you didn't follow that, so you've just got to trust
36:23
Speaker 1: me that the PB ratio is one point seven. But basically,
36:28
Speaker 1: the closer the PB ratio is to one or below
36:32
Speaker 1: the greater the perceived value of the stock, and the
36:35
Speaker 1: PB or the price book ratio is used more often
36:38
Speaker 1: for more mature companies, so like it's for the older
36:42
Speaker 1: hens in the share market that don't have as much growth,
36:46
Speaker 1: so they say it's for limited growth. But at the
36:48
Speaker 1: same time, I feel like, you look at a bank, right,
36:51
Speaker 1: They're not going to triple in value overnight, But are
36:54
Speaker 1: they a good, solid, steady steed that's maybe going to
36:57
Speaker 1: win the race. Maybe that's where we would look at
36:59
Speaker 1: a price ratio. You wouldn't really look at a price
37:02
Speaker 1: book ratio again for a company like after Pay. I
37:05
Speaker 1: used this example a lot, and I've really needed to
37:08
Speaker 1: check myself recently on it. It's not because I don't
37:09
Speaker 1: like after pay, which I don't for the community, but
37:12
Speaker 1: it's because the community so recently had been talking about
37:16
Speaker 1: buying and selling after pay shares and it was so topical,
37:19
Speaker 1: and I feel like it's a trendy share that people buy.
37:22
Speaker 1: So people were buying Tesla, or they're buying after pay,
37:24
Speaker 1: or they're buying Apple or whatever. But my example of
37:28
Speaker 1: after pay is used a fair bit because it's pbe
37:30
Speaker 1: ratio wouldn't be indicative of what it is like after
37:34
Speaker 1: pay is such an interesting company where you go commercially
37:38
Speaker 1: that makes a lot of sense. Is it putting the
37:40
Speaker 1: community in the best possible position. Absolutely not. But when
37:44
Speaker 1: you look at it's PB ratios, is it actually turning
37:46
Speaker 1: a profit?
37:47
Speaker 3: No?
37:47
Speaker 1: But people are still buying into it and still loving it.
37:50
Speaker 1: So I really like using it as an example because
37:53
Speaker 1: of the hype that was surrounded it. Right, you know,
37:55
Speaker 1: we should go to a break because I think you
37:56
Speaker 1: guys are so sick of that. But to summarize that
37:59
Speaker 1: was my PE ratio, my PEG ratio, and my price
38:02
Speaker 1: book ratio explained, there'll be blong on it.
38:05
Speaker 4: Okay, So I feel like I'm getting met a price
38:08
Speaker 4: book ratio. I get it, PEG, I get it. You
38:11
Speaker 4: get paid price earnings, I get it. I get it all.
38:14
Speaker 1: Do you actually no? But I will re.
38:17
Speaker 4: Listen to this episode and I'm sure I will get there.
38:20
Speaker 1: I feel like these things feel really overwhelming when you
38:23
Speaker 1: first hear them, and you're like, holy moly. But then
38:26
Speaker 1: after a few times and a few miles over, you're like, yea,
38:29
Speaker 1: all right, I can't get my head around that. I
38:30
Speaker 1: don't expect anyone to get that. On the first time,
38:32
Speaker 1: because I remember evening in an accounting class when I was
38:34
Speaker 1: learning this for the very first time, I was like, cool,
38:36
Speaker 1: I'm never going to get there. But now I'm like, okay,
38:39
Speaker 1: these three things make a lot of sense. And I'm
38:41
Speaker 1: actually quite a visual learner, so I need to see
38:43
Speaker 1: how it plays out and see what does this mean
38:45
Speaker 1: and where does this plug in and what does that
38:47
Speaker 1: look like? And for me, that's how I learned. But
38:50
Speaker 1: we all learn really differently, and I think that the
38:53
Speaker 1: main thing here is that nobody is going to pick
38:55
Speaker 1: that up after me explaining it to you once, especially
38:57
Speaker 1: when you can't contextualize it. So it's once you start
38:59
Speaker 1: you're in investment journey and you start looking at it
39:01
Speaker 1: and you go, oh, this makes sense, like this is
39:03
Speaker 1: where this goes. That's when you start to comprehend it properly.
39:06
Speaker 4: Amazing. So, for people who have really vibed with this
39:09
Speaker 4: chat v and they're feeling confident and ready to invest,
39:13
Speaker 4: which platforms would you suggest they use to get cracking?
39:16
Speaker 1: Look, I can't recommend specific platforms because that would be
39:19
Speaker 1: wildly inappropriate of me. But our community has a number
39:22
Speaker 1: of different platforms that they love. Obviously, you guys are
39:24
Speaker 1: obsessed with shares's which is really nice. Say are classified,
39:27
Speaker 1: I guess as a mid level DIY platform, so you
39:30
Speaker 1: can go on and buy shares. But the thing that
39:33
Speaker 1: you guys seem to really like about them is that
39:35
Speaker 1: you can buy portions of shares. So if you thought, hey,
39:38
Speaker 1: be I really want to own combat, but I don't
39:40
Speaker 1: have ninety one dollars to do that, you can actually
39:42
Speaker 1: purchase a portion of that share instead of the whole deal,
39:45
Speaker 1: which I think is really nice to get exposure to
39:47
Speaker 1: an asset that you might really love. Not recommending that
39:50
Speaker 1: share at all. That was just an example. They have
39:53
Speaker 1: access as well to a number of different platforms other
39:56
Speaker 1: platforms in the industry. I mean, our community has been
39:59
Speaker 1: talking a lot recently about self Wealth and Superhero. Obviously
40:02
Speaker 1: those are more direct. When we talk about investing platforms,
40:06
Speaker 1: we're not talking about platforms like Rays or Spaceship or
40:10
Speaker 1: even six Park, which is a robo advice platform, because
40:13
Speaker 1: none of those enabled you to invest directly. So if
40:16
Speaker 1: you were looking to invest directly, what you'd be looking
40:18
Speaker 1: for is a DIY platform, And the things I'd be
40:21
Speaker 1: taking into consideration is just really, is this aligned to
40:24
Speaker 1: my values is this aligned to how much I want
40:27
Speaker 1: to pay for a platform, And you can find all
40:29
Speaker 1: of that information out on those websites for those companies.
40:32
Speaker 1: But at the end of the day, completely up to
40:34
Speaker 1: you what you pick, just as long as they are legit,
40:37
Speaker 1: my friends incredible.
40:38
Speaker 4: Remember as well, as we flagged at the top of
40:40
Speaker 4: the episode, guys, we have done many an episode on investing,
40:44
Speaker 4: so have a scroll back and you'll find everything from
40:47
Speaker 4: what micro investing is, to how to use entry level platforms,
40:50
Speaker 4: so on and so forth. That's a really good place to start.
40:54
Speaker 4: We are going to wrap today's episode here. We were
40:56
Speaker 4: going to talk about e bits and ebitday, so we
41:02
Speaker 4: are actually now going to make that a completely new episode,
41:05
Speaker 4: So keep an eye on your feed for that one.
41:07
Speaker 4: It will go dropping not too far a well.
41:08
Speaker 1: George is decided after recording this episode and only half
41:11
Speaker 1: of the episode, that she's like, nah, mate, this is
41:14
Speaker 1: too much. It's Victoria divine. You are canceled and you
41:17
Speaker 1: are dense. So you guys, just get the ratios in
41:19
Speaker 1: the first one and we will extend it out over
41:22
Speaker 1: a few other episodes. Because I feel like that's you're right, George,
41:24
Speaker 1: I feel not for today. Yeah, but it's easier to
41:27
Speaker 1: absorb in smaller bits. And to be honest, the feedback
41:29
Speaker 1: I've heard from people who are listening to the investing
41:32
Speaker 1: episodes is that they listen to it a couple of
41:34
Speaker 1: times just for it to really sink in. So I
41:36
Speaker 1: feel like that's a good idea. Yeah, geniuses, that's boring,
41:40
Speaker 1: but important stuff. Get it done, Liz, do you talk
41:43
Speaker 1: about investment, Yes, exactly.
41:45
Speaker 4: The advisor shared on She's on the Money is general
41:47
Speaker 4: in nature and does not consider your individual circumstances. She's
41:51
Speaker 4: on the Money exists purely for educational purposes and should
41:54
Speaker 4: not be relied upon to make an investment or financial decision.
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Speaker 4: nine a FOSL two three six five two three. We
42:11
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42:13
Speaker 1: Guys by