What is Net Asset Value (NAV)
In layman's term NAV means how much a stock would have "worth", which is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding
What is Market Value
In layman's term Market Value is the value of a company according to the stock market. Buyers and sellers used this price to buy and sell stock at a stock exchange.
Illustration
Stock A
An ice-cream with NAV of $0.50 per scoop selling at $5.00 per scoop to its customers
Stock B
A packet of chicken rice with NAV of $3.00 selling at $3.50 per packet to its customers.
Analogy
Often it would have been the case which we had seen, the newly opened ice-cream shop in town will have a much longer queue than a traditional chicken rice stall. The ice-cream are obviously over-priced and tasted normal or just slightly better than average but the customers willing to pay extra for a try, and also of course of the long queue syndrome. The ice cream price goes up along with its popularity.
A year later, the ice cream customers would have then realised that they had actually paid 10 times more for a normal ice cream. The customer would eventually went back to buy chicken rice for their daily lunch or dinner, which are only 1.17 times more than its value, and the ice cream stall would eventually closed down.
Stock Market
Stock A is a new hot IPO in town, with the price-to-net-asset-value (P/NAV) ratio of 10, or some called it Price / Book Value. Stock B have a P/NAV of 1.17 only.
Based on the P/NAV only, ignoring other factor, Stock B would be a better choice for long term investing.
Often, Stock A's price would goes up during the early stage due to the fact that many would rush to and grab a bite, and some would take this newly IPO stock in town for a try, hoping that it can be a multi-baggers stock. Most of the cases, the trend and popularity dies off eventually, Stock A daily volume drops, and people will turn back to Stock B, a good old dividend stock.
Another example is if we would take a look at our three largest local bank.
NAV, estimated based on Yahoo finance
DBS - $16.72, P/NAV at 0.95x
OCBC - $8.57, P/NAV at 1.03x
UOB - $19.06, P/NAV at 0.97x
Market Value, based on today closed price
DBS - $15.95
OCBC - $8.86
UOB - $18.62
Which is cheaper?
DBS which has the lowest NAV or OCBC with the lowest Market Value?
Which is more expensive?
OCBC which has the highest NAV, or UOB with the highest Market Value?
What's your take?
Want to get a taste of the new ice cream in town which everybody are rushing to queue, or choose to take a boring chicken rice for your daily meals.
Showing posts with label chicken rice theory. Show all posts
Showing posts with label chicken rice theory. Show all posts
Thursday, 14 July 2016
Tuesday, 10 May 2016
Should we rush to buy a stock when everybody is buying it?
From time to time, people made mistakes in investing, and myself is not spared from it as well. One of the common mistakes is one tends to buy the stock although the price keeps going up.
Maybe he want to get a slice of the cake which everybody is rushing towards. Maybe decision affected by families or peers when all are recommending it. Or maybe the reason can even be just because he is attached to this stock emotionally. Whatever the reasons it is, we should try our best not to buy it when the price keep going up, or at least this is what I believed in now. Most of the time, the stocks are already overpriced in such cases. It is not wrong by do so, but must do your homework well before making the buy call.
One good example for myself is that I bought Starhub during early of 2015, at around $4.1x. Main reason I bought this stock is because of the dividend yield, quarterly dividend pay out and payout ratio of 90% based on the the past records. The down point is that my dividend yield is slightly less than 5% only, which is consider as low for a dividend stock, but the price had always been more than $4 since 2013. With the psychological effects upon myself, I assumed it would be safe since it had been hovering around $4+ since 2013, but soon after, the price was heavily impacted by the news of the entrant of a fourth telco in Singapore telecom market.
A similar case which I seeing now is SATS. Will it be a multi-baggers stock in the future, or will it become a "trap"? Time will tell, especially when the opening for Terminal 4 & 5 of Changi Airport.
This lead me to have a thought.
Why would there have a long queue at the chicken rice stall? The price keep increasing but the queue only gets longer. Would you follow the queue blindly to get a packet of the chicken rice just because the queue was long? Is the chicken rice nice, or is it still as nice as before? Was the chicken rice over-priced? Or was it because it is the new "in" thing in town?
Of course, may not be neccessary a chicken rice, it's just an example. Ice-cream may work the trick too. ^-^
#chickenricetheory
Ps. I am still holding my Starhub shares, hoping that there would not be a decrease in the dividend payout. *finger crossed*
Maybe he want to get a slice of the cake which everybody is rushing towards. Maybe decision affected by families or peers when all are recommending it. Or maybe the reason can even be just because he is attached to this stock emotionally. Whatever the reasons it is, we should try our best not to buy it when the price keep going up, or at least this is what I believed in now. Most of the time, the stocks are already overpriced in such cases. It is not wrong by do so, but must do your homework well before making the buy call.
One good example for myself is that I bought Starhub during early of 2015, at around $4.1x. Main reason I bought this stock is because of the dividend yield, quarterly dividend pay out and payout ratio of 90% based on the the past records. The down point is that my dividend yield is slightly less than 5% only, which is consider as low for a dividend stock, but the price had always been more than $4 since 2013. With the psychological effects upon myself, I assumed it would be safe since it had been hovering around $4+ since 2013, but soon after, the price was heavily impacted by the news of the entrant of a fourth telco in Singapore telecom market.
A similar case which I seeing now is SATS. Will it be a multi-baggers stock in the future, or will it become a "trap"? Time will tell, especially when the opening for Terminal 4 & 5 of Changi Airport.
This lead me to have a thought.
Why would there have a long queue at the chicken rice stall? The price keep increasing but the queue only gets longer. Would you follow the queue blindly to get a packet of the chicken rice just because the queue was long? Is the chicken rice nice, or is it still as nice as before? Was the chicken rice over-priced? Or was it because it is the new "in" thing in town?
Of course, may not be neccessary a chicken rice, it's just an example. Ice-cream may work the trick too. ^-^
#chickenricetheory
Ps. I am still holding my Starhub shares, hoping that there would not be a decrease in the dividend payout. *finger crossed*
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