CHAPTER 3
Book Value
The way to a small fortune in the stock market is to start with a large one! That is a joke, of course, but I think that the way to make a million dollars in the market comes one dollar at a time, beginning with selecting the right stocks. The fundamental factors that I discuss in the following chapters will serve as a strong foundation for your stock-picking endeavors. Select stocks for value, and then I will show you how to time your entry and exit using technical analysis.
There will be some pain involved. I will throw at you a few terms that make it sound like learning a new language. Push past your fear and discover that the pain will be brief, like ripping off a bandage. One of those moments is coming in just a few paragraphs.
According to the statistics summary in Chapter 12, book value is one of the key ingredients of stocks that increase in value. It takes three of the top five slots for performance over one and three years, and two of five slots for a hold time of five years. If you want to make money in the stock market, basing your stock picks on book value is a good choice.
When I started investing over 30 years ago, one of the fundamentals I looked at was book value. I figured that if the company was trading below book value, then even if they went bankrupt, I could still get some of my money back. That is not always true because book value and market value are different. I will explain that later.
BOOK VALUE DEFINED
How do you define book value? ...
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