How to Analyze a Single Stock

Maybe a particular stock has caught your eye... but how can you tell if it's a good buy?

sources:

Two Cents is hosted by Philip Olson, CFP® and Julia Lorenz-Olson, AFC®
Directors: Katie Graham & Andrew Matthews
Written by: Philip Olson, CFP® and Julia Lorenz-Olson, AFC®
Executive Producer: Amanda Fox
Produced by: Katie Graham
Edited & Animated by: Sara Roma
Fact checker: Yvonne McGreevy
Images by: Shutterstock
Music by: APM

[TwoCentsPBS]

CORRECTIONS & UPDATES: As several sharp-eyed viewers noticed, the animation on P/E around the 5:08 mark is showing a different formula from what Julia's saying. Julia is correct that you should divide the EPS into the Stock Price (Stock Price/EPS), but the animation shows dividing the EPS *BY* the Stock Price (EPS/Price). The corrected animation should've shown the formula to be Stock Price / EPS - thanks for bringing this to our attention!

[JonathanSorunke]

That’s wild that Phillip had a mustache as a baby!

[gunclesam]

I am an economics student at GWU and I absolutely love your videos! They explain concepts better than any of my teachers do!

[KaironQD]

Picking individual stocks is usually too much excitement for me, I'll just stick to my "boglehead" approach of investing in diversified inexpensive index funds and que sera sera!

[treyowen]

To get rich in life, you need to spend less and invest more. You don't expect to spend 90%, invest 10% and expect financial growth. there is a saying "what you eat dies but whatever you invest lives forever"

[sminthian]

The main thing I tell people is to expand the date range on the graph. Most people only look at 1-3 months, change that to 5 years or max. You'll get a much better picture how it's actually doing right now.

[scarpfish]

Personally, I see nothing wrong with folks who want to learn about individual stock analysis, but after doing some of that myself, I came to conclude that the time spent and stomache churning from both FOMO and FUD wasn't worth it, esspecially when I can just contribute regularly to my 401K and IRAs through index funds and ETFs. I can then spend my time doing things I enjoy.

[livingunashamed]

I'll just stick to a total stock market index fund :).

[MixMeMcGee]

Baby Philip *mustache included*, was not a mental image I was prepared for on a Wednesday. 😩

[augustus]

One thing that's important to keep in mind is share dilution.
When a company releases more shares, your share becomes less valuable, because you own a smaller part of the company.
Therefore, look whether they are diluting or buying back shares and add that to your consideration when considering buying.

[crachor]

Low cost index funds are a recommended long term strategy. Trying to pick stocks still brings human emotions into it, and people are noticably bad at trying to time the market. #justmytwocents

[HankTheTank]

For the record, EPS and the P/E ratio are only minor parts of fundamental analysis. Frankly, they're about as basic as it gets. In my mind, fundamental analysis is really about Discounted Cash Flow (DCF) analysis. This means estimating a company's future cash flows and discounting them with an appropriate discount rate to arrive at an intrinsic look at its Enterprise Value (EV). From a company's EV, you can back into its equity value and calculate a price per share. If the market's price is below this intrinsic share price, you should buy the stock. If the market's price is above this intrinsic share price, you should sell it. That is what fundamental analysis truly is.

[JosephDickson]

"Don't look for the needle in the haystack. Just buy the haystack!"
-John C. Bogle

[of]

Gonna be real with yall and criticize this video for not really putting a warning out that single stock analysis and investing is mostly a futile and dangerous endeavor for the average retail investor. Not as bad as straight up gamlbing, put close enough. Long term buy hold of diverse single stock portfolios does work, but at that point you are just building an index fund with alot more trouble. There is an appeal, I get it, for the 'little man' to beat the market with math, however:
1) you are not the only one doing the math, and unless you have the infrastructure, someone is doing that math faster than you. You and your computer are not going to beat an investment bank with supercomputers and direct high speed connections specifically built for the task. Its NOT enough to discover an edge, you must exploit it before someone else does otherwise that edge is lost.
2) assuming the market is rational and will behave mathematically predictably is a very poor assumption. Math alone doesn't win poker games.

THE most dangerous thing for an investor is for them to develop an ego or a sense that they "know how to time the market" or "know how to pick stock" (far better to screw up in the beginning and learn that lesson, rather than succeed a bit then fail when there are more zeros in your account).

Remember, if you REALLY could do this for a living, even marginally better than the professionals or the market return, you should quit your job, do it full time, and end up rich enough to spend your days on yacht snorting blow off a hooker. Matter of fact, anyone who says they have the secret to stock market timing/stock picking... ask yourself "where is their yacht full of blow and hookers and why are they telling ME their secrets".

The sad reality is most people are terrible stock pickers / traders / market timers. We talk about the mythical "7% average return inflation adjusted". That's a fantasy for undisciplined investors who succumb to thinking they know better and start trying to time/trade/pick the market. Very VERY foolish and financially devastating idea.

[jasperdawnstar]

I like the way limitless put it. (Sure you can make a little by the number, but ultimately it is about mass psychology)
A business could do very poorly, but still make big moves in the stock market as well as a good company could do poorly in the stock market. Look to where the people are thinking, and that is where the money is. Keep hustling out there! 🙆‍♂️

[ralphmarilyn]

BUILD YOUR FUTURE, SMALL STEPS, EVERYDAY SUCCESS IS A PROCESS, YOU WILL BE SUCCESSFUL!!!!

[kevinjeffries]

At 5:01 the formula given for P/E is backwards. It should have price in the numerator and earnings in the denominator.

[ligmasachs]

I think you’re forgetting to include some important info/warning especially for a video targeted at beginners.

Stocks have negative skewness, very basically meaning that most individual stocks have flat or negative returns, BUT stock returns are positive over time because a very small number of stocks have very large returns and those stock carry the majority of returns.

There’s a great paper called, “Do Stocks Outperform Treasury Bills” that includes specific figures.

[earllloyd]

"Start small and do your own work to verify" best advice for new investors

[lutfifawzy]

I been following you guy since the early beginning, now i save more money and have some to invest. This video also help me choose my first stock, thank you