Lesson On PE

If u invested one dollar in stock x, n this stock x giving u EPS of 10cts ( 1/0.10 = PE 10 ), this means it needs 10 years for u to gain back yr capital of one dollar ^V^In short PE 10 means u need 10 years to recover yr capital
PE 20 means u need 20 years to recover yr capital
Now calculate yrself, if stock x traded at PE 3 , answer me, what is d FD rate for PE 3 ? n u need how many years to recover yr capital ?
If u can answer that.. this show u r HALF understand d magic key of PE !

I am not saying stock with PE < 10 will definitely profit u ! but !!! at least u know what u r buying n u wont over pay for what u bought ^V^ No matter how, u still hv to take some risk even stocks that u bought r all below PE 10, everybody know how to buy LOW PE stock, but not everyone able to catch low PE stock with sustainable future earning ( here i am talking about sustainability of its future earning, of course if her earning jumped above yr forecast is even better ). D key success here is "Future earning "

ExampleStock X Share price = 1.50 EPS for 2 qtrs = 15.64Let presume that stock X managed to maintain such a good earning for d coming 2 qtrs , hence, 15.64cts x 2 = 31.28 cts for year 08 ^V^If my forecasting turn to be good, 31.28 cts will translate its PE to 4.7 (21% return per year)with current price of 1.50, let assume d PE for its industry stood at 13+-, its fair value should be 13 x 31.28 = RM 4 + ! even PE 10 will still give u fair value of 3.10+ ^V^D above r with d assumption that its future earning rose in line with u hv forecasted ^V^

What happen IF >>>>

What happen if d coming 2 qtrs turn to be an lousy one, presuming she running at huge loss with negative EPS of 30cts !??let calculate again..first 2qtrs EPS = 31.28, d other 2 qtrs giving u -0.30cts

D whole year EPS is now 31.28 - 0.30 = 1.28ctsyr PE is now 1.50/ 1.28 x 100 = 117 !!! what is PE 117 stand for ?PE 117 stand for 0.85 % return per year or u needs 117 years to recover what u hv invested ! (why buying such stock that giving u return of 0.8% if u can enjoy FD rate of 6.6 % with zero risk !??)See ? future earning will determine d movement of yr share price ^V^That's d reason y I will not buy in any penny stock with PE > 15 n blue chip @ PE>20 !

How to minimise yr risk from wrong picking ?2 ways :
1)Track earning recordsIts 3 to 5 years track earning records : check d earning track records for stock like PBB, YTL , BAT , Maxis, IOI.... NO losses at all for past 10 years !! That's y i always ask u ppl to follow those with track proven results blogger ..ha ha

2)What is on going now n years to come example : We know 9mp is hot going n it will on going for another 2 to 3 years time, Mega projects need steel (http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_6f4bdce6-cb73c03a-6798eb00-5043bd24 ) , cement, timber n ..... from here I know n confident that d coming 2 qtrs earning for masteel n onastel r definitely sustainable ^V^ hence, their coming earning will definitely in line with what i hv forecasted .