If you view stock price as the sum of past retained earnings per share and future accumulated earnings per share, you are not likely to fail. I understand its fashionable to make mockery of such statements, but I doubt how many people have failed using this approach.
Its like this Vijay Sir, you have got to identify your goals and watch its progress. Say for instance, if you want to make 20 times your nitial investment over next 10 years. The next thing you have got to understand is the situation which you are faced with
Now just think, you can make that return by making a 2 time in 5 years and a ten timer in next five following the first five years. Problem happens because most of the time people want to make 5 times in no time and the balance 2 time in the difference of the years.
If I look at your analysis, the first thing which I will do is a very serious knock-down. Also, what is this confidence? And whose confidence is it, anyway? Are you doing a hypothesis testing or a chi-squared test or what? If you have 50 p.c. confidence that a company will clock 50 p.c. growth, it doesnt mean that the company is certain to clock 25 p.c. growth. Actually, I am unable to get what does confidence mean here.
Also the way discounting is nowadays done, sometimes baffle me. How do people make CMP express in X times forward EPS. At CMP, forward EPS shall be discounted and assigned a reasonable multiple, thats what most of us have been taught. So, people express something as value, when actually its not value. Say for instance a stock is trading at 500 and is expected to clock 50 rupees 3 year hence. People say its 10 times FY(X+3). I beieve its a very gross error which people do. You must first bring this 50 rupees to its present value. At 10 p.c discounting( your own required rate of return) , the present value of 50 is 37.56. So, this stock shall be expressed at 13.31 times for its future earnings rather than at 10 times, as is being done.
So, before you embark on winning strategies, you should embark upon studies which help you not to lose.
I am also a student in finace like you are. So, I hope my point may help you in carrying out our studies together. I wish to learn more strategies from you and i am sure you will be able to set your rules once you become equipped to equalise your plans and your goals.
Regards,
Vivek
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