1. Stock valuation, potential market
    value and stock image

Between their fundamentals and their images, stocks lead a double life.

Take advantage of it, shamelessly!

  What is stock valuation and why is it needed?

To simplify,

Well, it is a bit more complicated. If you are in philosophical mood,
    click here
for a more detailed definition.

But you can skip it and go directly to the more practical issue,
*how to* evaluate
a stock, starting with the question below.

  Is there a pertinent method
     to evaluate corporate shares?

That question is, in stock analysis matters, akin to the Holy Grail quest.

Financial specialists have to surf between several well-known, but often
contradictory, approaches:

pi-arrig.gif Methods using "fundamentals": economic forecasts, probabilities of future
results or future net worth,  actualization using money rates.

These bases are necessary. But often, the market bypasses them. Why?

The financial science's pillars: "volatility" and "risk premium".

They have their interest ...and limits. See the famous "beta coefficient".

Does it measure the stock's risk? Not really, only its correlation to the
whole market's risk and return

The role of "trends" and "momentums", and the attempts (or temptations) to
     master them with chartism. 

OK, there is something to dig out here ...but we are miles from stock

pi-arrig.gif The "market efficiency hypothesis".
     To invest, the big criterion would be chance.
Oops, sorry, the stochastic process, 

adorned with "efficient" diversification

This denies, not only trends, but even the need of an evaluation method...

The theory of "complex dynamic systems" (yes, those systems move and get
      mixed up), aka "chaos theory".

A theory spiced with fractals, butterfly effects, stress, breaking points, stability /
instability phases, (vicious) circles, spirals and attractors.

This "complex determinism" really means ...full uncertainty.
Good bye, probabilities!

pi-egg.gif (104 octets)  To take everything into account, a bridge is needed

Although fragmentary, each approach listed above is useful.

But this hides the - mundane - fact that the prices of financial assets reflect both
the yin and the yang

Analysts and portfolio managers need a bridge to unite both aspects.

This site provides it. It is called the stock image, a simple coefficient
example below).

EEV / Estimated

Economic Value

x potential

Image coefficient

=> PMV / Potential

Market Value



x 0,6


x 0,9


x 1,5

=   42

=   61

= 105

We see that the image coefficient is the key of our behavioral stock valuation
which purpose is to estimate the potential market value of a stock.

  So what is a stock image?
     And how to find its present level?

Each stock has its own image. It is the bridge that links:

its ECONOMIC value     its MARKET value

Practically, it is the "Price divided by EEV
(Estimated Economic Value)

An easy to find coefficient if you know how to calculate an EEV (the next
gives a simple method for that).

As a love bonus or hate discount (see levels / factors page), the image is a
coefficient that indicates if the market:

  venerates the stock (image > 1)

  or has no special feelings (image = 1)

  or hates it (image < 1).

  Quick summary

The image of a stock is a coefficient that:

images/pi-arrig.gif   takes mainly into account the market's behavior towards the stock.

  has for current value the stock price divided by the stock's
   estimated economic value

  varies in time, in a bracket specific to each kind of stocks.
   Thus, a stock's image has:

an indicative maximum value

(reached in buoyant market periods)

a structural value

(average historical market's attitude
towards the stock)

an indicative minimum value

(reached in depressed market phases)

that image variation range allows to define

indicative high/low potential prices for each stock

   Is that all?

However simple and intuitive, this image concept can be used profitably only with a
good knowledge
of the underlying model (BAPM / Behavioral Assets Pricing Model)
and its operational data.

I included in this site the main keys to use it, taken from my treatise-guidebook

(only in French, and now out of print, sorry)

"Concept d'image appliqué à l'évaluation des actions: à quel cours acheter
ou vendre en Bourse"

The first thing to calculate, as shown in the next page, is the economic value


This page last update: 24/09/15          Next: [econ. value]
Disclaimer /Avertissement légal

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