Investment Basics
What is 50/30/20 rule?
50% for Needs, 30% for Wants and 20% for Investment
Which financial statement shows revenue and net income?
Income statement.
What does intrinsic value mean?
The estimated true value of a company based on fundamentals.
What does trading volume tell us?
The strength or conviction behind a price move.
What does Buffett mean by “economic moat”?
A company’s long-term competitive advantage.
How do you screen stocks?
Use filters (sector, market cap) or metrics such as profitability and growth ratios to find stocks
Why do investors care about margins?
Margins show profitability and how efficiently a company operates.
Name two valuation methods we learned.
Discounted cash flow (DCF) and relative valuation (comparables).
What is the purpose of a moving average?
To smooth price data and identify trends.
What is "eighth wonder of the world" according to buffet?
compound interest
What is an investment thesis?
A clear explanation of why a stock is a good or bad investment.
What is CapEx, and where does it appear?
Capital expenditures; shown on the cash flow statement under investing activities.
What is terminal value in a DCF?
The value of all future cash flows beyond the forecast period.
What is support? What is resistance?
Support is the floor of a trend. it is usually where buyers step in; resistance is ceiling of a trend. it is usually where sellers step in.
Why can a great company still be a bad investment?
Because it may be overvalued or priced for unrealistic expectations.
What is P/E ratio? Average P/E ratio on the market?
Price / Earnings Ratio. Average is 15.
What is free cash flow?
Cash generated after operating expenses and capital expenditures.
Why is valuation an estimate, not an exact number?
It depends on assumptions like growth rates and discount rates.
Name one bullish candlestick pattern and what it signals.
Hammer or bullish engulfing; signals potential upward reversal.
What is EPS? How to calculate it?
Earnings per share. Total earnings / # of shares.
What does Porter's Five Forces measure?
Porter's Five Forces determines attractiveness of an industry by analyzing five key competitive forces
Revenue is growing, but cash flow is declining. Name one possible reason.
Rising CapEx, increasing inventory, higher costs, or poor working capital management.
Which matters more in valuation: growth or margins? Why?
depends. for mature companies, margins are more important. for growing companies, growth are more important.
A stock breaks resistance on low volume. What does that suggest?
The breakout may be weak and may not be sustainable.
How many stocks are in the Dow Jones Industrial Index? Name any 2 stocks in there.
30.