DICE and EITEMAN picking some issue of security analysis in their book ‘The

Stock Market’. The first steps in security analysis are a collection of facts. The
problem at this point is to know which facts are important. Obviously one can go for
collecting facts about company. Most analysis agrees that facts about the following are
essential.What is the nature of the company’s business? What is the financial plan of the
company? What are the records of earnings per share? What is the company’s dividend
record? What is the high and low price-earnings ratio for the company’s common stock
for the past decade? What is the current price of the company’s stock and how does it
compare with past high and low quotations? This list does not exhaust the important
questions; it merely mentions a few which every analyst would consider essential. But
unfortunately there is a tendency for many investors to act as if the mere collection of a
mass of statistical data means security analysis. The investor must bear in mind that all
the facts and figures he collects must ultimately be resolved to one of the following three
words: buy, sell, or hold. This resolution of a mass of data to one word is accomplished
by the application of investment principles.

N.J. Yasaswy explain the risk return trade off in his book ‘Stock Market
Analysis-for the Intelligent Investor’. He briefly discuss the risk-return trade-off
among a variety of equity stocks available to investors. Investment management is
essentially a money game in which you have to balance the risks and returns. The risks
associated with investments are five-fold. These are Inflation risk(The falling value of
the taka erodes the purchasing power of your money)Interest rate risk(Interest rates may
change owing to changes in the economic situation)Default risk (The risk of not getting
back your principal and interest)Business risk(The risk of business cycles and
uncertainties of business)Socio-political risk(The risks of change of government change
of social attitudes).On the other hand the rewards come in the form of-Safety of the
principal sum invested, Reguler payment of interest and dividends, Liquidity, premature
encashment or loan facilities, salability,etc,Scope for capital appreciation, i.e .bonus
issues, high market prices, Hassle-free transactions ,i.e., no trouble in buying and
selling,encashment of dividend and interest warrants,etc.

N.J. Yasaswy also derive a framework for intelligent stock market analysis.The first
critical analysis to be made is regarding your ability and willingness to take risks.
Different investors have different risk preferences. Investment decisions should be
developed according to these risk preferences. Low risk takers (They should invest in
super stocks and aim at long term gains only. They should adopt a buy and hold
strategy),Medium risk takers(They should invest in emerging blue chips and aim at
medium term (1-3 years). They should adopt a reasonably aggressive strategy),High risk
takers(they should invest in turn around stocks and aim at short-term gains only {around
1 year}. Adopting a very bold investment strategy, they should go bargain-hunting).
N.J. Yasaswy derive the type of decisions you have to make in equity
investment.1.Macro decision (Analyze whether it is an opportune time for equity
investment based on the economy and industry), 2. Micro decision[three silent issue of
equity investment; a)Pinpointing a company; you have to pick the right company based
on financial criteria or non-financial criteria such as management reputation, past track
record, future plans etc. b) Deciding on the right price; decide whether its stock is
attractive at the prevailing price. Is it over priced, is it under priced, or is the price just
right? c) deciding on the right time; ascertain when it is the right time to buy a particular
stock. a good understanding of share price movement charts may help in timing your
purchase], 3.disinvestment decisions; having invested in the shares of a particular
company, you should not fall in love with them. The disinvestment process is the mirror-
image of an investment decision, 4. Portfolio decisions; prudent investors never put all
their money in just one or two scripts because the risk of such concentration is too high.

In their book, they discuss market indicator. There are two common ratios which are used
as indicators of stock market values. Price earnings ratio: the simple relationship
between current or expected earnings per share and the current market price of the stock
is often quoted by both management and owners. The ratio is also called the earnings
multiple, and it is used as an indicator of how the stock market is judging the company’s
earnings performance and prospects. The calculation is quite straightforward, and relates
current market prices of common shares to the most recent available earnings per share
on an annual basis.Market to book ratio: This indicator relates current market value on
a per share basis to the stated book value of owners equity on the balance sheet, also on a
per share basis. The market to book ratio leaves much to be desired as a measure of
performance for many of the reasons mentioned in earlier discussions of other ratios.

They will briefly address the following key points to integration of Financial performance
analysis;1. careful definition of the issue being analyzed and the view point to be taken,
2. Identifying a combination of primary and secondary measures and tools, 3. Identifying
key value drivers that affect performance, 4.Trending performance data over time, both
historical and prospective,5. Finding comperative indicators and supplementary
information,6. Using past performance as a clue to future expectations., 7. Recognizing
systems issues and pbstacles to optimal performance.

Fisher And Jordan in their book, Security Analysis and Portfolio

Management,they mention how to select a suitable common stock by the value line
method.these methods are described in three steps. First( decide on the degree of risk you
are willing to consume), Second( pick out from among the stocks wiyh acceptable safety
ranks those whose current dividend yields appear attractive to you, Third( having picked
a list acceptable interms of safety and current yield, cull out from that list the stocks
ranked 1{highest} and 2{above average} for performance in the next 12 months. Select
one of these and hold it until its ranks falls to 3{average} or lower{4 or 5}. Then sell and
replace it with another.
Fisher And Jordan also explain alternative stock selection technique . They says
Equity investment strategy has two major categories. Active equity management and
passive equity management. In the Active equity management there are severel ways
to select the alternative stock. these are 1.Growth stock approach( the basic premise of
the growth stock approach is that those companies who have above average earnings
growth over a period of time will tend to produce stock values that will lead to above
average returns for the investor. Therefore, the analyst must select those stocks that have
historically had the highest above average earnings growth), 2.Undervalued stock
( practitioners of this approach are sometimes called managers seeking high yield. They
tend to look for companies that have either high dividend yields, low market-to-book-
value ratios, or low price earnings ratios),3.Small capitalization approach( this new
approach is to seek investment in smaller companies that have potential to grow
rapidly),4.Market timer approach(Under this approach the analyst merely attempts to
mirror the performance of the market). On the other hand, in the passive equity
strategy is basically a buy and hold approach to stocks.

Reference:

1. The Stock Market (3rd edition)….Charles Amos Dice and Wildford

Jhon Eiteman. (page No: 421-433)
2. Stock Market Analysis-for the Intelligent Investor….. N.J. Yasaswy.
(Page No:26-41&166-173).
3. Security analysis and portfolio management ( 6th Edition)…
Donald.E.Fischer and Ronald.J.Jordan. (Page No:196-203& 258-261)