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4.3 KiB
4.3 KiB
Stock Analysis Framework
This reference provides detailed analysis frameworks for evaluating stocks across different markets.
Fundamental Analysis Checklist
1. Financial Health Check
- Revenue Growth: Consistent revenue growth over 3-5 years
- Profitability: Gross margin, operating margin, net margin trends
- Cash Flow: Positive operating cash flow, free cash flow generation
- Balance Sheet: Debt-to-equity ratio, current ratio, interest coverage
- Return Ratios: ROE, ROIC, whether they exceed cost of capital
2. Business Model Analysis
- What does the company do? Clear understanding of business and revenue sources
- Competitive Advantage: Does the company have moat (brand, scale, network effect, patent)?
- Pricing Power: Can they pass cost increases to customers?
- Customer Concentration: Is business dependent on few large customers?
3. Management Evaluation
- Capital Allocation: Does management deploy capital wisely (reinvestment, dividends, buybacks)?
- Insider Ownership: Do managers have significant skin in the game?
- Transparency: Clear and honest communication with shareholders
- Track Record: How have they performed through market cycles?
Valuation Methods
Price-to-Earnings (P/E) Ratio
- Compare to:
- Historical P/E of the company
- Industry average P/E
- Market average P/E
- Growth adjusted P/E (PEG ratio) < 1 often indicates undervaluation
Price-to-Book (P/B) Ratio
- Particularly relevant for:
- Financial institutions (banks, insurance)
- Capital-intensive businesses
- Companies holding significant assets
- P/B < 1 may indicate deep value (but always check for asset quality)
Discounted Cash Flow (DCF)
- Project future free cash flows for 5-10 years
- Calculate terminal value
- Discount to present value using appropriate discount rate (usually WACC)
- Best for companies with stable predictable cash flows
- Sensitivity analysis is important (change growth and discount rate assumptions)
Dividend Discount Model (DDM)
- For mature companies with stable dividend history
- Gordon Growth Model: Value = D1 / (r - g)
- Focus on dividend growth rate and sustainability
Relative Valuation
- Compare key multiples with direct competitors
- Identify why the company should trade at premium/discount
- Common multiples: EV/EBITDA, P/S, EV/Sales
Analysis by Market
US Market Analysis Considerations
- US markets are generally more efficient
- Focus on institutional holdings and analyst coverage
- Consider currency impact for non-US investors
- Tech sector dominates, so growth stock analysis skills are critical
- Earnings reports and guidance heavily impact prices
Hong Kong Market Analysis Considerations
- Strong link to Chinese economy
- Influenced by both global and China factors
- Higher weighting for financials and property
- Pay attention to southbound/northbound capital flows
- Liquidity varies significantly between stocks
- Some companies have different share classes (A/H, different voting rights)
A-Share Market Analysis Considerations
- More retail investor participation, higher volatility
- Policy changes have significant impact
- Focus on government industrial policies (five-year plans, etc.)
- Sector rotation driven by policy and macro cycles
- Pay attention to regulatory risks
- Consider Shanghai/Shenzhen/HK Stock Connect flows
Risk Assessment Framework
Systematic Risk (Market Level)
- Interest rate changes
- Economic recession
- Geopolitical risks
- Market liquidity risk
Idiosyncratic Risk (Company Level)
- Industry disruption
- Competition
- Management fraud/error
- High debt default risk
- Product/market failure
Margin of Safety
- Always require a margin of safety between intrinsic value and market price
- Typical margin: 20-30% for high-quality companies, 40-50% for lower-quality
- Larger margin for more uncertain businesses
- Never overpay for growth hype
Final Recommendation Categories
- Strong Buy: Deep value, strong fundamentals, excellent risk-reward
- Buy: Good company at reasonable price
- Hold: Already fairly valued, no urgent need to buy or sell
- Watch: Interesting company, waiting for better entry point
- Sell/Avoid: Poor fundamentals, overvalued, significant risks