What You Need To Know When Investing In Stocks?

What You Need To Know When Investing In Stocks? ROE-PBR Chart
This is one of the pages I use when I go to an institutional seminar on the consumer goods industry, and the leftmost graph in the figure below is the KOSPI average, and the rest of the companies are Korean companies that they know

KOSPI's return on equity (ROE) converges to an average of 9-10% despite ups and downs. Therefore, KOSPI PBR is also maintained between 0.9 and 1.2 times. It works on the basis that market strategists often say, "The PBR band is at the bottom of history, so you can buy it."

However, for companies A to E, ROE values are "trendously falling." When the ROE value picks up for a while, the stock price may rise, but it is concluded that it is right to de-rate compared to the KOSPI. So, in order to prevent the stock price from continuing to be cheap, that is, to fall into an undervalued state, the ROE value must be raised or maintained

ROE = Net income/ equity capital of controlling shareholders

Here, in order for the ROE value to rise, it is necessary to continue to increase the net profit of the controlling shareholder or reduce the net profit of the denominator. If it is difficult to increase the net profit of the controlling shareholder every year because it is a low-growth industry, you can reduce the denominator value by dividends, share buybacks, and retirement according to the company's circumstances. A low-growth company that only keeps accumulating money remains a company that is three times the PER every ten years

I remember telling foreign investors in the past that the actual corporate value was only 500 billion won because the market capitalization of the home shopping company was 1.2 trillion won and there was 700 billion won in cash. Is that cash returning to shareholders? Most companies had more than half of the market capital because they had a structure in which cash continued to accumulate as each company made nearly 200 billion won in operating profit every year without investing in tangible assets in the home shopping industry (although it is of course not because it is now a declining industry). Although most companies say they withhold cash for investment, the investment attractiveness is halved because only the capital becomes large and the ROE value decreases, and the money flows into the wrong place and rather undermines shareholder value

If I'm in the stock market from the morning, everyone would know. The reason why I say this is because there are many people who feel unfair that they are undervalued only by their own companies, and many Korean companies are stingy about dividends and say that they are undervalued to shareholders, so on the one hand, they are angry, and on the other hand, it's a pity

In the Korean stock market, investors will try to find and invest in companies with low ROE-PBR values above KOSPI's average in various industries and companies, and furthermore, global investors will find out which market is attractive at low prices in the global stock market first and pick companies in it. Why aren't they going to stock prices when they make no effort to increase shareholder value...

The market where ROE-PBR is most attractive is the U.S. Not only because U.S. companies grow through innovation, but also bank stocks and consumer goods companies that are not in the growing industry like tech companies also buy back their own shares and incinerate them every year. Naturally, they are receiving high valuations. So, even Korean individual investors flock to the U.S. stock market