How to find a stock's right price?

4.1 What is the right price of a stock?

The Second Golden Rule: "Buy at 50% discount or lower, and sell at MRP, provided it gives minimum 20% compounded annual return", helps determine the right price, to buy & sell the stock of a company and the Expected Rate of Return.

Let us understand the terms- MRP, Discount Price and Expected Rate of Return:

WHAT IS MRP?
MRP is the maximum price we should pay for a stock so as to get a minimum expected rate of return of 15% for the next 5 years. When we buy a product we check the Maximum Retail Price (MRP) printed on it and do not pay more than that. In case of shares, MRP is a measure of the real worth of the share. This is the price above which we should consider selling the share, provided we have got over 20% compounded annual return.

WHAT IS DISCOUNT PRICE?
Discount price is 50% off on Maximum Retail Price.

The Value Investing Guru Benjamin Graham insisted on a 50% discount and we use this to guide our Discount Price - the price at which we should buy the shares.

There are risks in investing in shares, so, we would like to buy shares at a hefty discount on the MRP. The Stock Market does provide opportunities to buy at heavy discounts; however we need to patiently wait for the right moment.

Expected Rate of Return
This is the compounded annual rate of return you want from your investment in a company in the next 5 years.
When we buy a stock at the Discount Price we should expect a Rate of Return of 20%.
A Rate of Return of 20% uses the power of compounding. At this rate; our investment will double in about 3 and half years.
Considering the kind of companies we want to invest in, this is a sensible expectation. We should opt for this rate, to make our investments reach the expected level.

To get the MRP and Discount Price, MoneyWorks4me has a unique Price Calculator:

Price Calculator - a unique tool designed by MoneyWorks4me - provides you the sensible buy and sell price for a selected company.

It provides you the MRP and DISCOUNT PRICE for a stock, after thorough quantitative as well as qualitative analysis by a team of expert analysts.

In the short term stock prices are affected by market sentiments and availability of money. So we suggest you to take a discount of 50% (margin of safety) to the MRP and buy the stock at the Discount price or anything below that.

Thus DISCOUNT PRICE is the sensible BUY price and MRP is the sensible SELL price of a stock.

To understand how MoneyWorks4me arrives at the MRP and Discount price of the stock of a company click on the links below-

4.2.1. Valuation for a company
4.2.2. Valuation for a bank

Want to do your own Valuation? Click on the link-

4.3 How can you do your own Valuation?