Research On Value Investment Of China's Security Market Based On Value Evaluation

Value investment is the investment based on the intrinsic value, its premise and kernel is the estimation of enterprises'value, and the intrinsic value is the estimation value according to some certain method, for example, the intrinsic value weighed by the enterprises'future cash flow, the key of value investment is that the value estimation is accordant with the true developmental situation.. The value of value estimation and the value of simple commodity don't belong to the same category. The intrinsic value is a value by way of some facts, such as assets, dividend, and specific foreground. The intrinsic vale is different from the market price which is jamming or is disturbed by psychological factors. And it is decided by payoff ability; moreover, the payoff ability must mean the anticipation of the future.The basic characteristics of value investment are as follows: firstly, value investment is accordant with the function of optimizing the financial resource of the stock market; secondly, value investment is accordant with the investment function of the stock market; thirdly, value investment is relatively a long-term investment. The difference between value estimation and stock jobbing is that the latter is only concerned about quotations on the market, viz. the daily raising and falling of the stock price and index, and conduct short line operation.Value estimation of stocks is the judgment and measurement taken by the investors, stock researchers and observers of stock market. They will estimate that whether or not the intrinsic value of some company's stock or the whole stock market has gained reasonable embodiment. They usually conduct evaluation by drawing the comparisons between market price and intrinsic value. Stocks that have a intrinsic value less than their current market price are known as overvalued, or overpriced stocks; whereas those that have a intrinsic value greater than their current market price are known as undervalued, or underpriced stocks. When value estimation is being conducted, many factors must be calculated, such as the enterprises'outstanding achievement, the future growing up quality, the profit distribution and the market price, meanwhile, the enterprises'or stocks'value must be analyzed through financial rate, and attention must be paid that the value estimation is affected by fluctuation of market price and psychological anticipation of market participant. In order to confirm the enterprises'intrinsic value, comprehensive estimation method can be used to get the approximation of the enterprises'value as exactly as possible, and value investment can be conducted according to this.The methods of stock value estimation consist of relative value estimation and absolute value estimation. Relative value estimation use price target aims to compare with some other stocks, if the price target aims is under the average value of the corresponding value of frame of reference, the stock price is undervalued and may rise, it will make the target aims return to the average value of frame of reference. The absolute value estimation is to forecast the future financial data that reflect the company's running condition through fundamental analysis of the company's history and current status, accordingly the intrinsic value of the company's stock can be gained. The methods of absolute estimation include Dividend Discount Model, Discounted Cash Flow model, Capital and Asset Pricing Model and so on. The function of absolute estimation is that the stock price is always fluctuating around the intrinsic value of the stock. If an undervalued stock is found, you can buy when the stock price is far under the intrinsic value, while you may sell the stock when the price returns to the intrinsic value and even higher than the intrinsic value.The value estimation methods in common use are Discounted Cash Flow, Economic Value Added, Capital Asset Pricing Model, Revaluated Net Asset Value, Price divide Earnings(abbreviate form PE), PE divide Growing ratio and Price divide Book, etc. In China's security market, using one main value estimation method or other methods, investors can evaluate the company through comprehensive calculation in order to find those undervalued stocks. The investors conduct calculation through synthesizing all kinds of value estimation methods and educe the enterprise's value, then conduct value investment based on value and gain long and steady benefit. In practical application, different value estimation methods apply to companies of different trades or different financial conditions. For different companies, different value estimation methods should be used. To combine several relative value estimation methods with at least one absolute value estimation method may get better effect.Since the establishment of China's stock market on Dec. 19th, 1990, the representation of opportunism is rather more obvious than investment character. Each participant in our country's stock market pay more attention to the up- and -downs of the price, from the firms, organization investors, to individual investors, they all seek for the play of buying when price is low while selling when price is high and neglect the intrinsic value of the stock, prefer to the stock jobbing. Even those organization investors who allege value investment, for instance some fund companies, also continually buy and sell stocks, their trading amount is rather big. All these have deviated from value investment. At the same time when compared with other countries'situation, China's security market also reveal higher value estimation and serious stock jobbing.Aiming at the phenomenon of deviating from value estimation in China's security market, first of all some policy advice should be proposed such as to establish value investment culture in China's security market, and to set correct value investment conception., to consummate the information publishing obligations of the firms that come into the market, to improve the quality of the firms, to cultivate the procession of organization investors and accelerate the development of value investors. Secondly, some main strategy advice of value investment should be proposed, such as to choose and find objects of value estimation, to hold some investment objects with top-quality chronically and patiently, to choose the best investment opportunity, to stick to five good investment conception and to conduct reasonable investment portfolio. Finally stock option methods advices should be proposed, such as to choose driving industries and head stocks of some trades, to choose growing stocks, to choose pop stocks, to choose policy bearing stocks, to choose blue chips, to choose low price stocks that have developmental potentials and to choose new companies'stocks.