Research On Investment Method Based On Dynamic Value Theory

The development of capital market in China provides opportunities for the investment of securities.The economic development makes the capital surplus so that demand of investment and financial management market is huge.With the development of China's securities market,the concept of value investment has gradually been accepted by the public.Value investment has been proved theoretically and practically to achieve excess returns,but it has not been adopted by all investors,because there are still difficulties in practical application.Based on the theoretical analysis,this paper put forward the theory of dynamic value investment.On the basis of this,combined with literature and personal investment experience,the paper researched the relationship between value and price,value fluctuation,value source,valuation and margin of safety.On the basis of empirical analysis,a scientific and feasible investment method is proposed.First of all,on the basis of literature review on the tradition al value investment theory,the paper proposed the dynamic value theory.The dynamic value theory is applicable to the investment of all kinds of stocks,such as the growth stock and the cyclical stock.Meanwhile,it also provides the analysis method for the investors to avoid the value trap of the investors.The analysis shows that the purchas ing behavior of value growth shares can obtain security margin and the holding margin of security brought by the value increase during the holding period.The dynamic change of value may form the expectation,and the rational expectation will fluctuate the stock price and reflect the dynamic change of value.The movement of stock price is a result of the superposition of three trends,namely,random fluctuation in short-term,moved by original trend in medium term and determined by stock value in long-term.Secondly,this paper has proposed four models: clearing model,profit model,trading model and fantasy model,which can be used to judge the overvaluation or undervaluation of the stock price.Investors can apply the clearing model to buy the traditional value stocks,or use profit models to buy growth stocks,and sell stocks according trading models.Meanwhile,it researched the causes and characteristics of stock market bubbles.Investors can sell stocks before the bubble burst,or buy high-quality stocks at good price after the bubble burst.The article has also analyzed the process of enterprise value creation and the source of profit as well as the way that enterprise keeping creating value continuously.On the basis of the theoretical analysis,the future PE and PEG were proposed as the parameters of selecting stocks.The empirical analysis with the A shares data during 2000 to 2016,showed that the stocks of 5 times PE or PEG<0.5 in next 5 years have a very good advantage,which can be used as indicators of stock investments.The portfolio has achieved positive and excess returns in all the investment cycles.Since the market has partly reflected the business situation in the past,it is difficult to obtain excess satisfactory earnings by simply selecting the past financial data to calculate the PE and the PEG.Finally,based on the research results,this paper summarized the investment method of dynamic value and put forward the principles to the investors for reference when selecting stocks,buying and selling,making portfolio calculating safety margin and the evaluation of risk and performance.The dynamic value theory shows that the calculation of the safety margins should consider the value of the stock at the time of selling,rather than the value at the time of buying.When selecting investment stocks,investors should consider four kinds of safety margins: the safety margin at buying,the safety margin by holding,the safety margin from the revaluation of value and generated by collaborative value.The investor with more safety margins can get a better investment return than only with buying safety margin based on static value investment theory.The dynamic value theory shows that the return by loop investment from 1 to 3 year terms is better than that of long-term investment because of the medium-term trends of stock prices.