Hostname: page-component-cd9895bd7-gbm5v Total loading time: 0 Render date: 2024-12-23T10:58:28.912Z Has data issue: false hasContentIssue false

The Evaluation of Ordinary Shares Using a Computer

Published online by Cambridge University Press:  18 August 2016

Extract

In many respects, this paper may be regarded as a logical sequel to an earlier one presented to the Institute nearly seven years ago. In that paper the assessment of industrial ordinary shares was discussed in considerable detail and methods were suggested which could be used both to make projections of future dividends and earnings for different companies and to utilize these estimates in making investment decisions. Much of the discussion on the earlier paper centred on the latter problem and the present paper is concerned entirely with this aspect of share assessment. The making of future projections will not be considered again; suffice it to say that our methods have remained largely unchanged. The principle on which the technique that we have now developed rests is closely linked with the previous concept of a ‘capitalization rate’ but in passing we would mention that we have made a brief experiment with what we term ‘growth yields’, i.e. the compound interest return to be expected from a particular share at a given price on the basis of the forecast future dividends. Our results utilizing this method were in fact significantly better than those obtained using the more familiar concept of relative yields (see §8) but, as the figures presented later in this paper show, they were not as good as those obtained using the method which forms the basis of this paper.

Type
Research Article
Copyright
Copyright © Institute and Faculty of Actuaries 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

(1) Weaver, D. and Fowler, B. G. N. The assessment of industrial ordinary shares. J.I.A. 1960, 86, 243.Google Scholar
(2) Pepper, G. T. The selection and maintenance of a gilt-edged portfolio. J.I.A. 1964, 90, 63.Google Scholar
(3) Gould, A. H. Operational research, its methods and application: a review and prospect. J.I.A. 1960, 86, 109.Google Scholar
(4) Dyson, E. J. W. and Elphinstone, M. D. W. The expenses of British life offices. J.I.A. 1959, 85, 211.Google Scholar
(5) Godley, W. A. H. and Shepherd, J. R. Forecasting imports. N.I.E.S.R. Economic Review. August 1965, No. 3.CrossRefGoogle Scholar
(6) Fisher, G. R. Some factors influencing share prices. The Economic Journal. 71, 281.Google Scholar
(7) Little, I. M. D. Higgledy piggledy growth. Bulletin of the Oxford University Institute of Economics & Statistics. 1962, 24, 4.Google Scholar
(8) Hall, M. G. Some thoughts on ‘higgledy piggledy growth”. The Investment Analyst, 1963, No. 5.Google Scholar
(9) Little, I. M. D. and Rayner, A. C. Higgledy Piggledy Growth Again. 1966, Basil Blackwell.Google Scholar
(10) European Federation of Financial Analysts Societies—Report of the Commission on the Use of Computers.Google Scholar
(11) Fama, E. F. Random walks in stock market prices. The Investment Analyst, 1965, No. 13.CrossRefGoogle Scholar