Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 9 Fundamentals of the Stock Market (2)
The establishment of the stock market can effectively reduce these risks, because companies listed on the stock market must go through strict audits. The listing conditions stipulate that the company must have made continuous profits in the past few years, and must publish business information in accordance with regulations. One is public opinion. Supervision has a certain binding force on the operation of enterprises, so the profitability of listed companies is guaranteed to a certain extent. Second, a large number of stocks are concentrated in the stock market. Investors can choose a variety of stocks to combine, thereby reducing or diversifying risks. Third, As a highly organized market, the stock market has a series of regulatory restrictions on the issuance and listing of stocks, so that it can prevent and reduce the occurrence of fraudulent activities in a certain procedure.

The third function of the stock market is to guide the rational flow of funds and achieve the optimal allocation of resources. In the stock market, since investors generally invest their funds in companies with better performance or industries with development potential, correspondingly, such stocks are The price on the stock market is relatively high, and similar companies can set a higher price based on this when they issue stocks or allot shares, so that they can raise more funds and make a more reasonable allocation of capital resources.

(Section [-]) What is share split
The so-called share split means that part of the shares of a listed company are listed and circulated, while the other part is temporarily not listed and circulated.The stock split problem is due to the systemic defect formed by the incomplete reform and the limitation of the system design in the initial stage of the securities market in our country.As of the end of 2004, the total share capital of my country's listed companies was 7149 billion shares, of which 4543 billion were non-tradable shares, accounting for 63.55% of the total share capital of listed companies; state-owned shares accounted for 74% of non-tradable shares, accounting for 47% of the total share capital.

Share splits have resulted in extremely unreasonable and irregular shareholding structures of listed companies, manifested in the fact that the listed company's equity is artificially divided into non-tradable shares and tradable shares, and the proportion of non-tradable shares is relatively high, about 2 /3, flat and usually in a controlling position.As a result, the same shares have different rights, and there are serious flaws in the governance structure of listed companies, which is prone to the phenomenon of "one share dominates" or even "one share dominates", which damages the legitimate rights and interests of tradable shares, especially small and medium shareholders.

As a basic system reform in the capital market, the solution to share splits focuses on solving the problem of obtaining the circulation rights of shareholders of non-tradable shares, and its goal is to truly realize the same rights for the same shares.

The essence of solving share split is to promote the mechanism transformation of the capital market, eliminate the difference in the circulation system between non-tradable shares and tradable shares, and strengthen the market's restraint on listed companies, rather than solve the problem of reducing the holdings of non-tradable shares, including state-owned shares. question.

Whether the existing non-tradable shares actually enter the circulation after being converted into tradable shares depends not only on the strategic choice of shareholders, but also is subject to relevant system constraints.

The origin and development of split share structure can be divided into the following three stages:

The first stage: the formation of the equity division problem.At the beginning of the establishment of my country's securities market, the issue of the circulation of state-owned shares was generally put on hold, which in fact formed a pattern of share separation.

The second stage: Attempts to solve the reform and development capital needs of state-owned enterprises through the realization of state-owned shares began to touch the issue of share separation. From the second half of 1998 to the first half of 1999, in order to solve the capital needs of promoting the reform and development of state-owned enterprises and improve the social security mechanism, my country's securities market began to conduct exploratory attempts to reduce state-owned shares. However, due to the gap between the implementation plan and market expectations, The pilot was quickly stopped. On June 2001, 6, the State Council promulgated the "Interim Measures for the Administration of Reducing State-owned Shares to Raise Social Security Funds", which is also a continuation of this idea. The same industry was suspended on October 12 of that year due to unsatisfactory market effects.

The third stage: As an institutional change to promote the reform, opening up and stable development of the capital market, solving the problem of split shareholding is officially put on the agenda. On January 2004, 1, the State Council issued "Several Opinions of the State Council on Promoting the Reform, Opening, and Stable Development of the Capital Market" (hereinafter referred to as "Several Opinions"), clearly proposing "actively and steadily solving the problem of share separation"

(Section [-]) What is the consideration for share reform
Consideration first appeared in European and American legal documents. It refers to the loss made or promised, the responsibility or sacrifice for one party to obtain power, interest, and benefit, or for the other party to exchange for the other party’s promise. Here, "consideration" refers to Shareholders of non-tradable shares are the corresponding price paid to shareholders of tradable shares in order to obtain the right to circulate the non-tradable shares they hold. The consideration can take the form of stocks, cash, warrants, etc. at present.

The calculation of the compensation "consideration" by the four listed companies in the first batch of pilot projects all started from the calculation of the "circulation value of non-tradable shares".The tradable value of the so-called tradable shares is: in a stock split market, in addition to being affected by the fundamentals, the stock price is also affected by the tradable shareholders' expectation that the shares held by the non-tradable shareholders will not be tradable.It is precisely because of the existence of this expectation that the market has given a high premium to A shares, so this high premium is called the circulation right value of tradable shares.

Through analysis, the four listed companies have different theoretical basis for the calculation of the value of circulation rights.

Sany Heavy Industry: The plan to measure the consideration of the circulation right based on the multiple of the excess price-earnings ratio is similar to simulating a new stock issue under the non-equity condition.The sponsor Huaou International believes that the price-earnings ratio multiple of stock issuance exceeding the full market issuance can be used as a reference for calculating the value of the circulation right, and the excess price-earnings ratio can be regarded as the value of the circulation right.

Zijiang Enterprise: The implementation of the plan for the pilot program of share structure reform should not reduce the theoretical market value of the shares held by the two types of shareholders before and after the implementation of the share structure reform. There will be no reduction after the program is implemented.Therefore, it adopts the method of inverting the consideration price of the circulation right from the theoretical market price after the implementation of the calculation plan.

Tsinghua Tongfang: The different share transfer arrangements for shareholders of non-tradable shares and tradable shares have achieved a win-win situation for both parties after the reform. This plan focuses more on the market's estimate of the market price after the reform, not the judgment of historical prices. .

Taurus Energy: The starting point for pricing is the stock price and price-earnings ratio after the implementation of the plan, and the consideration compensation standard is calculated by comparing the valuation with similar international companies.

In addition, the fundamentals and financial situation of listed companies are also crucial to the determination of the "consideration". Among them, the price-earnings ratio, price-to-book ratio, non-tradable share ratio and other fundamental data are also the company's choice of shareholding reduction plan and "consideration" Consideration is an important factor to be considered in proportion.

(Section [-]) Calculation method of stock index
When calculating the stock index, the stock index and the stock price average are often calculated separately.By definition, a stock index is an average of share prices.But in terms of the actual effect of the two on the stock market, the average stock price reflects the general level of price changes of various stocks, usually expressed as an arithmetic average.By comparing the average number of stock prices in different periods, people can know the level of price changes of various stocks.The stock index is a relative indicator that reflects the stock price changes in different periods, that is, the percentage of the stock price average in the first period as the benchmark of the stock price average in another period.Through the stock index, people can understand the percentage rate that the stock price of the calculation period has increased or decreased compared with the stock price of the base period.Since the stock index is a relative indicator, for a longer period of time, the stock index can measure the change of the stock price more accurately than the stock price average.

1. Calculation of stock price average
Stock price averages reflect the absolute level of listed stock prices at a certain point in time, which can be divided into three categories: simple arithmetic stock price averages, corrected stock price averages, and weighted stock price averages.By comparing the average stock prices at different time points, people can see the changes and trends of stock prices.

(1) Simple arithmetic stock price average
The simple arithmetic stock price average is obtained by dividing the sum of the daily closing prices of sample stocks by the number of samples, namely:
Simple arithmetic stock price average = (P1+P2+P3+...+Pn)/n.

The world's first stock price average - the Dow Jones stock price average was calculated using the simple arithmetic mean method before October 1928, 10.

Now assume that the stocks sampled from a certain stock market are A, B, C, and D, and the closing prices on a certain trading day are 10 yuan, 16 yuan, 24 yuan, and 30 yuan, respectively, and the average stock price of this market is calculated.Putting the above numbers into the formula, we get:
股价平均数＝（P1+P2+P3+P4）/n＝（10+16+24+30）/4＝20（元）

Although the simple arithmetic stock price average is relatively simple to calculate, it has two shortcomings: First, it does not consider the weights of various sample stocks, so it cannot distinguish the different influences of sample stocks with different importance on the stock price average.The second is that when the stock splits, bonus shares, capital increase, etc. occur in the sample stocks, the average stock price will have a fault and lose continuity, making it difficult to compare the time series before and after.For example, when the above-mentioned stock D is divided into 1 shares by 3 share, the stock price will be lowered from 30 yuan to 10 yuan. At this time, the average is not 20 yuan as calculated above, but (10+16+24+10 )/4=15 (yuan).That is to say, due to the technical changes in the D-share split, the average share price fell from 20 yuan to 15 yuan (this has not considered other factors affecting stock price changes), which obviously does not meet the requirements of the average as an indicator to reflect stock price changes.

(2) Revised average number of shares

There are two types of revised stock price averages:
One is the divisor correction method, also known as the Taoist correction method.This is a method of calculating the average stock price created by Dow Jones in 1928.The core of this method is to find a constant divisor to correct the changes in the average stock price due to factors such as stock splits, capital increases, and bonus shares, so as to maintain the continuity and comparability of the average stock price.The specific method is to divide the new total stock price by the old stock price average to find the new divisor, and then divide the total stock price of the calculation period by the new divisor, and this will give the revised stock intermediary average.which is:

New divisor = total new share price after change/old average share price.

Revised average stock price = total stock price in the reporting period / new divisor.

In the previous example the divisor was 4, the new adjusted divisor should be:

新的除数＝（10+16+24+10）/20＝3，将新的除数代入下列式中，则：

修正的股价平均数＝（10+16+24+10）/3＝20（元）得出的平均数与未分割时计算的一样，股价水平也不会因股票分割而变动。

The second is the stock price correction method.The stock price correction method is to restore the stock price after the stock split, etc., to the stock price before the change, so that the average stock price will not change.The 500 stock price averages compiled by the New York Times of the United States use the stock price correction method to calculate the stock price average.

(3) Weighted average share price
The weighted average stock price is the average stock price calculated based on the weighted average of the relative importance of various sample stocks.

2. Calculation of stock index

The stock index is a relative indicator that reflects the stock price changes at different time points.Usually, the stock price in the reporting period is compared with the price in the base period, and the ratio of the two is multiplied by the index value in the base period, which is the stock index in the reporting period.There are three methods of calculating the stock index: one is the relative method, the other is the comprehensive method, and the third is the weighted method.

(1) Relative method
The relative method, also known as the average method, is to calculate the stock index of each sample first.Then add up to find the arithmetic mean of the total.Its calculation formula is:
Stock index = sum of n sample stock indexes/n.

The Economist common stock index in the UK uses this calculation.

(2) Comprehensive method
The comprehensive method is to first add up the prices of the sample stocks in the base period and the reporting period, and then compare them to obtain the stock index.which is:

Stock index = sum of stock prices in the reporting period/sum of stock prices in the base period.

Substitute the numbers to get:
股价指数＝（8+12+14+18）/（5+8+10+15）＝52/38＝136.8%。

That is, the stock price in the reporting period increased by 36.8% compared with the base period.

From the perspective of calculating the stock index by the average method and the comprehensive method, neither of them takes into account factors such as the difference in the issuance and trading volume of various sample stocks, which have different impacts on the stock price of the entire stock market. Therefore, the calculated The index is also not accurate enough.In order to make the calculation of the stock index accurate, it is necessary to add a weight, which can be the trading volume or the issuance volume.

(3) Weighting method
The weighted stock index is weighted according to the relative importance of the sample stocks in each period, and its weight can be the number of traded shares, stock issuance, etc.Divided by time, weights can be either base or reported.The index whose weight is based on the number of shares traded (or issued) in the base period is called the Raspail index; the index whose weight is based on the number of shares traded (or issued) in the reporting period is called the Pasch index.

The Raspail index focuses on the number of shares traded (or issuance) in the base period, while the Pasch index focuses on the number of shares traded (or issuance) in the reporting period.At present, most stock indexes in the world are Pasch index.

(Section [-]) How to define a stock index

A stock index is a stock price index.It is an indicator number for reference prepared by stock exchanges or financial service institutions to indicate changes in the stock market.Since stock prices fluctuate, investors are bound to face market price risk.It is easy for investors to understand the price changes of a specific stock, but it is neither easy nor troublesome to understand the price changes of multiple stocks one by one.In order to adapt to this situation and needs, some financial service institutions take advantage of their own business knowledge and familiarity with the market to compile stock price indexes and publish them publicly as indicators of market price changes.Based on this, investors can test the effect of their investment and use it to predict the trend of the stock market.At the same time, the press, company bosses, and even political leaders also use this as a reference indicator to observe and predict social, political, and economic development situations.

This stock index is the price average that shows the changes in the stock market.Compiling a stock index is usually based on a certain month in a certain year, and the stock price in this base period is taken as 100, and the stock price in each subsequent period is compared with the base period price to calculate the percentage increase or decrease, which is the stock index in that period.Investors can judge the trend of stock price changes according to the rise and fall of the index.And in order to reflect the trend of the stock market to investors in real time, almost all stock markets publish the stock price index immediately when the stock price changes.

To calculate a stock index, three factors should be considered: one is sampling, that is, a small number of representative constituent stocks are selected from many stocks; the other is weighting, which is weighted average according to unit price or total value, or unweighted average; Calculate the arithmetic mean, geometric mean, or both price and total.

(End of this chapter)