Historical value and price comparison for several DOW companies

Historical value and price comparison the home depot

Meany people asked if the Real Stock Value algorithm work or not and how did I validate it.

In response I created price and value plots based on historical data.

Based on these plots the tool is able to detect good buying opportunities however it works best for slow growing companies, and gives better results for some industries than for others.

In the future if we will have the financial resources we will add different parameters for different industries.



What is inflation? Most people define inflation as an increase in general prices, and this is almost true.

What is the first thing that pops in most people mind when we are talking about inflation or hyperinflation?

Some pictures from the Weimar hyperinflation,


 or maybe the Zimbabwe inflation.


What is money?

Money is a tool that helps transactions, so people do not need to rely on barter. This type of commerce is much more efficient than barter, because in the case of barter, two people need to meet, who need each other merchandise, which is difficult. If we have money in that case any person with money if finds a good or service that he wants, the transaction takes place.

That is why even in times where there was no actual money, some kind of asset emerged, accepted by almost everybody, for example cigarettes, chocolate or watches during the world wars.

Dividend Yield

The last parameter used is the dividend yield. In theory, the stock or company is the asset and the dividend is the income stream. In perfect tax conditions, companies should return the profits to shareholders in form of dividends, and withhold cash only for investments to grow the company. Taxation makes this more difficult.

Price to Sales ratio

Price to Sales ratio is another number to look at. A company’s earnings, profits, or even book value easily can be manipulated, however it is really hard to manipulate sales numbers, and that is why Marc Faber prefers this metric when evaluating markets.

For every industry there is a profit margin that you can expect from a well-run company. Based on the sales, possible profits can be estimated. If the profit margin is very high, probably it will not stay there for long, because competition will appear, and push down prices.

Price to Book Value ratio

Price-Book Value ratio shows us how much we are paying for the given companies assets. A company’s assets include: real estate, plant, equipment, intellectual property, and brand. It also gives us a hint how much money would it take to recreate that business. This second part is actually borrowed from Peter Schiff. He pointed out that during the Dot-com bubble a lot of startups approached him for funding. The money that these startups with a webpage where asking for a small percentage of the business was ludicrous.

Price to Earnings ratio

As I mentioned earlier probably the most used metric to determine a value of a company is Earnings. This is why the most heavily used tool to determine if a stock or an index is overpriced is the Price to Earnings ratio, or some kind of modified version of this. The reason behind this is quite obvious. The Price to Earnings (PE) is the inverse of returns, so the higher the PE the lower the returns, that we can expect. A PE of 10 means 1/10 in returns or 10%, a PE of 20 means an 1/20 in returns or 5%.

Analyzing the used metrics

As mentioned the metrics used to evaluate a company are Earnings, Book Value, Sales and Dividends.

To find out if a given metric is useful to evaluate the future performance of a given stock, I will compare these metrics with the returns that where generated in the next few years to come. To achieve this I examined the correlation between the different metrics, and the returns in the next 5 years.

The stock valuation method

The Real Stock Value contrary to other price forecasting software is based on value investing and not on technical investing.

Legendary investors like Warren Buffett, Jim Rogers, Mark Faber, Benjamin Graham, Robert J. Shiller, and Philip A. Fisher are using this approach.

Jim Rogers famously said: "I haven't met a rich technician."