How to Invest in Stocks: Quick Valuation method (Preamble 3)

Here is a critical question: have you ever thought of how price ratios vary with the economic cycle? The answer to this question helps define in some ways the values needed to do a quick valuation of stocks to get an approximate fair value. The most common ratio of Price to Earnings, Price to Books and Price to Sale have a correlation to the current part of the economic cycle through a change in multiple from its beginning to the end. It is noteworthy that this only happens if the company of choice has solid earning power. We have discussed the basis of establishing earning power in our previous videos. Capturing the behaviour of P.E. and P.S. in our formula helps unlock the door to quick and effective valuation.