Follies of E.P.S. based Investing Principle: How to Value a Company Fundamentally:

[Updated at 7.45 a.m.]

Offlate, I have discovered that many Portfolio Management Services have resorted to E.P.S. based investing tips, which is very dangerous and erronous. Even almost all the T.V. channels (business channels, specially) discuss the E.P.S. of the companies and ask the companies about the expected E.P.S. for the whole year. It seems that this ratio is the end and means to all equity investing worries. The business channels should stop giving too much importance to this parameter winking at the other factors which are also necessary to move a scrip.

E.P.S. or earning per share, does not and have never ever reflected the true value of a company of any type or any group. Besides, various sectors have various E.P.S.'s and P/E s. So if u say that South Indian Paper Mills Ltd should rise up because it has an EPS of Rs.13 for the whole year, comparing it with Infosys Technology's E.P.S. , then it is utterly misguiding and the investors will have to pay for this mistake.... Also one has to look at the Technical History of a company, before investing. Investing in a company when it is almost near its 52-week high with only an E.P.S. trigger, not only very dangerous but devoid of any logic....

Besides, by looking at a balance sheet, a prudent Investor or an Investment Specialist or a good Analyst, know which ones are window dressed or which ones are tailed according to market conditions. So, P.E. based investing is highly dangerous and should not be resorted to unless one has complete depth and understanding of total fundamentals of a company. Look at the E.P.S. of Sika Interplants System Ltd and look at the price.....does it indicate anything? Similarly, Southern Online Bio Technologies Ltd (SBTL) will move up within a short time, even as its E.P.S. is not much--this is because of the valuation of a 10, 000 MT of Refinery (Even it does not start, as the cost is involved for making such a huge refinery), valuation of its existing ISP business, valuation of the land for Jatropha cultivation or oil seed cultivation, valuation of Technical Collaboration with the German firm, valuation of existing Human Capital, and so on..So if you say that SBTL has low E.P.S. and hence its Scrip should be trading low, then ur throughts are "moron-ish" and will be proved wrong shortly.....

Moreover, the best part of equity investing is to invest in scrips when others are looking at the other way and exit when the others are purchasing heavily into it......Also, avoid palying in the F & O, if you have a limited kitty and is new to the markets or is investing in the markets taking a loan from a bank.

So, my advice would be not to fall to all these gimmicks, make losses in the markets and blame the Share Market for your mistakes or follies.

For more on the best Investment Principles, in any market conditions or for a complete package on the investing in the Share and Bond Market, one can join my PREMIUM SERVICE FOR SMALL & MEDIUM TYPE and HNI(High Net Worth) INVESTORS,....by sending me a mail at: suman2005s@rediffmail.com, at your ealiest......Those who have already joined please send me the details as mentioned in the individual mails...sent to you after registration. For the free service one can join: http://finance.groups.yahoo.com/group/SumanSpeaks/ or read the contents of this blog and www.sumanspeaksplus.blogspot.com.