Oster's Fair Index (OFI)Note : Excitingly, this indicator is optimized to work exclusively with weekly candles (1W) ! Because fundamental analyses, with their longer-term outlook, thrive on the broader perspective provided by weekly data.
Overview:
Oster's Fair Index (OFI) stands out as a sophisticated indicator to offer traders a comprehensive assessment of a stock's fundamental valuation. Unlike many conventional indicators that focus solely on technical analysis, OFI places a strong emphasis on fundamental metrics, providing traders with a deeper understanding of a stock's intrinsic worth. It applies Oster's method (explained below) to determine the fundamental fair price of a stock.
Innovative Approach to Fundamental Analysis:
OFI employs a unique approach to fundamental analysis, integrating multiple key metrics including Yield , P/S (Price-to-Sales) ratio , P/E (Price-to-Earnings) ratio , Debt/Asset ratio , and P/FCF (Price-to-Free-Cash-Flow) ratio . These metrics collectively offer a holistic view of a company's financial health, allowing traders to gauge its potential for growth and profitability. Notably, the fundamental metrics included in OFI are regarded as the most crucial indicators for fundamental stock evaluation according to Oster's method. Dividend yield and P/S ratio are prioritized as the most significant, followed by the P/E ratio, with supplementary consideration given to the debt-to-asset ratio and price-to-free cash flow ratio. This weighting reflects their importance in determining a stock's fair value according to the methodology, which is integrated into OFI's calculation process.
Customizable Parameters for Tailored Analysis:
One of OFI's standout features is its flexibility, allowing users to customize the fundamental parameters based on their specific investment strategy or preferences. Traders can selectively include or exclude metrics , adjust weighting factors , and set alarm thresholds to align with their unique trading objectives. This customization empowers traders to tailor OFI according to their individual preferences and market perspectives. Although a default value has been set for the weighting of the parameters, traders still have the option to customize it based on their own trading strategy and preference, ensuring that OFI remains adaptable to diverse trading styles and objectives.
Sophisticated Calculation Methodology:
Behind the scenes, OFI employs a sophisticated calculation methodology to derive its insights. It retrieves fundamental data for the selected stock, such as total revenue, earnings per share, debt-to-asset ratio, free cash flow per share, and dividend yield. However, these metrics are not viewed in isolation; rather, they are considered in relation to historical trends . For instance, while a low debt-to-asset ratio may indicate fundamental strength for a company, it must be interpreted in the context of its historical performance. If the debt-to-asset ratio has historically been consistently lower, it may suggest weaker performance despite the seemingly favorable current ratio. Furthermore, OFI goes beyond mere fundamental metrics by incorporating the stock price itself into its analysis . A low debt-to-asset ratio becomes even more attractive for the company if the stock price is also historically low, indicating undervaluation. OFI takes all these aspects into account, providing traders with a comprehensive and nuanced evaluation of a stock's fundamental attractiveness, considering all these aspects in relation to each of the fundamental metrics mentioned above.
Normalized Fairness Differentials for Standardized Comparison:
OFI employs a method where the aforementioned fundamental metrics interact as described earlier. These metrics are combined into a fundamental, normalized value using weighting factors. This value is then normalized by the moving price range of the last 12 months. The result provides insights not only into when the stock price was undervalued, overvalued, or fair, but also enables traders to estimate potential price movements based on the fundamental health of the company. Additionally, a dashed fair price line simply represents the sum of the current stock price and the OFI value. This line illustrates the fair price level of the stock derived from the methodology.
Interpretation:
A negative OFI indicates that the stock may be undervalued based on fundamental metrics. Conversely, a positive OFI suggests that the stock may be overvalued according to fundamental analysis. A zero OFI implies that the stock is trading at a fair price relative to its fundamentals, indicating a balanced valuation scenario. The values of OFI are not arbitrary; they represent the degree of overvaluation or undervaluation in the currency set in the chart settings. This means traders can discern, for example, how many USD the stock is undervalued or overvalued by . Additionally, a dashed fair price line simply represents the sum of the current stock price and the OFI value, illustrating the fair price levels of the stock derived from the methodology.
Dynamic Color Coding for Visual Clarity:
To enhance usability, OFI features dynamic color coding that visually highlights the fair price differentials. Green signifies potential undervaluation , red indicates potential overvaluation , and neutral colors represent fair valuation . This intuitive visual feedback enables traders to quickly identify opportunities and risks.
Alerts:
OFI generates alerts based on these interpretations to assist traders in making informed decisions. An Undervalued Signal (BUY) is triggered when the OFI is below zero and meets the buy threshold criteria. This indicates that the stock is fundamentally undervalued, prompting a BUY alert. Conversely, an Overvalued Signal (SELL) is generated when the OFI surpasses zero and meets the sell threshold criteria. This signals that the stock is fundamentally overvalued, prompting a SELL alert. When OFI hovers around zero, suggesting that the stock is trading at a fair price, a Fair Price Reached (FAIR) alert is generated. This encourages traders to consider profit-taking strategies given the balanced valuation.
Justification of Originality and Value:
In a landscape saturated with technical indicators, OFI distinguishes itself by offering traders a refreshingly simple yet powerful approach to fundamental analysis. While traditional methods often involve laborious scrutiny of financial metrics or even poring over entire company balance sheets, OFI streamlines this process, providing traders with a swift overview of a stock's fundamental health. Its strength lies in seamlessly integrating fundamental analysis with stock price movements, offering insights into how price correlates with fundamental metrics.
One could say we marry the simplicity of technical analysis with the depth of fundamental analysis. This unique combination empowers traders to make informed decisions with ease, leveraging the best of both worlds to navigate the markets effectively.
Conclusion:
In conclusion, Oster's Fair Index (OFI) represents a pioneering advancement in the realm of fundamental analysis, offering both sophisticated calculation methodologies and intuitive, user-friendly features. By marrying these elements with customizable parameters and intuitive visuals, OFI equips traders with a powerful tool for evaluating the fundamental valuation of stocks. Whether you're a seasoned investor or a novice trader, OFI offers invaluable insights that can inform and enrich your trading journey.
Undervalued
EPS GridIntroduction:
This simple indicator offers insights into the relationship between stock prices and earnings, aiding in the assessment of valuation dynamics during different periods.
Understanding Price-to-Earnings (P/E) Ratio:
The commonly used Price to Earnings (P/E) ratio, calculated as Current Price divided by Earnings Per Share (EPS) over the trailing 12 months (TTM), serves as a fundamental metric. Here, we use this formula to estimate a stock's price. For instance, multiplying EPS by 10 provides an approximation of the stock price with a P/E ratio of 10.
The Grid Concept:
Utilizing this principle, a visual grid is constructed to illustrate how stock prices correlate with earnings. This grid facilitates the identification of both potential bargains and overvalued stocks.
How to Utilize:
This indicator is pre-configured with earnings multiples of 10, 15, 20, and 25. Simply add it to your chart and observe whether earnings demonstrate consistent growth. If prices lag behind earnings, a potential catch-up phase may ensue in the future.
Happy Investing!
Embark on your investment journey armed with this indicator, and may it guide you towards informed decisions and successful ventures.
Overvalued/Undervalued OverlayThis indicator will tell you whether the security you are looking at is overvalued or undervalued using a company's total assets and their market cap. In theory, a company's total assets is everything that they own, which then should technically be how much the company is worth. Therefore, if the company's market cap is higher than their total assets, the indicator will read "Overvalued by X%". However, if the company's market cap is lower than their total assets, the indicator will read "Undervalued by X%". If you have any questions, feel free to let me know. Keep in mind that this indicator should be only used for long-term investing.
Benjamin Graham Net-Net AnalyserA simple indicator that displayers as a table, telling you whether or not the stock you have selected has a current price that is less than 67% of the company's net current asset value per share (NCAVPS) at its last reporting period (FQ, FY, TTM).
Benjamin Graham uses this 67% rule to decide whether or not a stock is significantly undervalued, and studies have shown that investing in companies whose share prices are less than 67% of their NCAVPS can be highly profitable, and will beat markets in the long run.
Feel free to use as you please or repurpose the code for your own projects.
Compound strategyIn this strategy, I looked at how to manage the crypto I bought. Once we have a little understanding of how cryptocurrency is valued, we can manage the coins we have. For example, the most valuable coin in a coin is to sell when it is overvalued and re-buy when it is undervalued. Furthermore, I realised that buying from the right place and selling at the right time is very important to make a good profit. When it says sell, it's divided into several parts.
1. When the major uptrend is over and we are able to make the desired profit, we will sell our holdings outright.
2. Selling in the middle of a down trend and buying less than that amount again
3. When a small uptrend is over, sell the ones you bought at a lower price and make a small profit.
The other important thing is that the average cost is gradually reduced. Also, those who sell at a loss will reduce their profit (winning rate), so knowing that we will have a chance to calculate our loss and recover it. I used this to write a strategy in Trading View. I have put the link below it. From that we can see how this idea works. What I did was I made the signal by taking some technical indicators as I did in the previous one (all the indicators I got in this case were directional indicators, then I was able to get a good correlation and a standard deviation. I multiplied the correlation and the standard deviation by both and I took the signal as the time when the graph went through zero, and I connected it to the volume so that I could see some of the volume supported by it.)
Now let me tell you a little bit about what I see in this strategy. In this I used the compound effect. That is, the strategy, the profit he takes to reinvest. On the other hand, the strategy itself can put a separate stop loss value on each trade and avoid any major loss from that trade. I also added to this strategy the ability to do swing trading. That means we can take the small profits that come with going on a big up trend or a big down trend. Combined with Compound Effect, Stop Loss and Swing Trading, I was able to make a profit of 894% per annum (1,117.62% for 15 months) with a winning rate of 80%. Winning rate dropped to 80% because I added stop loss and swing trading. The other thing is that I applied DCA to this in both the up trend and the down trend (both). That was another reason for me to make a good profit. The orange line shows how to reduction of costly trade. The yellow line shows the profit and you can see that the profit line does not go down during the loss trades. That's because I want to absorb the loss from that trade.
Stock Fair Value (SFV)Stock Fair Value (SFV) is an indicator that displays an estimated fair value per share price for the business. It uses fundamental data including future consensus earnings estimates from Wall Street analysts, how fast the business is growing, and the balance sheet to come up with a number that approximates what a fair price would be to pay for the stock. In the top right hand corner of the Indicator is a highlighted box showing the % difference from the current price and the Fair Value price, if the box is green it means the stock is currently undervalued by that much % below the Fair Value price, if the box is red it means the stock is currently overvalued by that much % above the Fair Value price.
The indicator formula also uses the current market price as an input, as there is information about the business baked into the current stock price that isn't apparent in fundamental data that I believe deserves to affect the fair value price. This indicator uses my own unique formula, it is not a standard Discounted Cash flow (DCF) model nor is it based on any other published valuation formula or model. As this indicator uses fundamental data there isn't any changeable settings for the user.
This indicator is designed for stocks only and isn't applicable on other markets like forex, futures or crypto. It can be used on the daily, weekly or monthly time frames as the value doesn't change. It's designed to be part of an overall investment process for stock investors with medium to long term timeframes, it's not suited for short term trading like most valuation strategies.
Please note like any indicator it's not perfect as there's only so much input that can go into it, therefore use it as a rough guide as to what the fair value of a stock could be, there are of course many other factors that can and will affect what a fair price of a business should be. As value investors, we ideally want to buy safe quality growing businesses that are at least 30% below fair value then hold them until the stock trades back up to fair value or above. This indicator can help with what all value investors are trying to do, that is buy low and sell high. It can also be used to avoid expensive stocks as they may have more downside risk with less upside potential.
If you see the Stock Fair Value price make a drastic and significant move overnight that's because some new fundamental data has come into the system, it could be new consensus earnings estimates or a change in business growth rates that causes a sudden and significant shift in the calculated fair value.
As you can see from the chart above of Alibaba NYSE:BABA the Stock Fair Value indicator is showing a current reading of $385.12 per share. At the current date of this writing, 11th January 2021, the current price of BABA is $132.19 which is 65.68% below the Stock Fair Value price of $385.12 and makes this stock one of the most undervalued large cap stocks listed on the New York Stock Exchange according to this indicator.
It's also worth noting that Charlie Munger, Vice Chairman of Berkshire Hathaway NYSE:BRK.B and long term business partner of Warren Buffett, has recently been accumulating a large position in NYSE:BABA which as a lifelong devotee of value investing suggests he sees great value in Alibaba at current prices just as the Stock Fair Value Indicator is suggesting too.
Other examples of large cap stocks that are currently significantly undervalued according to this indicator are;
AT&T NYSE:T (40.72% undervalued)
Citigroup NYSE:C (51.97% undervalued)
Fedex NYSE:FDX (41.94% undervalued)
To get access to this indicator PM or email me to my address shown below.
Enjoy :)
Disclaimer: All my scripts and content are for educational purposes only. I'm not a financial advisor and do not give personal finance advice. Past performance is no guarantee of future performance. Please trade at your own risk.
Metcalfes Law - Bitcoin Fair PriceMetcalfe's Law has been successfully used to value a variety of network effect technologies and businesses, including Facebook and Tencent.
Applying Metcalfe's Law to Bitcoin, using "Daily Active Addresses" (DAA) as the "n" value, yields interesting results.
Historically, Bitcoin has tracked the Metcalfe Law Fair Price reasonably well. A number of studies have been performed over recent years which validate this and have used various derivations of Metcalfe’s Law. Note: this indicator sticks to the original Metcalf’s Law.
Prior to 2018, every time Bitcoin was above the Metcalfe’s Law fair price (calculated using a default “A” of 0.5 here), a bubble had formed, and price quickly reverted back down to the mean.
Nonetheless, since February 2018, Metcalfe's Law Fair Price has remained below the actual Bitcoin price, suggesting Bitcoin is currently overvalued.
There may be a few reasons for this:
1. Possibility A: Bitcoin may still be extremely overvalued. Since the December 2017 peak, Bitcoin has only reverted to the Metcalfe’s Law Fair Price briefly during the December 2018 bottom. If this case is true, there could be further to fall unless DAA numbers pick up to fill the gap.
2. Possibility B: The introduction of side-chains, private transactions and the Lightning Network may have fundamentally altered the effectiveness of using DAA to value Bitcoin. As more daily transactions are completed off-chain, or on large platforms/exchanges which use fewer addresses, the relative number and growth of DAA may be misrepresented and artificially low. In this case, DAA as it is reported today is no longer useful in assessing the fair value of Bitcoin with Metcalfe’s Law and this Indicator is effectively useless.
3. Possibility C: Neither of the above are true. We are just in an anomalous period in which price and Metcalfe’s Law Fair Price have deviated from the mean for an extended period (and will meet again in the future, potentially at a higher price).
4. Possibility D: Metcalfe’s Law doesn’t really work for Bitcoin.
I am inclined to believe Possibilities “C” and “D” are unlikely. Given the way Bitcoin infrastructure is being developed and used in 2019, Possibility “B” seems the most likely, as this case is supported by the fact that a number of other metrics indicate that Bitcoin is currently on the lower side of “fair value” (including Dynamic Range NVT Signal).
Regardless, Possibility “A” remains a strong candidate. Only time will tell. It will be interesting to check back on this indicator in 12-24 months time. Hopefully this indicator has been proven redundant by then.
