How To Find Overvalued Stocks

[Rocky Pair]

Hi Guys,

Can our fundamentalist and technical analyst friends help forumers understand how to find overvalued stocks?  I think this is very important for us to really practise the "buy low sell high" slogan.

I once asked a friend, "What do you think of GENTING now RM10?."  "Very high."
Some time later GENTING went to RM20.  Again he said, "Very high."
Some time later GENTING went to RM30.  Again he said, "Very, high."
A little while later GENTING went to RM40.  Of course he said, "Very high."

Alamak!  How high is high?    Help!!!

[penang_lim]

Good that you start your own thread as this is a question with lots of answers.  I'd use ecomomy approach to your question.

Lets see, Genting touch and stay around RM10 before May 1993, Feb-Dec 1998 and Oct 2000 to Oct 2000.
As of RM20, Genting reach that points and stay above in between Dec 1994 and 1996 and again surpass the RM20 two years ago.
RM25 is it's highest points reach in May 1995 and again beginning of last year.

In stock market, the underlying economic issues/news pertaining a counter could let you estimate the support line for the next increase.  TA could utilised for the calculation.  At RM20, your friend say it's high because Genting is trading at it's high PE without any good supporting investment announcement. 

When singapore announced the 2nd casino had been won by Genting, the supportline was reviewed to above RM30.  That means, any price below that price is consider good buy.

Then came the news of Genting entry to Macau gaming market due to the deal with Stanley Ho.  The support immediately went few ringgit up to RM33-34.

In fact, you have to rely on potential investment opportunities along with TA and some smart calculation to identify those 'undervalued' stocks.

PS.  I used the round figure of RM10, RM20, RM30 just for illustration.  The real supportline might not appear to be exactly that number.
 

[earwax]

"Supportline" is just a mental barrier right? 

It's not like most people kow how to calculate the true value of a stock... they just see patterns in a stock price and play with that...

[Rocky Pair]

I think TA is used to get quicker profits say, in a week or a month?

If we want to invest long term, say more than one year, then we need to ask like earwax's question, how to actually calculate the true value of the stock.  For example, how much is Genting's stock actually worth?

[penang_lim]

"Supportline" is just a mental barrier right? 

It's not like most people kow how to calculate the true value of a stock... they just see patterns in a stock price and play with that...

That's TA anyway pal.  At least we got something to imagine as 'supportline' or else, it will just be a useless chart you see...  So, it's important to imagine.