For example the focus for the first week of six in The Investing Course is on the idea that the stock price is composed of two factors: Facts and Feelings. Or with other words Fundamentals and Valuations. F times V.

The facts are value drivers like sales, profits, assets, or people, number of clients and so on. Real world stuff that is worth something.

The feelings are the condensed sentiments of all investors, it’s their sum total of trust in the company’s ability to keep creating annual value.

If for example the fact is “The company made 100 in profits in 2023” and the feeling is “The company will keep making 100 in profit per year into eternity, and I’m happy with a 10% annual return on my investment“, then I’ll pay 1000 for the company”. The 100 in annual profits in relation to the price paid of 1000 amounts to a 10% annual yield.

P=FxV is an intuitive and robust method of analysation, of taking things apart and studying the components, before building back up to an investment conclusion. There are many other approaches, such as DCF, return-based models, and purely price-based ones. P=FxV is the best one however, I think, because it captures the 2-sidedness of markets, that markets are both fundamental and sentimental. The two sides of the coin are forever joined, and we as investors have to take that into consideration.

Sometimes sentiment gets really bullish, like in the year 1999-2000. But a bullish sentiment can always become even more optimistic, as it did during the last 12 months of that epic millennial tech bubble. Fundamentals did not back the stock prices, but sentiment (“V”) didn’t care as long as the price trend was positive. F x V was way too high due to the lofty V component.

A few years later it was the other way round. The likely fundamental prospects were not reflected in stock prices, due to the prevailing pessimistic sentiment and negative capital flows. F x V was too low due to a depressed V for various reasons.

In The Investing Course I teach how to pick apart Prices into Fundamentals and Valuations, as well as how to make forecasts of both components. It’s based on historical averages and current patterns for fundamentals, prices and valuations, and on industry characteristics and business analysis.