Many new investors, often referred to as F0 investors, seek to understand a company's "true value" to avoid emotional decisions like buying at market peaks or overpaying for shares. This quest for a definitive valuation is a common starting point for those new to the stock market, as exemplified by a recent query from Hoang Khanh.

Investors monitor the stock market at a company in Ho Chi Minh City. Photo: Thanh Tung

According to Tran Duc Trung, Director of Asset Management at FIDT Joint Stock Company, a company's value is not a fixed number. Various valuation methods exist, each yielding different results. Therefore, valuation typically helps investors envision a reasonable price range rather than pinpointing an absolute figure.

Moreover, a business's stock value goes beyond past financial reports or data. Stock prices are also influenced by growth expectations, economic conditions, macroeconomic risks, and market sentiment at different times. There are instances where business results remain largely unchanged, yet stock prices rise or fall sharply due to shifts in investor expectations.

New investors can start with simple valuation methods, such as comparing a company's price-to-earnings (P/E) and price-to-book (P/B) ratios against industry averages or the company's historical performance. Reading analysis reports from brokerage firms also provides additional perspectives. These reports, often written for individual investors, are relatively accessible and help quickly form a reasonable valuation.

However, it is important to remember that valuation serves only as a reference. All valuation models incorporate numerous assumptions about the future, such as growth rates, profit margins, or interest rates. These factors can change, meaning valuation is not an absolute right-or-wrong formula but merely a tool to help investors assess whether a stock is relatively cheap or expensive.

To avoid being overwhelmed by emotions, capital and risk management are paramount. Even with correct valuation, stocks can still fall sharply due to the overall stock market or cash flow sentiment. In such situations, proper portfolio allocation, diversification, and pre-determined profit-taking and stop-loss levels help investors maintain discipline. The greatest risk often lies not in incorrect valuation but in buying stocks without a clear plan for when to buy, how to allocate capital, and when to sell.