January 20th, 2008 by admin
Bull markets tend to start at the depths of pessimism the same way that dawn starts at the edge of darkness.
People have probably just been beaten up by a bear market. The phrase I m into stock investing is about as welcome in polite conversation as “I have a contagious disease.” If investors are avoiding stocks like the plague (or selling stocks they already have), share prices drop to the point that much of the risk is wrung out of them. Value-oriented investors then can pick up some solid companies at great prices.
The major media mirror this pessimism and amplify it.
Usually, the mainstream media have greater value as a counterindicator because by the time the major publications find out about the economic trend and report it, the major trend has already played itself out and is probably ready to change course.
For example, Time magazine featured Amazon.com CEO Jeff Bezos as its Man of the Year in 2000, but immediately thereafter, Amazon.com’s stock price continued a long and painful descent, ultimately dropping over 90 percent from its high in late 1999. Another example is the famous issue of Business Week with the pessimistic cover story titled “The Death of Equities” that came out at the tail end of the bear market of the 1970s. What timing an issue warning investors about the dangers of stock investing just before the greatest bull market in history started.
Economic statistics stabilize.
After the economy has hit rock bottom, the economic statistics start to improve. The most-watched set of economic indicators is called the Index of Leading Economic Indicators. Investors want to make sure that the economy is getting back on its feet before it starts its next move upward. In 1982, the economy was just starting to recover from the 1981 recession. The economic expansion (and accompanying bull market) became the longest in history.
Economic conditions for individuals and companies are stable andstrong.
You know that’s true if profits are stable or growing for companies in general and if consumers are seeing strong and increasing income growth. The logic holds up well: More money being made means more money to eventually spend and invest.
Industries producing large-ticket items hit rock bottom and begintheir climb.
After consumers and companies have been pummeled by a tough economy, they’re not apt to make major financial commitments to items such as new cars, houses, equipment, and so on. Industries that produce these large, expensive items will see sales fall to a low and slowly start to rebound as the economy picks up. In a growing economy, consumers and companies experience greater confidence (both psychologically and financially).
Demographics appear favorable.
Take a look at the census and government statistics on trends for population growth, as well as the growth in the number of business enterprises. The 1980s and 1990s, for example, saw the rise of the baby boomers, those born during the post-World War II period of 1946 to 1964. Baby boomers wielded much financial clout, much of it in the stock market. Their investment money played a major role in propelling the stock market to new highs.
General peace and stability prevail.
A major war or international conflict may have just ended. Beyond death and destruction, war is also bad for the economy and presents uncertainty and anxiety for stock investors.
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January 12th, 2008 by admin
Buying the right stock is the most important component in stock investing. You can reduce risk of losing money if you buy money-making stocks as well. Continue reading to find out how to buy the right company.
Research General Economic Condition
Stock market prices are sentiment driven. Even the strongest company will get affected by major market interruptions. This can happen if most of the investors decided to run away from stock market no matter how good the individual stock is.
Take 1929 market depression for example, none of the stock’s price can sustain the pressure which eventually bring down the whole stock market. Therefore, look for economic indicators such as interest and inflation rate to estimate if the current market is still healthy.
Analyze Related Market Segment
Even though the economy looks pretty much normal, watch out for specific market cycle. Individual market segment may behave differently in any economic condition. For example, as transport companies suffer from high oil prices, oil and gas related stocks may enjoy superior growth.
In fact, this is critical if you prefer to play a momentum trading game. Since you love investing in stocks that are expected to grow exponentially, identify them before anyone did is the only thing you should do. Else, you will not be able to make much money.
Explore Company Fundamental Value
Since you are buying stocks instead of the market, you have no choice but to choose a profitable one. Use various key financial ratios to help you identify which stocks worth investing right now. Remember, in any economic and market condition, there must be stocks that will make money for you.
But you have to reveal the hidden gem!
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January 4th, 2008 by admin
If you are lucky enough to have enough capital available to start investing in the stock market and generate yourself some serious cash flow but if you do not know how to pick stocks then you are going to run out of money very quickly.
When evaluating stocks there are some set formula to make the job easier, here are the three points I use when deciding if a stock is worth investing in or not.
First I look at the EPSGR. This means the Earnings Per Share Growth Rate and is an incremental value of the Earnings Per Share or EPS at any specified time frame, this is generally completed on an annual basis. In lay man’s terms the stock with the highest EPSGR has shown more growth in the current year than that of any other related stock. I look for stocks with a EPSGR of at least 10%, this gives a good indication that the company in question offers in demand products and economies of scale.
Every stock I look at must have a proven minimum 10% ROE or Return On Equity. The ROE is a direct comparison between the company in questions net profits in relation to the shareholders equity. The ROE gives you a good indication of how much you would gain if you decided to invest in the stock. If the company you are interested in has more than 10% ROE then they are able to utilize their shareholders money to maximize profits. It does not make good sense to buy stocks with a ROE of less than 5% as the same return is possible in a normal, zero risk investment.
I will never go for a stock with a Debt to Equity ratio (D/E) of more than 60%. The Debt To Equity ratio can be calculated by simply dividing the companies total debt by the total equity sum. If the company is heavily funding its operations with debt its D/E will be greater than 1. This enables you to look at how the stock will fair should the interest rates continue to rise. It goes without saying if the company cannot afford to pay its debts then its stock is going to be next to worthless.
While you are learning how to pick stocks these pointers will keep you in the black so long as you follow them without deviation. The only real way to learn how to pick stocks is to get out there and get your feet wet. Of course do not go crazy, just follow the advice given to you by your broker and you wont go far wrong.
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