Sunday, 15 April 2012

How to Pick Good Stock for Financial Freedom During Retirement

Pick Good Stock
And You'll Be as Successful as Warren Buffet

Investing in stock for retirement is not a new idea, but many are still sceptical of becoming rich from stock market income. If you are one of them, you might hear bad things about making money in stock market, bad enough that keeps you away from putting any money in any stock. Instead, you should learn how to invest in stock if you determine to become financially free.
The truth is, many succeed and why you can’t?
Once you’d master all the techniques, you are on your way to make fortune way beyond your wildering dreams. And these financial ratios are enough to get you started.

Minimum 15% Earnings per Share Growth Rate (EPSGR)
EPSGR is an incremental value of Earnings Per Share (EPS) annually. Stock with the highest EPSGR means it grows the fastest in that year than the rest. Consistently performing 15 per cent EPSGR is an indication of outperform, and 20 per cent EPSGR is superb. High EPSGR for the past five to ten years shows that the company has excellent products with great demand. Growing demand will eventually give the company some leverage opportunity through economies of scale.
You can ride on their very strong growth by owning these stocks.

Minimum 15% Return on Equity (ROE)
Return on Equity (ROE) is a comparison of the stock’s net profits to its shareholders’ equity.
ROE indicates how much you can gain if you had decided to invest in the stock at that period. Companies with 15 per cent ROE or better is able to utilise their shareholders’ money for maximum profits. On the other hand, ROE of less than 10 per cent is a sign of lack in management and business skills. In fact, you shouldn’t buy stocks that have ROE 5 per cent or less. Virtually, you can get the same return with zero risk with cash deposit.
After all, what’s the point of taking greater risk and yet get the same return?

Maximum 60% Debt to Equity Ratio (D/E)
D/E shows how much debt the company is taking to finance its business operation. You can calculate it by dividing the company’s total debt by the total number of available equity. You will know that the company is gearing too much if its D/E is greater than 1. This will give you an overview on how sensitive the stock is from the ever rising interest rates. Nevertheless, there are capital intensive industries which require huge financing sum from others due to their business nature.
Try to avoid these stocks to preserve your capital for the golden age.You must take into consideration these financial ratios in total to define how valuable your investment decision is. Picking one with dying business doesn’t make any sense to me, and the same should apply to you too! But don't forget to use some qualitative methods as well to pick good stock. After all, picking a good stock requires homework and effort. Trust me, it is well worth it.

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