myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Thursday, 4 March 2010

Basic Steps on How to Find Profitable High Performance Stocks

Basic Steps on How to Find Profitable High Performance Stocks
March 2, 2010

Stock picking can be a extremely perplexing procedure and investors have very different ideas on how to achieve the desired outcome. Nevertheless, it may be very wise to follow some basic steps which will assist you to minimize the risk of the investments that you end up choosing.

This article will outline some basic steps for picking those high performance stocks that we all aspire to find.

You must have firmly placed in your mind exactly the time frame and the general strategy of the stock. This step is very important because it will influence as to the type of stocks you buy.

We shall presume that you have decided to be a long term investor. Therefore you would then be wanting to locate stocks that possess sustainable,good competitive advantages along with stable or increasing growth for the future.

The way to locating these High Performance stocks is by considering the historical performance of each stock over the past couple of years.Once you have found a likely stock you would then need to do a simple business S.W.O.T.analysis on the company. Swot basically means: Strength-Weakness-Opportunity-Threat.)

If you have decided instead to become a short term investor, it might be a good idea to a stick to one of the following couple of strategies:

1. Momentum Trading.

This useful strategy is to keep an eye open for stocks that have increased in both price and volume over the recent days trading or two. You would most likely find that momentum fluctuates rapidly to begin with and tends to lessen off as traders lose interest. Mind you nothing is guaranteed particularly in today’s market place

Usually most technical analysis will support this trading strategy. But my advice on this strategy is to look only for stocks that have exhibited stable and consistent rises in their share price. We are presuming that the idea is that when the stocks are not so volatile, we can merely ride the up-trend until the trend breaks.

2. Contrarian Strategy.

This second useful strategy is to be on the look for over-reactions that occur in the stock market from time to time. Past research has shown that the stock market is not always efficient as we are led to believe. This basically means that share prices do not always accurately reflect the true value of the stocks. This can be used very much to our advantage.

Take for example when a company has just recently announced bad news,like a predicted downturn in future profit.This is exactly is what is happening here and now. All you have to do is follow the daily stock market news to see this occurring.

Trades who trade with their emotions become disillusioned, become fearful, then panic and sell. As so often happens the share price often drops below the stocks actual fair value.

But before you decide whether to purchase the stock which has over-reacted to a bad news announcement, you should always take into consideration the possibility of recovery from the impact of the bad news.

For example, if the stock price had dropped by 20% after the company had just lost a legal case, but no permanent damage to the either the business’s reputation or the product had occurred, you can then be realistically confident that the market over-reacted. And given time the share price would no doubt rise again to its former level thereby rewarding you with a comfortable profit.

It would be prudent on using this strategy to find a list of stocks that have suffered a recent drop in share prices You could then analyze the potentiality of a reversal occurring by utilizing the well known technical indicator of candlestick analysis).

If the charts did confirm candlestick reversal patterns in the stocks in question, It would then be advisable to look through the recent news to analyze the exact causes of the recent price drops to ascertain that the over-sold opportunities actually existence.

Always do researches that will give you a choice of stocks that fits into to your own personal investment time frames and strategies. It is pointless trading in something you are not happy with or unsure of.

Once you have compiled a list of stocks to possibly purchase in the future, you would then need to diversify them in such a way that gives you the greatest reward/risk ratio. One way of achieving this is to employ a Markowitz analysis for your portfolio. This analysis will give you the exact proportions of money you should then apportion to each stock.

Hopefully these basic steps will get you started in your continuous quest to consistently make good profits in the stock market. Plus they will also broaden your knowledge about how the financial markets perform and react. Ultimately it will provide you with a sense of confidence that will enable you to make better trading decisions and therefore greater profits.

I wish happy profitable trading.

Author: Chris Strudwick
Source: ezinearticles.com
http://sellingstock.getherb.com/tag/stock-picking/

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Thursday, 4 March 2010

Basic Steps on How to Find Profitable High Performance Stocks

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

Political and Economic News

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