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.

Friday 12 March 2010

The Best Stock Investment Strategy For Beginners

By James Leitz

The best stock investment strategy for beginners focuses on stock funds as the best stock investment to keep it simple, and emphasizes investment strategy over stock picking. You don't need to pick the best stock or even the best stock funds to do well if you have an investment strategy that keeps you out of trouble. Here's how to keep it simple and make money, with less risk.

Funds that invest in stocks are often called equity funds and they come in two popular varieties: mutual funds and exchange traded funds (ETFs). You can best get started on your own in one of two different ways: by opening a mutual fund account with a major no-load fund company, or by opening a brokerage account with a discount broker. Either way, you can put the best stock investment strategy for beginners that I know of to work for you.

Earmark this account as your stock investment account. All of your money will be either in stocks (equity funds) or in cash in the form of a money market fund that is safe and pays interest in the form of dividends. The key to our best investment strategy is that you are never 100% invested in equity funds or stocks, and never 100% invested on the safe side. Instead, you pick your target allocation and stick with it. I'll give you an example.

You don't want to be too aggressive, so you pick 50% as your target allocation to stocks. This means that no matter what happens in the market, you will keep half of your money in equity funds and half in the safety of a money market fund earning interest. This is your investment strategy, and it takes the need to make micro decisions out of the picture. You have a plan and you intend to stick with it to avoid major mistakes and the major losses that can result from emotional decisions.

Now let's take a look at how this simple investment strategy works to keep you out of trouble. Bad news hits the market and stocks go into a nose dive. What do you do? Since your equity funds will fall as well, if you fall below your 50% target you move money from your safe money market fund into equity funds. In other words, you buy stocks when they are getting cheaper. On the other hand, if stocks go to extremes on the up side, what do you do?

If your equity funds represent 60% or more of the total, you cut back to 50%. In other words, you take some money off of the table. How often should you move money back and forth? This best investment strategy is meant to be simple and not time consuming. When your asset allocation gets to 60-40 or 40-60, it's definitely time to move money. If you want to be more active, use 55-45 or 45-55 as your guidelines.

This stock investment strategy makes the buy and sell decisions for you so you can relax. Consider the bear market of 2008 when the market fell by over 50% by March of 2009. Stocks then went up about 70% over the next 12 months. Did most investors make money? Quite the contrary. They made poor decisions because they got scared and lacked a sound investment strategy. With this simple plan, you would be doing just fine in 2010. Plus, there would be no reason to fear a market reversal, because you have an investment strategy.

It's easy to move money back and forth between mutual funds, but be a bit careful. Don't do it any more often then is necessary. Second, to keep the tax issue simple do this in an account that is tax deferred or tax qualified... like an IRA or 401k. You can roll your existing IRA into an IRA with a no-load mutual fund company. Then your buy and sell transactions are not reportable for income tax purposes.

Do not go into the stock investing game as a beginner trying to pick the best stock investment. You'll never do it. Instead, go with a few equity funds, and include international equity funds as well. Then concentrate on the best stock investment strategy and sleep well at night.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

Article Source: http://EzineArticles.com/?expert=James_Leitz

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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)

Friday 12 March 2010

The Best Stock Investment Strategy For Beginners

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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

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