My 18 points guide to Successfully compounding your money in Stocks

1. Be a good stock picker.  
2. Think as a business owner.
3. Always look at value rather than the price.  Do the homework.
4. Buy and hold is alright for selected stocks.
5. Compounding is your friend, get this to work the magic for you.
6. Mr. Market is there to be taken advantage of.  Do not be the sucker instead.  BFS;STS.
7. Always buy a lot when the price is low.  Doing so locks in a higher potential return and minimise the potential loss.  But then, if you have confidence in your stock picking, you would have picked a winner - it is only how much return it will deliver over time.
8. Never buy when the stock is overpriced.  Not observing this rule will result in loss in your investing.  This strategy is critical as it protects against loss.
9. It is alright to buy when the selected stock is at a fair price.
10. Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the the price is still obviously too high.
11. Do not time the market for such or any stocks.   Timing can increase returns and similarly harms the returns from your investment. It is impossible to predict the short term volatility of the stock, therefore, it is better to bet on the long-term business prospect of the company which is more predictable. 
12. By keeping to the above strategy, the returns will be delivered through the growth of the company's business. 
13. So, when do you sell the stock?  Almost never, as long as the fundamentals remain sound and the future prospects intact.    
14. The downside risk is protected through only buying when the price is low or fairly priced.  Therefore, when the price is trending downwards and when it is obviously below intrinsic value, do not harm your portfolio by selling to "protect your gains" or "to minimise your loss."  Instead, you should be brave and courageous (this can be very difficult for those not properly wired)  to add more to your portfolio through dollar cost averaging or phasing in your new purchases.  This strategy is very safe for selected high quality stocks as long as you are confident and know your valuation.  It has the same effect of averaging down the cost of your purchase price.  However, unlike selling your shares to do so, buying more below intrinsic value ensures that your money will always be invested to capture the long term returns offered by the business of the selected stock.
15. Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.  Tactical dynamic asset allocation or rebalancing involves selling at the right price and buying at the right price based on valuation.  Assuming you can get your buying and your selling correct 80% of the time;, to get both of them right for a profitable transaction is only slightly better than chance (80% x 80% = 64%).  Except for the extremes of the market, for most (perhaps, almost all of the time), for such stocks, it is better to stay invested (buy, hold, accumulate more) for the long haul.
16. Sell urgently when the company business fundamental has deteriorated irreversibly. (Reminder:  Transmile)
17. 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 14, you can do so leisurely.
18. In conclusion, a critical key to successful investing is in your stock picking ability.  To be able to do so, you will need to acquire the following skills:

• To formulate an investing philosophy and strategy suitable for your investing time horizon, risk tolerance profile and investment objectives.
• The knowledge to value the business of the company.  
• The discipline to always focus on value.
• The willingness to do your homework diligently.
• A good grasp of behavioural finance to understand your internal and external responses to the price fluctuations of the stock in the stock market.
• A good rational thinking regarding the risks (dangers) and rewards (opportunities) generated by the price fluctuations of the stock in the stock market.

Is it not true, that the really big fortunes from common stocks have been garnered by those 

• who made a substantial commitment in the early years of a company in whose future they had great confidence and 
• who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."  

http://myinvestingnotes.blogspot.it/2010/02/growth-stocks-as-class-has-striking.html
http://myinvestingnotes.blogspot.it/p/keep-investing-simple-and-safe-kiss.html

The Reasons You Should Invest in Quality Growth Companies for the Long Term

The reasons you should review your philosophy and strategy in stock investing:

1.  You can create wealth only by adding value to resources or by providing a service of value.
2.  Only investments in active businesses are capable of adding value.
3.  Owning a business, though very rewarding, is expensive and risky; but owning shares in a variety of successful businesses eliminates most of the risk while retaining most of the reward.
4.  Buying the stock of quality growth companies and holding it for the long term provides substantial, predictable returns.
5.  Short term trading (BFS/STS) is unpredictable and stacks the odds against you, because it relies upon winning at some loser's expense and because there's no assurance that you won't be the loser.
6.  The benefits of long-term investing include carefree portfolio maintenance, the potential to double your money every five years, the deferment of taxes, and the fact that there are rarely any losers.



Let's review the simple mathematics that makes this method work:

1.  Assume that 15 times earnings is a fair multiple for a good company and that the company earned a dollar per share last year.
2.  You will therefore pay $15 for the stock.
3.  In five years, the earnings will have grown to $2 per share.
4.  At 15 times earnings, the price will then be $30.

The value of your investment will have doubled - in five years!


Hopefully you're satisfied with the logic behind this investing approach and can see its advantages.  

Let's dispel any doubts you might have about whether you can be successful.



The best way to minimize the risk is to invest in good quality companies for the long-term, expecting not to make a killing but to earn as much as good quality companies are capable of earning for their shareholders.

Better Investing Philosophy

Fundamentals of Investing

 

Explaining the BetterInvesting Philosophy

 

Our February issue traditionally includes an invitation for you to bring a visitor to your investment club meeting so that they can discover how clubs can help them build wealth and can learn about BetterInvesting’s philosophy. Two years ago we published an article explaining our approach to investing that proved popular with readers. This month we’ll tackle the subject again. If you’re bringing a guest to a meeting or want to introduce someone to the BetterInvesting approach, you might consider giving them this issue.

Brad Perry, in his classic book Winning the Investment Marathon, wrote that investing “is pursued most successfully in a simple, straightforward way.” This is the Golden Rule for most investors who employ fundamental analysis and have a long-term perspective. Buy stocks of high-quality companies at good prices and continue holding them as long as the companies’ performance merits doing so.

Sales drives earnings; earnings drives the stock price. That’s what it comes down to for fundamental investors. You might hear of different ways to buy and sell stocks, and countless books have touted systems that promise great returns. But over the long term fundamental analysis is what works in building wealth.
   
Fundamental analysis comes down to studying a company’s financial performance. Broadly, there are those who look for growth stocks and those who look for value equities, but the line between value and growth investing is gray: As Warren Buffett says, value and growth “are joined at the hip.”
   
Value investing, as practiced by Buffett and his mentor Benjamin Graham, is a time-tested method involving fundamental analysis that has served many investors well. But for the typical person who has a job and family and who is managing his own portfolio while following Perry’s admonition to keep it simple, fundamental analysis focused on growth stocks might be more appropriate.
   
This is because individual investors can spot a good growth company quickly. BetterInvesting’s Stock Selection Guide arranges the fundamental data in a way that allows users to see a company’s growth and management performance as well as the stock’s investment possibilities in just a few minutes; see the Stock to Study SSG on pages 29 and 30 for an example. Meanwhile, the work required to spot a good value stock is a little more complex. But as we’ll discuss later, value should be a vital consideration as well.

The Three Most Important Ideas:
Management, Management, Management
The individual investors who belong to BetterInvesting ask two questions when studying a stock:

•  Is this a well-managed company?
•  Is its stock reasonably priced?
   
We seek great management because talented, capable executives know how to ensure their company thrives over the long term amid competitive battles and periodic downturns. These are the people, in other words, who are responsible for driving the sales and growth increases that fuel stock prices.
   
In assessing management, we don’t know everything about a company’s day-to-day operations and boardroom discussions. But as laid out in a methodology promoted by association co-founder George Nicholson, we do have a lot of the information we need. A first step in finding a well-managed company is to look at the history of sales and earnings growth. An important indicator of strong management is its ability to grow the business in good times and bad.
   
We also seek companies that are growing sales and earnings over the long term at a rate that’s high relative to their size. Smaller companies generally should be growing earnings by at least 15 percent a year; mid-size companies, by 10 percent to 15 percent a year; and large companies, by at least 7 percent annually.
   
We want smaller companies to have higher growth rates partly because they generally are riskier investments than large companies. The higher growth rate compensates us for this additional risk, and if we do a good job of assessing these companies, we’ll see handsome returns. As you’ll see in this issue in “Repair Shop” and “Watch List,” finding small companies can be challenging but also quite rewarding.
   
Finally, we favor consistent growth over the long term. In the graph on this page, for example, note the railroad-track-like growth of the company’s sales and earnings. Consistent performance reassures us about the capability of management. And although the past is no guarantee of future performance (as they say in the mutual fund world), history informs our decisions regarding future growth.
   
Two other tests help us assess the company’s management. First, we check the company’s profitability before taxes and other charges outside of management’s control. We like to see stable or growing profit margins. The other ratio is return on equity — how well management is using the equity invested in the company. Again, stable or growing ROE is preferred. Comparing the company’s growth rates, profitability and ROE with those of its peers helps determine whether this is a company built for a long voyage or is simply benefiting from the rising tide for its industry.



Evaluating the Investment Potential

Once we’ve determined the company in question is likely a high-quality one worth studying further, we next project sales and earnings growth. As fundamental investors, we know that in the short term, the market may not reward the company for its excellence. But over the long term, we trust that it will. So it’s the long-term projections — five years, very roughly enough for the company to go through a business cycle — we care about.
   
We start by forecasting sales growth because we need this for building our earnings projection. With the caveat that making long-term predictions can be a humbling experience, we have a number of data points at our disposal, including:

•  The company’s historical growth rate.
•  Company statements regarding growth goals.
•  Wall Street estimates of both short- and long-term growth. Long-term sales growth estimates can be difficult to find but are sometimes buried in analyst reports.
•  The industry’s historical growth rate and estimates of future expansion.
   
More experienced investors might consider such factors as the percentage of recurring revenues, the value of projects under contract but not yet completed and historical organic growth and growth by acquisition. For retailers, they might look at projections for store and square footage expansion as well as same-store sales growth. But history is a powerful teacher for beginning and experienced investors alike.
   
We then estimate earnings growth in light of the sales projection. We’ll consider the company’s history of earnings growth and any goals it has stated. We can also access analyst reports and analysts’ consensus estimates, but these forecasts are usually overly optimistic.
   
Studying past and potential future profit margins and tax rates can help us understand the path revenues will take to earnings. We also want to think about what will happen to the firm’s number of common shares outstanding. For example, if a company regularly buys back shares to reduce the number of shares outstanding and is expected to continue this practice, we would expect future earnings to be spread among fewer shares.
   
When we’re finished, we use the earnings growth rate to arrive at an estimate of earnings per share five years from now. If we have forecast growth of 15 percent a year, and the EPS at our starting point is $1, five years from now EPS will be $2. Two things to keep in mind regarding projections:

•  It’s prudent to be conservative.
A firm might have increased earnings 25 percent annually over the past 10 years, but such performance is extremely difficult to maintain. Gravity will eventually take hold as a company moves from small to mid-size to large.
•  Earnings advances can outpace sales growth for only so long. Over the long term, they usually settle in at the rate of revenue growth. If you’re going to project EPS increases that are higher than sales growth, understand where the additional percentage points are coming from: Increased margins? Lower taxes? Fewer shares outstanding?

Checking Valuation

Once we’ve predicted the EPS five years from now, we’re ready to answer our second question: whether the stock is reasonably priced. Investors are good at discovering high-quality stocks but experience more challenges in determining the proper price to pay for the stock. Our first step is to study the stock’s price-earnings ratios over the past several years and forecast the likely high and low P/Es over the next five years. The P/E, the stock’s current price divided by a company’s EPS, is how much the market is willing to pay for $1 of a firm’s earnings; it’s the most common way to measure how expensive a company’s stock is.
   
Historical valuations can help us in this process, but P/Es often go through unpredictable periods of expansion and contraction as industries go in and out of favor on Wall Street. Another idea to keep in mind is that a stock can trade at extremely high P/Es for a while but eventually will drop — severely so when a high-growth company stumbles. P/Es also tend to contract in times of inflation.
   
After we have predicted what the high P/E for a stock will be, we’re ready to estimate a potential high price for our stock. It’s a matter of simple math: The high point of EPS — what we forecast the EPS to be five years from now — is multiplied by the high P/E to come up with a potential high price. For example, if we predict EPS will be $2 in five years and the high P/E will be 30, our predicted high price will be $60.
   
After projecting the low P/E, we can multiply it by the expected low EPS to come up with a potential low price. Since we’ve determined this is a growth company, we usually can use the most recent 12 months’ EPS as the low point for earnings. I can use other criteria for projecting a low, but this is a common method for determining this figure.

Return Expectations

Now that we have the stock’s potential range from low to high, we’re ready to see whether this stock will provide a suitable return. Our SSG divides the range into three zones: Buy, Maybe (or Hold) and Sell. The lowest 25 percent of the range is the Buy zone, and the upper-most 25 percent is the Sell zone.
   
We include the stock’s dividends — the cash payments of earnings to shareholders — in our return calculations. This gives us three ways to achieve a return on a stock: 

• through dividends,
• through the market increasing the stock’s price in concert with the earnings growth and 
• through the stock’s price rising because the market believes the P/E should be higher.

   
We aim for our stock holdings to return 15 percent annually on average over the next five years, or a doubling of return. That’s an aggressive target, but the idea isn’t to be disappointed if we fail to meet it. It’s to maintain our focus on seeking high-quality growth stocks. Achieving returns of, say, 10 percent yearly is pretty commendable.
Managing Risk

Investors can manage their risk in picking individual stocks by following some simple rules:

•  Require that the company have at least five years of financial history. Younger firms haven’t developed enough of a track record for assessing management performance.
•  Study only companies that have proven they can make money. Someone who invests in a company that has never reported earnings is speculating, not investing.
•  Understand the possible risk and reward of owning a stock.
•  Diversify your portfolio. Even if you’ve done your homework on every holding using all the information you need to make an informed decision, you’ll still make mistakes. If you have a good-size basket of stocks, however, you’ll also have some stocks that perform much better than expected.
   
Besides investing in high-quality growth stocks and diversifying your portfolio, two other simple principles can help you build wealth over the long term. 

• First, reinvest all your dividends and earnings. 
• Second, invest regularly in both good markets and bad; this is often called dollar-cost averaging.

   
The type of analysis I’ve outlined provides a lot of the information fundamental investors need to determine whether a stock is a suitable investment. But not everything. Reading annual reports, listening to conference calls and viewing company presentations will help you form a fuller picture of the company.
   
In today’s unpredictable, volatile market, fundamental analysis is even more important than usual. But for an investor using a simple, straightforward methodology that focuses on the long term, these are also times of great opportunity.

http://www.betterinvesting.org/Public/SingleTabs/BI+Mag/Articles+Archives/0210publiccs.htm

4 Steps To Creating A Better Investment Strategy

August 16 2010 

It is no secret that behind every successful investment manager there is a written, measurable and repeatable investment strategy. However, many investors jump from one trade to another, putting little effort into creating and measuring their overall strategies.

Read on to learn four questions that, when answered, will help you create a better investment strategy. The following questions will help you create an investment strategy that is written, measurable and backed by your own strong beliefs. This will lead to more consistent investment performance and help you mitigate emotional investment decisions. Most importantly, it will help you avoid a scattered portfolio of individual investments that, when looked at as a whole, have no overall theme or objective.

• Can you write down your investment strategy as a process?To quote the late Dr. W. Edwards Deming, a world famous author and management quality consultant, "If you can't describe what you are doing as a process, you don't know what you are doing." Like anything that requires a disciplined process, it is important to write down your investment strategy. Doing this will help you articulate it. Once your strategy is written, you should look over it to make sure that it matches your long-term investment objectives. Writing down your strategy gives you something to revert back to in times of chaos, which will help you avoid making emotional investment decisions. It also gives you something to review and change if you notice flaws, or your investment objectives change. If you are a professional investor, having a written strategy will help clients better understand your investment process. This can increase trust, mitigate client inquiries and increase client retention.
• Does your investment strategy contain a belief about why investments become over or undervalued? If so, how do you exploit that?This question could relate to whether or not you believe that investment markets are efficient. Ask yourself, "What makes me smarter than the market? What is my competitive advantage?" You may have special industry knowledge or subscribe to special research that few other investors have. Or, you may have beliefs about exploiting certain market anomalies, like buying stocks with low price-to-book ratios. Once you have decided what your competitive advantage is, you must decide how you can profitably execute a long-term trading plan to exploit it.
  Your trading plan should include rules for both buying and selling investments. Also, keep in mind that your competitive advantage can eventually lose its profitability simply by other investors implementing the same strategy. On the other hand, you may believe that investment markets are completely efficient, meaning that no investor has a consistent competitive advantage. In this case, it is best to focus your strategy on minimizing taxes and transaction costs by investing in passive indexes. (To read more on market efficiency and market anomalies, see What Is Market Efficiency?, and Making Sense Of Market Anomalies.)
• Will your investment strategy perform well in every market environment? If not, when will it perform the worst?There is an old saying on Wall Street, "The market can remain irrational longer than you can remain solvent." Good investment managers know where their investment performance comes from, and can explain their strategy's strengths and weaknesses. As market trends and economic themes change, many great investment strategies will have periods of great performance followed by periods of lagging performance. Having a good understanding of your strategy's weaknesses is crucial to maintaining your confidence and investing with conviction, even if your strategy is temporarily out of vogue. It can also help you find strategies that may complement your own. A popular example of this would be mixing both value and growth investing strategies.
• Do you have a system in place for measuring the effectiveness of your investment strategy?It is difficult to improve or fully understand something that you do not measure. For this reason, you should have a benchmark to measure the effectiveness of your investment strategy. Your benchmark should match your investment objective, which in turn, should match your investment strategy.
  
  Two common types of investment benchmarks are relative and absolute benchmarks. An example of a relative benchmark would be a passive market index, like the S&P 500 Index or the Barclays Aggregate Bond Index. An example of an absolute benchmark would be a target return, such as 6% annually. Although it can be a time consuming process, it is important to consider the amount of risk you are taking relative to your investment benchmark. You can do this by recording the volatility of your portfolio's returns, and comparing it to the volatility of your benchmark's returns over of periods of time. More sophisticated measures of returns that adjust for risk are the Treynor Ratio and the Sharpe Ratio. (For more on risk adjusted returns please read, Understanding Volatility Measurements and Measure Your Portfolio's Performance.)

ConclusionSun Tzu, an ancient Chinese military general and strategist, once said, "Tactics without strategy is the noise before defeat". Sun Tzu knew that having a well thought out strategy before you go into battle is crucial to winning. Good money managers have a clear understanding of why investments are over and undervalued, and know what drives their investment performance. If you are going to battle against them everyday in investment markets, shouldn't you? Great trades may win battles, but a well-thought-out investment strategy wins wars.

Read more: http://www.investopedia.com/articles/trading/10/creating-a-better-investment-strategy.asp?partner=sfgate#ixzz1tPbBRQ5O

Can You Sum Up Your Investing Philosophy in 10 Words?

By Jason Zweig

Associated Press

Abraham Lincoln in 1858

In a speech to the Wisconsin State Agricultural Society in Milwaukee on Sept. 30, 1859, Abraham Lincoln told this anecdote:

“It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’ How much it expresses! How chastening in the hour of pride!—how consoling in the depths of affliction! ‘And this, too, shall pass away.’  And yet let us hope it is not quite true.”

I was recently reminded of Lincoln’s wonderful speech when someone asked me if I could summarize my investing beliefs in no more than 10 words. I laughed and said, “Of course not!”

But right afterward, I realized to my surprise that I could. I banged this out almost instantly:

Anything is possible, and the unexpected is inevitable. Proceed accordingly.

I asked some leading investors and financial thinkers for their own contributions.  Here are a few:

Determine value.  Then buy low, sell high.  ;-)

—David Herro, chief investment officer for international equities, Harris Associates, and manager of Oakmark International Fund

If everybody wants it, I don’t. Avoid crowds.

—Gus Sauter, chief investment officer, the Vanguard Group

Other people are smarter than you think they are.  Index.

—Laurence B. Siegel, research director, Research Foundation of the CFA Institute

Risk means more things can happen than will happen.

—Elroy Dimson, expert on long-term stock returns, London Business School, and co-author, “Triumph of the Optimists”

Invest for the long term and ignore interim aggravation.

– Charles D. Ellis, director, Greenwich Associates, and author, “Winning the Loser’s Game”

100% of business value depends on the future.

—Bill Miller, chairman and chief investment officer, Legg Mason Capital Management

Plan for the worst. Hope for the best.

—Robert Rodriguez, managing partner, First Pacific Advisors

Control what you can: your savings rate, costs, and taxes.

– Don Phillips, president, fund research, Morningstar

In the end, you cannot take your investments with you.

– Meir Statman, finance professor, Santa Clara University, and author, “What Investors Really Want”

The less portfolio management costs, the more you earn.

—Burton Malkiel, professor of economics emeritus, Princeton University, and author of “A Random Walk on Wall Street”

Own competently managed, competitively advantaged businesses at discounted prices.

—O. Mason Hawkins, chairman and chief executive officer, Southeastern Asset Management

Do the math. Expect catastrophes. Whatever happens, stay the course.

– William J. Bernstein, Efficient Frontier Advisors, and author, “The Four Pillars of Investing”

Fallible, emotional people determine price; cold, hard cash determines value.

—Christopher C. Davis, chairman, Davis Advisors and co-manager, Davis New York Venture Fund

New submissions are also coming in:

Save. Invest long-term. Compounding returns builds. Compounding costs destroys. Courage!

–John C. Bogle, founder, the Vanguard Group

Are you smarter than the average professional investor? Probably not.

– William F. Sharpe, emeritus professor of finance, Stanford University, and Nobel Laureate in economics

Finally, it’s worth remembering that the great investing analyst Benjamin Graham engaged in a similar exercise (also evoking Lincoln’s tale) but came in seven words under our maximum:

In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, ‘This too will pass.” Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.”

—Benjamin Graham, “The Intelligent Investor,” Chapter 20.

In the spirit of Lincoln’s classic anecdote, can you sum up your investing philosophy in no more than 10 words that you believe will be “true and appropriate in all times and situations”?

http://blogs.wsj.com/totalreturn/2012/01/27/can-you-sum-up-your-investing-philosophy-in-10-words/?mod=WSJBlog&mod=totalreturn

Long Term Stock Picks For Investing Beginners

If there is one thing that the recent recession has taught us, it is that everyone should be responsible for their personal finances and investments. Despite the fact that you are paying professionals for their stock pick advice and their inside track on hot stock picks, how many of them really have your best interest at heart or actually know what they are doing? How many Ponzi scheme stories do we have to hear on the news about people being robbed of their life savings? For some retirees, this is a devastating blow. For others, there is still time to make it back with long term stock picks on the horizon.

After suffering a financial set back, it might be hard for some investors to rebuild their fortune but the same investment advice can be applied to those who are beginning investors. Before you begin to invest, you need to have your personal finances in order. This means you need to have your emergency funds in place so you won’t feel obligated to sell your best stock picks because you need the money. It is generally regarded that you should put away enough money in your savings account for six months to a year if something goes wrong and you are out of a job. As an investment tip, it is recommended that you only invest with money you won’t need for a period of five to ten years. Even though you can make fast money in the stock market, you can also easily lose money too. The way to reduce these risks is if you think for the future with long-term stock picks. You want to invest in growth stocks that are trading cheaply for their future potential as opposed to hot penny stocks that are more erratic and risky.

To be honest, any stock picking advice can be reduced to one golden rule: buy low and sell high. However, it is important to note that it doesn’t cover the time line. You can make money on the stock market within a few minutes or you can make money over a period of years. Perhaps this is why famed billionaire investor Warren Buffett has his number one rule of investing as well: never lose money. His second rule of investing is never forget rule number one. Warren Buffett’s investment advice might sound glib but surprisingly, so many people do lose money in the markets. This is because while they might have a few winning stock picks, the vast majority of them were losers. So they understand the concept of buying low and selling high but they don’t do it consistently to make money in the stock market. And perhaps this is due to their time horizon.

If there is one person you should take investment advice from, it is Warren Buffett. He has an incredible financial mind and yet he can distill concepts to teach investing for beginners. So while you can make money from day trading, foreign exchange arbitrage, shorting stocks, buying and selling options and warrants, Warren Buffett does it the old fashion way with long term stock picks. Buffett’s investment strategy simply reduces the risk by buying good companies at a fair price. Again, this might seem like a very simplistic stock tip but it is amazing that so many people cannot understand the concept.

According to Buffett, price is what you pay, but the value is what you get. For example, a company’s share price might be the lowest that it has been in a year but is it worth it to begin with? There have been lots of stock market bubbles in the past with certain sectors being overvalued only to come crashing down again. When looking for best stocks to invest, it is important to look past the hype and realize a company’s intrinsic value. You should also invest in something you understand as well. If you don’t understand a business, how can you do your stock analysis? You need to do your stock pick research by going through a company’s annual reports and financial statements. This is called fundamental analysis. If you can identify top stock picks that are trading below their intrinsic value, you can keep them in your portfolio for the long term. And if you can find cheap stocks that are mispriced you will have the luxury of time for the long term horizon which gives you a margin of safety. Therefore, let this be another stock pick advice: when a company is overhyped, its stock price is probably overvalued. When a company’s stock is trading below its intrinsic value and the pundits are tell the public to sell, that is when you should go against the grain and buy. Again, the point of making money investing is to buy low and sell high. Therefore, even though a lot of people are scared to invest in the stock market because of the economic crisis, this is the best time to invest in recession stock picks.

If you follow Warren Buffett’s stock picks advice of applying a margin of safety when buying a few good companies and waiting patiently for the price to go up again, you will make money in the stock markets. The Warren Buffett strategy is also called focus investing. You put your focus on finding a few winning long-term stock picks. For some people, this might seem risky as it goes against the popular thinking of diversification. However, the point of diversification is because you want to reduce risks but what are the risks if you do your due diligence? This is very important advice for beginning investors to adhere to as well. It is easy to make money on a few hot stocks but it is hard to make money consistently in the stock market so always do your research.

As a final word of advice for stock market beginners, if you don’t have time to learn how to invest in the stock market, the next best thing is to invest in index funds instead of managing a stock portfolio yourself. An index fund is a low cost mutual fund that tracks a particular stock market index by buying the same companies that make up the index. Since markets rise over the years, this takes care of your long term investments. Of course, you will only do as well as the market and you won’t have the fun of watching break out stocks but the truth is most mutual funds are closet index funds anyway. If you look at the mutual fund stocks, most funds will be a duplicate of some index so why pay the extra management costs that eat away at your return? And for those high profile money managers, do you really trust them with your money after all that’s happened in the news with the financial scandals? While there are undoubtedly honest money managers out there, how do you separate the good ones from the bad? The bottom line is that no one will have your best interest at heart and care about your long term investments more than you. You might as well learn about investing for yourself.

http://warrenbuffettstockpicks.com/long-term-stock-picks-for-investing-beginners/

Keys to Successful Investing

Know Yourself
Know your investing objectives
Know your time horizon
Know your risk tolerance
Know your financial capacity and reserves

Know your investing philosophy and strategy
Keep it simple and safe (relevant, powerful and focussed)
Never lose money (Rule No 1 and Rule No 2 of Warren Buffett )
Develop and stay with your investing philosophy and strategy (value investing, long term)
Know the difference between investing and speculation/gambling (avoid speculation and gambling)
Avoid market timing (a most dangerous game to play, best avoided)
Selective stock picking (earning power, economic moat, durable competitive advantage, franchise value)
Know your rules for buying (circle of competence, margin of safety, buy quality, great companies at wonderful price)
Know your rules for selling (sell the losers- fundamentals deteriorated permanently or underperformers)
Know your rules for portfolio management (concentrated, defensive and offensive strategies)
Keep good records to guide your investing (an essential to your success in your investing journey)
Reinvest your dividends and dollar cost averaging (take advantage of compounding)

Ongoing activities to invest for the future
Continue to learn and explore.
Continue to master the understanding of all types of businesses
Continue to master valuation of business
Continue to master the understanding of market behaviour and Mr. Market
Continue to master behavioural finance to understand herd and individual behaviour.
Continue to learn, develop, refine and explore investing knowledge, concepts and applications.
Continue to research companies and businesses.
Continue to seek opportunities in good and bad markets.

The benefits of having an investment philosophy and strategy

The benefits of having a strategy to support your investing are:
- the removal of subjectivity
- consistency in your investment decisions
- the ability to repeat your successes and avoid repeating your mistakes.

A strategy is simply a set of rules or guidelines that are adopted consistently over time.  Having a strategy does not prevent you from having losses though.  By documenting your approach to investing you can help remove the emotive element to making a decision by ensuring that you have developed a solid argument to support your investment decision.  Another advantage of having documented your approach to decision making means that your have a record of how you achieved your successful results to help you repeat them.

Five reasons why my way works

http://www.financialiteracy.us/wordpress/2010/10/05/five-reasons-why-my-way-works/

My mission, when I started this blog, was to persuade my readers that “investing,” is not what the securities industry has spent gazillions convincing everyone it is: betting on the stock market, which is risky and unpredictable. Rather, “investing” is a simple means of earning money with your money. It can make you wealthy and is virtually risk-free. 


Here are five reasons why “our” way works, and “their” way doesn’t.

1. “We” seek to be part-owners of companies that have a proven track record of making money for their owners. “They” buy stocks because their stories sound good.
2. “We” judge the quality of the companies we invest in by examining their fundamentals—their “lifeblood” and “vital signs.” “They” use technical analysis to decide when to buy and sell—a popular attempt to predict the unpredictable, with no record of consistent success.
3. “We” know, from history, what multiple of profits would be reasonable to pay for shares of such companies. “They” ignore such fundamentals and can only guess at reasonable purchase price.
4. “We” rely upon an increase in the actual value of our holdings over time to justify selling at a profit. “They” must rely on luck or someone else’s ignorance to profit from the transaction.
5. “We” value our portfolios according to their potential—their rational value—because we own shares in companies whose operations continue profitably, regardless of the fluctuations of the stock market. “They” value shares according to their “market value”—whatever they’re selling for at the moment—because “they” don’t have a means of setting an absolute value for those shares.

The only thing “they” have going for them is excitement. There’s nothing like the rush that comes with risk! Especially when you bet your life’s savings on something as uncertain as the stock market.

*****Long term investing based on Buy and Hold works for Selected Stocks

It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html

Click: Dividend Yield Investing - Stock Selection is still the Key
http://myinvestingnotes.blogspot.com/2010/03/dividend-yield-investing.html

Click also:
How can the average investor improves his investment returns in stocks?

and here too:

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

"Buffett says the same thing every year."

That's the whole point of having an investment philosophy and sticking to it. 

If you do your homework, stay patient, and insulate yourself from popular opinion, you're likely to do well. 

It's when you get frustrated, move outside your circle of competence, and start deviating from your personal investment philosophy that you're likely to get into trouble.

Year to Date KLSE Performance (31.12.2009)

KLSE  1 Year Chart
http://finance.yahoo.com/echarts?s=%5EKLSE#chart1:symbol=^klse;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Important lessons learned from the last 2 years.

1. Always buy good quality stocks.
2. Do not over-diversify.
3. Monitor the business.
4. Do not be influenced by the market price.
5. Do not follow or be influenced by the crowd. The crowd is often wrong.
6. Volatility in the market is a friend, take advantage of it.
7. Always buy at bargain price. Always buy with a margin of safety, at a discount to the fundamental intrinsic value.
8. Do not lose your capital. Even in March 2009, the portfolio still showed a gain.
9. Develop a good investing philosophy and strategy. Stick to them.
10. Invest for the long term.
11. Understand your emotions to greed and fear. Challenge them before reacting. Are these rational or appropriate given the facts?
12. It is often alright to do nothing.

Happy New Year to all.

****My Investment Philosophy, Strategy and various Valuation Methods

Investment Philosophy and Strategy
Investment, speculation and gambling
My strategies for buying and selling (KISS version)
Investment Policies (Based on Benjamin Graham)
Thriving In Every Market
The Estimate of Future Earning Power

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Risks, Rewards, Probabilities and Consequences
Consequences must dominate Probabilities
The risk is not in our stocks, but in ourselves
Behavioural Finance
Strategies for Overcoming Psychological Biases

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The Power of Compounding
**Understanding the Power of Compounding
http://www.horizon.my/2008/11/the-story-of-anne-scheiber/
Be like Grace: 5 Lessons From an Unlikely Millionaire
Slow consistent accumulation through the power of compounding
The Master: Warren Buffett 1
What is your optimum Return on Investment?

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Strategies: For Buying, Holding and Selling & Portfolio Management
Stock Selling Guide - Gain/Loss Worksheet (Part 1 of 5)
Stock Sale Considerations (Part 2 of 5)
Evaluating Changing Fundamentals (Part 3 of 5)
To Sell or to Hold Checklist (Part 4 of 5)
Selling and Holding mistakes Checklist (Part 5 of 5)
Portfolio Management - Defensive & Offensive strategies
Detail version of To Sell or to Hold & Portfolio Management
My strategies for buying and selling (KISS version)

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Strategies: Good Quality Companies with Durable Competitive Advantage
**Exploring Durable Competitive Advantage
Company with Durable Competitive Advantage 1
Selling a unique product 2
Selling a unique service 3
Low-cost buyer and seller of a product or service 4...
Warren's durable competitive advantage companies 5...
Buffett versus Graham 6
Durability is the Ticket to Riches 7
Financial Statement: Where the Gold is Hidden 8
Durable Competititve Advantage - Conclusion 9

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Strategies: Asset Allocation & Market PE
Preparing Your Portfolio Is the Most Important Action You Can Take
**A Seven-Step Process for investing in New Assets
**Why Stocks Are Dirt Cheap
20.11.2008 - KLSE MARKET PE

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Valuation: Based on Equity per Share
Stock Valuation
Variable values of a dollar of earnings
Assumptions used to calculate value
Stock valuation
Stock valuation 2
Stock Valuation 3
Stock Valuation 4
Stock valuation 5
Stock Valuation 6
Stock valuation 7

Stock Val's@ valuation formula:{[(APC/RR) x Reinvestment + Dividends]/RR} x Equity per share = VALUE

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Valuation: Based on Buffett's Equity Bond Concept
Warren Buffett’s Concept of Equity Bond in Action
Warren Buffett's concept of Equity Bond

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Valuation: Based on Ben Graham's checklist
Ben Graham Checklist for Finding Undervalued Stocks

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Valuation: Discount Cash Flow models (using various types of cash flows)
http://www.capital-flow-analysis.com/investment-theory/stock-valuation.html

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*****Long term investing based on Buy and Hold works for Selected Stocks

Why Stocks That Raise Dividends Trounce the Market

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Also read:
Market Strategies Review Notes I (January 2009)