How To Build A Fortune In The Stock Market

How To Build A Fortune In The Stock Market: 5 Questions Every Investor Needs To Ask Of Their Investment Strategy

Posted in stock market
May 08

Every investor’s investment strategy should adequately address the following five questions:


(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?

In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.

There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.

Why?

Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.

Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions

The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.

Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.

(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).

Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.

Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.

In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.

(1)What Specific Stocks Should I Buy?

Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.

How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.

Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.

Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.

J.S. Kim is the founder and managing director of SmartKnowledgeU

http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html

Successful Stock Investing: Keep it Simple

March 30, 2010

Successful Stock Investing

Successful stock investing can be very complicated and it can be very simple depending upon your approach. Successful stock investing starts with deciding on a strategy for stock picking, buying stock, and holding for long term investing. It includes knowing how and when to sell stock. Investing in the stock market involves homework, attention to detail, diversifying a stock portfolio and other strategies for managing investment risk management. The most successful stock investing comes from adhering to a few simple rules and not letting the psychology of investing or stock market tips distract you. Use of technical analysis tools such as Candlestick chart formations will help find stocks that are at the bottom of their cycle allowing for cheaper purchase of a promising stock. There is no perfect system for  picking stocks. That having been said there is such a thing as smart stock investing which will reduce your stock market risk and increase your chances for good stock market results. Smart investing is choosing a simple strategy that fits your available time and your current knowledge of the equity market. Stock investing basics are to make more than you lose month by month and year by year.Value stock investing is a means of choosing stocks that are currently underpriced, have good product potential, sound financials, and commanding positions in their market sectors. The market under prices stocks for various reasons. Why is not especially important. What is important is to pick up promising growth stocks, ones that pay good dividends year after year after year, or stocks that have a low price to earnings ratio when they are at a low price. A good rule of thumb for beginning investing in the stock market is to limit the number of stocks owned to five, in different market sectors. A good rule of thumb for successful stock investing is to never, never buy stock at current  stock market prices. Place limit orders. A buy limit order will be executed at or below the limit price you specify. A sell limit order will be executed at the price you specify or higher. If you buy or sell at market price you cannot control what you pay or what you receive. There are times in successful stock investing where you have purchased a stock and it has had a good run. The stock begins to cycle up and down and fundamental analysis or Candlestick analysis tells you that the stock is reaching the top of its potential. However, you do not want to sell on the low side of the current trading range. You choose a stock price at which you are willing to sell, near the top of the range, and place a limit order. You exit the stock position with a nice profit. Successful stock investing is deciding if you are going to  invest short term, take profits, and look for another stock each time or if you are going to buy and hold, profiting from stock splits and reinvest your quarterly stock dividends. However you choose to invest in stocks start by keeping it simple, manage your time wisely, and protect your investment capital by diversifying your stock portfolio with stocks from different market sectors. http://www.candlestickforum.com/blogs/2010/03/successful-stock-investing.html

Strategic Thinking

Those who follow the situation on the stock exchange may have noticed that a lot of strategists are quoted on their vision. When there is trouble people recur to theirstrategic plans; why was it? What are we doing this for? and shouldn’t we change into another direction.

One of the strategist I heard about is Albert Edwards. He is predicting that the return on stocks will diminish. In fact this process is ongoing for some years and he reckons that we have only just started. Edwards is strategic adviser on asset allocation. According to his vision investors should bring down its stock allocation.

This is only one of the advisers. But it shows that investors and companies both need a strategy. Both need somehow the picture and idea of what the economic situation will be and how it will affect the portfolio (for the investor) or the resources and investments (for the company).

The parallel is stronger if you think that many companies do not bother about a strategy as long as the market conditions are fine. Now that the economic situation is changed thestrategic thinking (over the past years) can make the difference.

The problem for both is adaption to change. If the stock prices fall the strategic question is: is this the end of the bear-market or only the beginning. Asset allocation could make a difference. If it is the beginning and allocations to stock are lowered the strategy will make sense, but it could also turn out different and a lower asset allocation will mean a relatively under-performance.

Somewhere I found the remark: “my strategy is stock-picking. There are always stocks that show growth irrespectively of what the market does.” That is also a strategy; not a long-term plan, but an approach, like a way of life.

A similar approach (and parallel) for the company is to focus on a niche market. Like the stock-picker, there is always a niche that will perform independently of the overall market.

In both cases, the strategic benchmark must be set to this target. If you focus on stock-picking the market may offer worse but also better results.

http://strategicplanning.doodig.com/2010/03/21/strategic-thinking/

Stock Market Tip and Investing Advice

Stock Market Tip and Investing Advice

Posted on March 14 2010

Stock market investing advice

Beginner stock market investing advice is far popular already in the internet. The individual investor will find it hard to make money in stocks. Almost  many individuals are ready to invest in stocks right now. Yet to make lots of money means you need to study and studying takes motivation, which is very hard if all you want to do is impatiently throw your money into stocks.

If you hate to study then here are some stock investing tips.

Throw out the rulebook as there are no set rules for investing and there are no guarantees of success.

The best analysts are those who make informed decisions because they have detailed reasons for buying a stock and for selling.

Determine how much risk you could take  as this depends on your goals, so have your goals formulated first.

Price is not often times the same as value and check a companies’ net worth, which is profit AFTER taxes.

Stock market tip

You have worked so hard and saved a lot of money. This time you want those savings to work for you and earn you even more money. The stock market is one of the easiest and best ways to do it, provided of course you know what you are doing.

Listed below are ten stock market tips for beginners that if followed will lead you to success.

1) Make sure to determine your goal. Once you know to define your goal, then you can create a trading strategy for achieving that goal.

2) Mutual funds are not for everyone. As advised, take the time to learn how to pick good stocks so you can easily make double even triple-digit gains rather easily.

3) No single stock trading strategy will work in all markets. You must have a store of at least three trading strategies.

4) If possible, avoid short selling. Short selling is not a good advice as it is a strategy used to create wealth when stocks are falling. It is extremely risky and your broker is in control.

5) Find a low cost broker and do your own investing. Those full service brokers charge hundreds of dollars to place one single trade. Online discount broker can do the same thing for $5 or even less.

6) Practice paper trading your stocks and strategies. “Paper Trading” simply means that you find the stocks to invest in and pretend you are buying them

7) Have an exit strategy. The stock market can be tough for beginners. Try to make a plan before buying and stick with it.

 Go over your trades yearly. Try to figure out why the losers lost and you should learn from it so you don’t make the same mistakes next year.

9) Try to at least master technical analysis. It is good to be able to predict the direction of any stock or index with fairly accurate results.

10) Learn how to pick winning stocks. Use a stock picking service if possible. You can find these all over the Internet.

Stock investing tip

In general, when investing in a stock it is easy to become distracted and lose focus. Maybe your stock picks have been going down recently and you are afraid of losing any more money. Maybe you have found another stock that you are interested in buying, but you need to sell your other stock first. Maybe you don’t like the ups and downs associated with investing in an individual stock.

Stock invesment software

There are various stock investment software options on the market today. By investing in the good stock picks which they generate, you can make a great deal of your money in short-term. I would like to recommend going for penny stock specific stock investment software. Some programs only target those cheap stocks because of the high profit potential associated with them. Because of these stocks have cheaper prices, penny stocks are a great deal more potentially profitable overall.

Good stock pick

So many investors and stock beginners today want to know how to find good stock picks for their portfolio. They are always finding for that next hot stick tip that they can make a killing off in the next 30 days of investing. The most common problem with most investors is that they take on a very short term outlook. This is the same of a number of business owners. In both business and stock investing, it’s only a small minority who ever make a significant amount of money. Why is this?

Instead of being committed to a strategy and sticking to it long term, the vast majority become so focused on finding that ‘get rich quick’ scheme they will jump from one stock to the next, and ultimately make very little money at all.

http://thegetwealthy.com/2010/03/stock-market-tip-and-investing-advice/

The Best Stock Investment Strategy For Beginners

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

*****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.

Knees of Jelly or Nerves of Steel: Fixating on Risk Can Sink Your Investment Portfolio

As we settle on our portfolio's stock allocation, maybe we should forget about risk tolerance and instead focus on four other factors.

----

As you decide how much to invest in stocks, a lot supposedly rides on whether you have knees of jelly or nerves of steel. But this notion of risk tolerance is a dangerous idea.  For proof, look no further than our reaction to recent market movements.

Our tolerance for risk, it seems, has plunged along with the market. But clearly, that doesn't mean we should cut back on stocks. If we slashed our stock-market exposure every time we felt queasy, we would buy high, sell low and garner disastrous investment results.

• "After the stock market has gone up, people think that the probability of the market continuing to go up is high."  
• "When the market goes down, people think it will continue to go down." 

What to do? As we settle on our portfolio's stock allocation, maybe we should forget about risk tolerance and instead focus on four other factors.

1. Taking Aim: "This fixation on risk isn't getting us any-place. Instead, people should think about the goals they have." You might want a cash reserve to cover emergencies and help you sleep better at night. But you also want to amass enough for retirement, which means buying stocks in the hope of notching high returns. "One goal is to avoid being poor. The other goal is having at being rich. Each goal is desirable. The question is, how do we allocate our portfolio between these two goals?"

2. Hitting the Target: "People don't understand risk very well. Most people will underestimate the risk of bond investments, because they don't understand interest-rate risk. And even after the great performance of the past few years, they'll overestimate the risk of a diversified stock portfolio over the long term."

It is better for you to be educated about risk and figuring out what sort of investment returns you need to meet your goals. You then have a mix of stocks and conservative investments that you think will generate the returns you need. "At that point, you typically change your professed tolerance for risk, rather than changing your goals. You can see the tie-in between the portfolio's risk and the accomplishment of your goals. It provides the motivation to take risk and stay invested when things look grim." Still there is a downside to this approach. "Once you have the portfolio that is most likely to meet their future needs is an aggressive portfolio, you tend to ignore short-term risks. But the problem is, it's these short-term events that you react to."

3. Biding Time: As you decide how to divvy up your money between stocks and more-conservative investments, time is a critical factor. Even if you are an aggressive investor and you need high returns to meet your goals, stocks may not be a wise choice if you have a short-time horizon. "Any money needed in three years or less should be saved rather than invested, and that means Treasury bills, money-market funds and certificates of deposit. But your time horizon is longer than you think. Your kid may be three years from college. But you won't pay the last bill for seven years."

4. Pick a Reasonable Range: No matter what your age or professed risk tolerance, experts typically recommend that long-term investors have 50% to 90% in stocks. Sound like a lot in equities? Initially, you may not be comfortable with such hefty stock exposure. But with time, you should get used to the market swings. And the fact is, without the stocks, you may not amass enough to reach your goals. "You may indicate that you are very risk averse, but then you may not be able to afford to be that conservative."


Source: Jonathan Clements, The Wall Street Journal, June 6, 2000.

Stock Market Investing Will Be Made Simpler, By Making Use Of These Guidelines

02.03.2010 | Author: Tom Kearney | Posted in Stock Market

There is certainly a state of flux in the present day stock markets but that is no reason why you should not learn more about stock market investing. The good news is that there are many useful tips available that will help you understand how to invest your money profitably in the best stocks.

At the very outset, it must be emphasized that success in stock market investing only comes to those who plan their activities before investing their money. In fact, it is also safe and wise to distribute your investments and in addition you will need to also make regular investments plus you should invest with a long term plan in mind.

The sooner you start making investments the better it will be for you as then you can reap benefits that will come your way through compounding. In fact, you should consider time to be the magical key that will unlock the secrets to turning cents into dollars. However, be sure that you also learn to avoid investing in derivatives and also in futures.

The third most important tip is that it does not pay to try leveraging as this is very difficult and in many instances, is even impossible because you cannot accurately predict how stock market trends in the near term will pan out. Instead of this, it makes sense to not buy into a market and the right course of action is to invest only in good stocks.

Now, when it comes to picking individual stocks you need to choose stocks that are a mirror of the much broader indexes and at the same time you need to ensure that you do not purchase single or even handful of stock exposures. It is always safer to spread your risk across different market segments so that even if a particular stock fails, you will have other stocks that can help cover the losses.

Also, before you actually go out and buy stocks, you must determine how well a particular company has been performing and if the performance is up to the mark, then you can go ahead and purchase the stock of that company. You should not allow yourself to be swayed by stock prices that often give an incorrect impression and which seldom give accurate pointers as to the health and profitability of a company.

In addition, when some of your stocks turn out to be duds, you must not hesitate in selling them off as soon as is possible. If you have erred in buying stocks, then you should admit this and get rid of the duds and in this way cut your losses.

When buying stocks, you need to also ensure that you buy into value and not into momentum. Also, be sure that you base your buying of stock decisions according to what your head says, and not what your heart is telling you.

It also means that when your brain tells you to buy a stock, you should buy the stock and not make the mistake of purchasing stocks based on emotions. Buying into large company stocks is always prudent as the chances of earning profits in the long run are higher as compared to other stocks.

This means that it always pays to pick big stocks and at the same time avoid investing in penny stocks because when you are going to invest in small and middle sized stocks, it would require strong expertise to evaluate their profitability, which is not something that every ordinary investor can do.

Check out more about stock market investing and how you can make money. With ETF trading steps you may be able to bring in a nice profit. Head online and find out more now.

Lessons Learned From Investing Genius Peter Lynch

Lessons Learned From Investing Genius Peter Lynch

by: Wade Slome February 24, 2010

Those readers who have frequented my Investing Caffeine site are familiar with the numerous profiles on professional investors of both current and prior periods (See Profiles). Many of the individuals described have a tremendous track record of success, while others have a tremendous ability of making outrageous forecasts. I have covered both. Regardless, much can be learned from the successes and failures by mirroring the behavior of the greats, not much different than modeling your golf swing after Tiger Woods (O.K., since Tiger is out of favor right now, let’s say Phil Mickelson). My investment swing borrows techniques and tips from many great investors, but Peter Lynch (ex-Fidelity fund manager), probably more than any icon, has had the most influence on my investing philosophy and career as any investor. His breadth of knowledge and versatility across styles has allowed him to compile a record that few, if any, could match – outside perhaps the great Warren Buffett.

Consider that Lynch’s Magellan fund averaged +29% per year from 1977 – 1990 (almost doubling the return of the S&P 500 index for that period). In 1977, the obscure Magellan Fund started with about $20 million, and by Lynch's retirement the fund grew to approximately $14 billion. Cynics believed that Magellan was too big to adequately perform at $1 billion, $2B, $3B, $5B and then $10B, but Lynch ultimately silenced the critics. Despite the fund’s gargantuan size, over the final five years of Lynch’s tenure, Magellan outperformed 99.5% of all other funds, according to Barron’s. How did Magellan investors fare in the period under Lynch’s watch? A $10,000 investment initiated when he took the helm would have grown to roughly $280,00 by the day he retired. Not too shabby.

Background

Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968. Like the previously mentioned Warren Buffett, Peter Lynch shared his knowledge with the investing masses through his writings, including his two seminal books One Up on Wall Street and Beating the Street. Subsequently, Lynch authored Learn to Earn, a book targeted at younger, novice investors. Regardless, the ideas and lessons from his writings, including contributing author to Worth magazine, are still transferrable to investors across a broad spectrum of skill levels, even today.

The Lessons of Lynch

Although Lynch has left enough financially rich content to write a full-blown textbook, I will limit the meat of this article to lessons and quotations coming directly from the horse’s mouth. Here is a selective list of gems Lynch has shared with investors over the years:

Buy within Your Comfort Zone: Lynch simply urges investors to “Buy what you know.” In similar fashion to Warren Buffett, who stuck to investing in stocks within his “circle of competence,” Lynch focused on investments he understood or on industries he felt he had an edge over others. Perhaps if investors would have heeded this advice, the leveraged, toxic derivative debacle occurring over previous years could have been avoided.

Do Your Homework: Building the conviction to ride through equity market volatility requires rigorous homework. Lynch adds,

A company does not tell you to buy it, there is always something to worry about. There are always respected investors that say you are wrong. You have to know the story better than they do, and have faith in what you know.

Price Follows Earnings: Investing is often unnecessarily made complicated. Lynch fundamentally believes stock prices will follow the long-term trajectory of earnings growth. He makes the point that

People may bet on hourly wiggles of the market, but it’s the earnings that waggle the wiggle long term.

In a publically attended group meeting, Michael Dell, CEO of Dell Inc. (DELL), asked Peter Lynch about the direction of Dell’s future stock price. Lynch’s answer:

If your earnings are higher in 5 years, your stock will be higher.

Maybe Dell’s price decline over the last five years can be attributed to its earnings decline over the same period? It’s no surprise that Hewlett-Packard’s (HPQ) dramatic stock price outperformance (relative to Dell) has something to do with the more than doubling of HP’s earnings over the same time frame.

Valuation & Price Declines:

People concentrate too much on the P (Price), but the E (Earnings) really makes the difference.

In a nutshell, Lynch believes valuation metrics play an important role, but long-term earnings growth will have a larger impact on future stock price appreciation.

Two Key Stock Questions: 1) “Is the stock still attractively priced relative to earnings?” and 2) “What is happening in the company to make the earnings go up?” Improving fundamentals at an attractive price are key components to Lynch’s investing strategy.

Lynch on Buffett: Lynch was given an opportunity to write the foreword in Buffett’s biography, The Warren Buffett Way. Lynch did not believe in “pulling out flowers and watering the weeds,” or in other words, selling winners and buying losers. In highlighting this weed-flower concept, Lynch said this about Buffett:

He purchased over $1 billion of Coca-Cola (KO) in 1988 and 1989 after the stock had risen over fivefold the prior six years and over five-hundredfold the previous sixty years. He made four times his money in three years and plans to make a lot more the next five, ten, and twenty years with Coke.

Hammering home the idea that a few good stocks a decade can make an investment career, Lynch had this to say about Buffett:

Warren states that twelve investments decisions in his forty year career have made all the difference.

You Don’t Need Perfect Batting Average: In order to significantly outperform the market, investors need not generate near perfect results. According to Lynch,

If you’re terrific in this business, you’re right six times out of 10 – I’ve had stocks go from $11 to 7 cents (American Intl Airways).

Here is one recipe Lynch shares with others on how to beat the market:

All you have to do really is find the best hundred stocks in the S&P 500 and find another few hundred outside the S&P 500 to beat the market.

The Critical Element of Patience: With the explosion of information, expansion of the internet age, and the reduction of trading costs has come the itchy trading finger. This hasty investment principle runs contrary to Lynch’s core beliefs. Here’s what he had to say regarding the importance of a steady investment hand:

*“In my investing career, the best gains usually have come in the third or fourth year, not in the third or fourth week or the third or fourth month.”

*“Whatever method you use to pick stocks or stock mutual funds, your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.”

*“Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of a company and the success of its stock. It pays to be patient, and to own successful companies.”

*“The key to making money in stocks is not to get scared out of them.”

Bear Market Beliefs:

I’m always more depressed by an overpriced market in which many stocks are hitting new highs every day than by a beaten-down market in a recession,

says Lynch. The media responds in exactly the opposite manner – bear markets lead to an inundation of headlines driven by panic-based fear. Lynch shares a similar sentiment to Warren Buffett when it comes to holding a glass half full view in bear markets.

Market Worries: Is worrying about market concerns worth the stress? Not according to Lynch. His belief:

I’ve always said if you spend 13 minutes a year on economics, you’ve wasted 10 minutes.

Just this last March, Lynch used history to drive home his views:

We’ve had 11 recessions since World War II and we’ve had a perfect score — 11 recoveries. There are a lot of natural cushions in the economy now that weren’t there in the 1930s. They keep things from getting out of control. We have the Federal Deposit Insurance Corporation [which insures bank deposits]. We have social security. We have pensions. We have two-person, working families. We have unemployment payments. And we have a Federal Reserve with a brain.

Thoughts on Cyclicals: Lynch divided his portfolio into several buckets, and cyclical stocks occupied one of the buckets.

Cyclicals are like blackjack: stay in the game too long and it’s bound to take all your profit,

Lynch emphasized.

Selling Discipline: The rationale behind Lynch’s selling discipline is straightforward – here are some of his thoughts on the subject:

*“When the fundamentals change, sell your mistakes.”

*“Write down why you own a stock and sell it if the reason isn’t true anymore.”

*“Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.”

Distilling the genius of an investing legend like Peter Lynch down to a single article is not only a grueling challenge, but it also cannot bring complete justice to the vast accomplishments of this incredible investment legend. Nonetheless, his record should be meticulously studied in hopes of adding jewels of investment knowledge to the repertoires of all investors. If delving into the head of this investing mastermind can provide access to even a fraction of his vast knowledge pool, then we can all benefit by adding a slice of greatness to our investment portfolios.


http://seekingalpha.com/article/190389-lessons-learned-from-investing-genius-peter-lynch

Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips

Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips
February 24th, 2010 by Tom Kearney

There is certainly a state of flux in the present day stock markets but that is no reason why you should not learn more about stock market investing. The good news is that there are many useful tips available that will help you understand how to invest your money profitably in the best stocks.

At the very outset, it must be emphasized that success in stock market investing only comes to those who plan their activities before investing their money.

• In fact, it is also safe and wise to distribute your investments and 
• in addition you will need to also make regular investments plus 
• you should invest with a long term plan in mind.

It is also important that you invest without hesitating because then you can take advantage of the benefits of compounding which will also begin sooner.

• Time is the magic wand that has to be waived as only it can help transform cents into dollars. 
• At the same time, you must also learn to avoid futures and derivatives.

The third important tip is that do not try leveraging as you will find it

• hard to predict future trends in the short term and so 
• it is better to buy into a market rather than invest your money on certain stocks.

Now, when it comes to picking individual stocks you need to choose stocks that are a mirror of the much broader indexes and at the same time you need to ensure that you do not purchase single or even handful of stock exposures. It is always safer to spread your risk across different market segments so that even if a particular stock fails, you will have other stocks that can help cover the losses.

Before purchasing stocks,

• you need to look at how well a company is earning and 
• base your buying decision on this factor, instead of on the current stock prices. 
• These stock prices often give wrong impressions and will not reflect the true nature of a company’s welfare.

In addition, when some of your stocks turn out to be duds, you must not hesitate in selling them off as soon as is possible.

• If you have erred in buying stocks, then you should admit this and get rid of the duds and in this way cut your losses.

When buying stocks, you need to also ensure that you buy into value and not into momentum.

• Also, be sure that you base your buying of stock decisions according to what your head says, and not what your heart is telling you.
• It also means that when your brain tells you to buy a stock, you should buy the stock and not make the mistake of purchasing stocks based on emotions. 
• Buying into large company stocks is always prudent as the chances of earning profits in the long run are higher as compared to other stocks.
•  Therefore, you should buy into large stocks while avoiding purchasing penny stocks which are hard to evaluate and so are best left alone.

http://www.tradercurrencies.com/currency-trading/62193/stock-market-investing-will-be-made-more-uncomplicated-by-making-use-of-these-tips/

Is it possible to have this level of understanding of the stock market?

Is it possible to "figure out" the stock market like geniuses in movies?

The movie "Vitus" features a child-genius that simply understands the stock market and invests about 350,000 dollars of his Grandpa’s money (with his permission) and turns it into over 5 million in a couple days. Is it possible to have this level of understanding of the stock market?

----

Unless you are pump & dumping then its not possible to turn 350k into 5 million in a few days unless you are manipulating the market (which is illegal)

If you wanted to turn 350k into 5 million in a few days, what i would recommend is buying a very thinly traded stock (like 25k shares per day) with a low price that has options to trade. Say the stock costs 5$ per share. Then you would buy maybe 3500 7.50 call options of the same month and that would cost about 122k if your average price was 35 cents. Then once you have the options the price of the stock will rise because people will notice the buying. Then you use the other 225K you have in your account to start buying the stock. You will be able to buy about 45k shares. Now the only problem is you have to hope some computer monitored software program in some hedgefund isnt scanning stocks looking for a pattern like this cause they will know what you are doing and sell into you and sell into you hard. They will put up a short sale wall at 5.50 or 6 dollars and keep dropping the price 10 cents every few minutes, never letting the stock get up to 7.50 and before you know it, this hedge fund has pushed the stock down to 3 bucks per share and you got a margin call.

So is it possible? yes. Is it possible that 1 person can see what you are doing and block you from doing it. YES. The guys with the billion dollar funds are the ones that control the markets which is why you can be the smartest guy in the world and if you are underfunded you cant beat the market with strategys, only with luck.

You really need to have at least a few million to start if you want to pull some kind of strategy like that off.

----

No. The stock market is very intricate and very volatile. A single event can have a tremendous (and unforeseeable) impact on the stock market (wars, a positive/negative announcement by a prominent economic figurehead, etc.). There is no way for people to truly know what will happen.

Investors who make large amounts of dollars playing the stock markets are able to do so because they spend hours upon hours studying various stocks and analyzing growth patterns to determine which stock they should invest in. However, even these people do not claim to have figured out the stock market. You ask any investor, no matter how successful, and they’ll tell you that at one point or another they have lost a sizeable amount of money. The “trick” to their success is knowing stuff like what the company they invested in is going through, if there will be a change in leadership, if the company is doing something different, etc. and then deciding whether or not to hold on to the stock based on that information.

The stock market is really interesting, and I could write a lot about it on here. Each person has their way of playing the stock market, so each person will have a different answer as to how you should go about it. If you’re thinking about getting started, I hear a good place to go to is the Motley Fool; they seem to have good tips and advice.


http://investing.hirby.com/is-it-possible-to-figure-out-the-stock-market-like-geniuses-in-movies/

'There are now good long-term opportunities'

'There are now good long-term opportunities'
Q&A: Navneet Munot, Chief Investment Officer, SBI Mutual Fund
Chandan Kishore Kant / Mumbai February 12, 2010, 0:02 IST

Navneet MunotNavneet Munot, chief investment officer, SBI Mutual Fund, manages around Rs 37,000 crore in assets, half of it equity. He spoke to Chandan Kishore Kant on the outlook for the stock market this year, the sectors he likes and his expectation from the Union Budget. Edited excerpts:

How do you view the recent correction in equity markets?

The recent fall is on the back of weak global cues. There are fears related to sovereign balance sheets of countries such as Greece and Spain. The recovery in global markets was primarily due to policy stimulus and a large part of the leverage that is in private balance sheets as well as balance sheets of the household sector. This has been shifted to sovereign balance sheets, which is one concern that market participants have. These fears have materialised in the past couple of days and impacted our markets.

The other big event will be the Union Budget, where we expect some part of the stimulus to be withdrawn. The market is looking at that fear as well.

Will last fortnight’s volatility continue for long?

The volatility was driven largely by global factors, not domestic ones. This uncertainty will probably continue for some more time. The Europe factor may weigh on market sentiment before we see a final resolution.

What are your expectations from the Budget?

There’s a realisation within the government that there is a need to go back to fiscal consolidation and, at the same time, continue some stimulus till we see private investments and private consumption gather steam. We can expect an increase in excise duties on some items and in the service tax rate. Some of the fiscal measures in the last Budget might be withdrawn.

But, of course, it will be done gradually, as there is a need to balance fiscal consolidation and keeping the recovery process undisturbed. Disinvestment could be another big theme.

If all of this comes true, how will the markets behave?

Overall, the economy is doing well. Corporate earnings are expected to grow 18-20 per cent and valuations are fair. The equity markets will reflect earnings growth further next year. Our belief is that from here on, markets should consolidate at these levels. We have seen an expansion in multiples. With the correction we have seen in recent days, the shares are fairly valued and I do not think valuations are stretched now. There is value in some pockets of the market.

In this situation, what will be your investment strategy?

Broadly, our focus will be on individual stock-picking. That’s what we believe in, generating high alpha for the next year or so. The market is expected to consolidate and may gradually move upwards. Year 2010 will be one of consolidation. We are not that benchmark-driven. The whole idea is to find good companies which can generate good wealth over time. So, we focus more on bottom-up stock-picking rather than broader sectoral calls.

Which sectors are you bullish on?

Infrastructure and domestic consumption are two broad themes. In sectors such as IT (information technology) and healthcare, there are good companies trading at reasonable valuations.

What is your cash level?

Between 2 per cent and 7 per cent, which means we are more than 90 per cent invested.

But, at times when we see less opportunities, we might increase our cash levels. As of now, that's not the view. After this correction, there are good opportunities for the long-term.

Don't you see redemption pressure?

No. We believe that mutual funds will start receiving inflows from retail investors in the next few months. Though there have been outflows from equity schemes, I guess the trend will change in the next month or two and we will see inflows.

http://www.business-standard.com/india/news/%5Ctherenow-good-long-term-opportunities%5C/385412/