The stock market and The Basics of Investment


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Buy stocks

Buy if stock is at its lowest price.

Stocks are selling at their lowest price in three to five years (assuming that company doesn't have any problem of finance). Wait for the price to stop declining and the company to show some strength before you buy it.

Find the earning forecast of company.

Investors use earning forecasts in fundamental analyses to determine the fair value of a stock.

Find stocks that are trading have the following properties:

Buy stock of companies that sell below their book value (if they don't have serious problems) or Price/Book~1.2, or PEG <1

Be careful with companies that have high long-term debt

Usually, the lower the debt ratio is, the safer the company is. Only consider that have paid down their debt over the last two or three years.

Invest in Industry Leader

Determine which companies are growings the fastest in a specific industry and which are the industry leaders.

Remember that:

Older companies have slower growth rates than do younger companies.
All industry have their own cycles of growth. So you should invest in an industry that's in an upswing.

About P/E

An analysis of investment candidates includes P/E (price/earning) ratio. The importance of the ratio varies from analyst to anlyst. Here are two strategies

Low P/E and high dividend approach

Long-term investors often buy stock in companies with a P/E ratio of 7 or less and a dividend yield greater than 7. Additionally, if the company's P/E ratio is lower than 10, and the earnings are rising, you could be a winner.

High P/E

If you weren't willing to pay for stocks that were trading over the average, you eliminated most of the best investments available. For example: From 1953 to 1985, the average P/E for the best-performing emerging stocks was 20. But the Dow Jones Industrial's P/E averaged 15.

Base on P/E of S&P 500

When the S&P 500 is trading at less than twelve times earnings, you should add to stock percentage. Its normal norm is between 12 and 20. When it's trading at more than twenty times, you should subtract to stock percentage. How much percentage to add or subtract depends on your additional personal tolerance for risk.

Stock is undervalue if

P/E <= 14. Dividend >=3%

Invest in companies which enter indexes

Many portfolio managers try to track indexes and are required to buy stocks that enter the index or sell stocks that leave it. The latter can create downward pressure on shares of companies exiting the index.

Buy Good Performers

Value is better price. Select companies that regularly outperformered their competition in the last three to five years. It may be a winner if the company's annual growth rate is between 25% to 50% for the last three or five years.

Invest in Entrepreneuial companies

Locate a rising company in a rising market. The smaller companies could be a better performer. Companies with managing executives who own a meaningful share of the outstanding stocks.

Invest in companies that have something monopoly

  • Coca-cola firm has a secret formula to make coca-cola soda.

  • Intel firm makes CPU for pc and main-frame.

  • AMD firm makes CPU for pc and main-frame but has different something with Intel.

  • Qualcom makes CPU for smart phone and Iphone.

  • Apple makes Iphone.

Buy stocks on different time to take advance cycle of the market and business

Buy stocks are based abnormal of the market

Buy stocks are based rare events

Covid-19, Recession and correction of the market.

When stock's price is close its fair value and its Margin of Safety >= 25 %.

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