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Don’t we all have the dream of making our money work for us?
Don’t we all of us want FAST results that WORKS?
Yet….
Haven’t we been stung by high-sounding but unreliable promises?
Haven’t we lost enough of our hard-earned money to the “professionals”?
Still….The Stock Market is the best place to see your savings appreciate in value, if you have the right ATTITUDE to investment.
This guide is NOT a sales pitch. It is merely an honest sharing of my experiences with investing, the pride of having the GUTS and ACUMEN to select stocks like MOVI (at $1.80) and to sell them (at $4.60) before they decline, as well as the failure due to having heeded “professional” advice to buy into shares like EEEE ($10 -> $6).
So, what is the right ATTITUDE to investment? (We look at screens criteria later in my detailed Investment Guide.)
(1) I Want to be a Boss
(2) I Will Not be a Fickle-minded Shareholder
Once you have the right mentality, that as a shareholder you are essentially a co-owner of the company, you will want to be part of a GOOD firm, not one that is struggling to avoid Chapter 11. And once you are able to think of yourself as a co-owner, you will not be selling out when the share prices drop. Note that frequent buying and selling of shares increase transaction costs and make your profits taxable. Not very good on the bank account there.
Quick Strategy to Choosing Good Firms
Qualities of a Solid Company
1. Strong Balance Sheet
The company should have little or no debt. If there is debt, you check to see if the company can pay off the debt within 3 years (Net profit + free cash flow) – (current + long term liabilities). If it can, this company can probably survive a sudden down turn in its fortune.
2. Not Over-priced
Use the P/E ratio as a guide. Anything over 20 is quite costly. You are likely to be paying too much for it. You want to buy into a company that is not over-valued. It is like not wanting to buy a Ford at $30 000 when it costs only $20 000.
Another perspective of this is to look at the amount of coverage the company is getting from brokerage houses. A company that is closely followed by Wall Street is bound to be quite over-priced.
3. High Profit Margin
You would like to be the boss of a cash generating machine, or cash cow.
The Kind of Companies to Own
1. Companies with Products that everyone needs
E.g. toilet paper, toothpaste etc. Colgate-Palmolive comes to mind.
2. Companies with Branded Products that Stores Cannot Afford NOT to Stock
E.g. Coke, Pepsi, Hersheys etc.
3. Companies with Dividends
REIT (offer highest dividends) and companies which businesses have matured often return profits to shareholders as dividends. Would you mind a regular, quarterly paycheck?
4. Companies in Lousy Industries
Select the company in the best state in a declining industry. More often than not, when the dust settles, the strongest company is the one that survives to pick up the pieces and bigger slices of the pie as many of its competitors would have gone out of business.
5. Increasing Earning Growth
You want to own a company that is earning more and more profits every year, and not bleeding cash to sustain unprofitable operations.
6. Boss owns 5% or more of the company
If the CEO has a substantial stake in the company, I can trust that he will do the best for the company, which in turn benefits us directly.
Timing of Your Buying
By now, you ought to have a list of companies that you are keen to own. Keep tabs on them. Note the release of news. You will notice that the prices drop sharply when there are bad news, like a lousy quarter (e.g. URBN), SEC investigation (DBD), law suits(CREAF), Feds yaking about interest rate hikes, hurricane, war, stock market crash etc.
All the above (and more) are buying opportunities. You may not be able to buy at the bottom, so do not sell out if the prices continue dropping after your purchase. Instead, you ought to buy some more! However, buying on the rise is almost surely a poor idea; a herd syndrome.
(Important Note: The para above assumes that you have done your homework and are sure that the fundamentals of the company is sound and can weather any short term set back.)
Finally…
Stock up on CASH.
I made the mistake of being so fully invested that when a really good opportunity came up a while ago, MSFT at $22.50, I do not have funds to buy it. By the time I saved up, it had already risen to $25.20.
Warren Buffet, the world’s shrewdest investor, once went without making a single purchase for two straight years. Instead, he accumulated cash during that time and bided his time. He knows that there will definitely be a time when the share price will fall to a level that he finds a bargain. However, if there is nothing worth buying, he would not. For instance, at the height of the Tech Bubble, MSFT went to $80 per share. Microsoft is a great company, but certainly not at that over-priced price-tag!
Enjoy the fruits of your investment, my friends. Invest for the long term by choosing companies that can last the test of time and the inevitable business setbacks. If you wish to share investment ideas, or simply just want to know more, do send me a message.ab
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