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Quality Stock Market Investment
How much money carnage is mandatory?
How much money carnage is mandatory before we realize that there is no safe and simple shortcut to investment success? When do we learn that almost all of our mistakes involve gluttony, fear, or excessive expectations about what we own? Eventually, successful investors start to allocate assets in a goal directed demeanor by adopting a practical Investment Strategy… A continuing security selection and monitoring process that’s guided by practical expectations, selection rules, and management rules.
If you’re thinking about trying a strategy for a year to work out if it works, you are due for another smack up next to the head! Practicable Investment Strategies go beyond cycles, not years, and doable Equity Investment Systems consider 3 disciplined activities, the first of which is Selection. Most familiar techniques ignore one of the others.
How should an investor work out what stocks to buy?
How should an investor work out what stocks to buy, and when to get them? Will Rogers summed it up: “Only buy stocks that go up. If they aren’t going to go up, don’t buy them.” Many have misread this sarcastic observation and joined the “Buy (anything) High” club. I’ve revealed that the “Buy Worth Stocks Low (er)” approach works better.
A Google search produces a variety of factors that help to identify Value Stocks, the standards being low Price to Order Value, low P/E proportions, and other “fundamentals”. But you’d be stunned by how the definitions can vary, and how few include the word “Quality”. In the latter 90′s, it was rumored that a well known Worth Fund Executive was asked why he wasn’t purchasing dot-coms, IPOs, etc. When he claimed that they didn’t qualify as Value Stocks, he was told to switch his definition… Or else.
How can we create a confidence enhancing Stock Selection Universe?
How can we create a confidence enhancing Stock Selection Universe? Simply operating on blind faith with one of the common definitions could be too simplistic, particularly since lots of the numbers come from the topic companies. Also, some of the figures could be hard to obtain quickly , and it’s essential not to get engrossed in endless research. Here are five filters you need to use to come up with a selection universe of better quality firms, and you can get all of the data cost effectively from the same source:
- An S & P Rating of B+ or Better. Standard & Poor’s is a major financial information supplier to the investment community, and its “Earnings and Dividend Rankings for Common Stocks” blend many elemental and qualitative factors into a letter ranking that speaks only to the financial feasibility of the rated corporations. Potential market performance (a making a guess game anyway) is not a consideration. B+ and above ratings are regarded as Investment Grade. Anything rated lower add an element of unnecessary speculating to your portfolio. A staff of thousands does your research for you.
- A History of Profits. While it should seem obvious, buying stock in a corporation that has a history of profitable operations is less dangerous than taking shares in an unproven, or start-up entity. Profitable operations conform more readily to changes in markets, economies, and business expansion prospects. They are more likely to supply profit possibilities for you rapidly.
- A History of Regular Dividend Payments. The payment of regular dividends, and periodic increases in rate paid, are certain signs of economic viability. Corporations will go to extreme lengths, and endure great difficulties, before electing either to cut or to omit a dividend. There is no need to focus on the size of the dividend itself; Instruments shouldn’t be bought as revenue producers. Another advantage of using dividend payment as one of your selection standards is the clear appearance of fiscal stress that a cut communicates.
- An Acceptable Price Range. You’ll find that most Investment Grade stocks are priced above $10 per share and that just a couple of trade at levels above $100. If you’ve got a seven-figure portfolio, price may not matter from a diversification standpoint, but in smaller portfolios, a round lot of a $50 stock might be too much to risk in one position. A unusually high price could be due to an abnormally high degree of sector or company precise speculation while an inordinately low price might be a good caution signal. With no real structural size limitations, I feel at ease with a range between $10 and $90 per share… But I might avoid most issues at the higher level.
- A NYSE Listed Security. I’m not sure that the listing requirements for them NYSE are still more restrictive than some place else, nevertheless it is useful to be in a position to focus on only 1 set of statistics since the majority of the info you need constantly is reported by Exchange (Market Stats, Issue Breadth, and New Highs vs. New Lows).
There is not any room for creative adjustments to the rules and tenets
Your Selection Universe will become the spine of your Equity Investment Program, so there is not any room for creative adjustments to the rules and tenets you’ve established… Irrespective of how strongly you are feeling about recent news or rumour. Now you can focus on operating procedures that may help you diversify properly by position size, industry, etc, and on guidelines that may aid you in identifying which stocks should be observed closely for buying when the price is right. Not forgetting that you wish to sell each Equity Position at a target profit AS SOON AS POSSIBLE, you’ll be wanting to establish suitable purchasing (and selling) rules. For example, I never consider buying a stock until it has fallen at least 20% from its highest level of the past 52 weeks, so I include the ones that are close or at this price level on a “Daily Watch List”. Then, I select those that I would be ready to add to equity portfolios if they fall rather more during the trading day. Your actual “Buy List” changes each day in both symbol and limit cost.
Conclusion
You’ll need to apply consistent and disciplined judgment to your last selection process, but you can be confidante that you’re choosing from an elite group of higher quality, well-established firms, with a confirmed past record of profitability and owner awareness. Additionally, as these companies gyrate above and below your purchase price (as they absolutely will), you may be more confident it is merely the nature of the stock market and not an imminent financial disaster… And that should help you sleep nights.
BTW, never say no thanks to a decent profit when the upward movement equals 10%, and you will be able to do it again, and again, and again.
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