Following Buffet Steps of Investing

When measuring a company's reliance on debt, it's usually helpful to begin by examining its debt-to-equity (D/E) ratio. D/E can be easily calculated by dividing a particular company's total debt load by its shareholder's equity. Both of these key figures are located on the balance sheet. There's no hard-and-fast rule for evaluating this metric, but as a broad average for non-financial companies, it's usually wise to look for firms with D/E ratios below 0.50 (50%).

Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low-return business.
25% ROE is best. And go with ROE > 15%

Look at ROE for more than 5 yr
looking at the current figure in isolation only tells part of the story, so check to see whether ROE has been falling, rising, or stable over time. Also, if a company has a particularly strong year, then its net income figure can be inflated, which can cause ROE to be exceptionally strong. Such one- or two-year blips have a tendency to fade quickly once the business environment becomes less favorable. Therefore, it's always important to examine ROE performance over a five- or ten-year period.

High ROE and Low D/E
By taking on additional debt, companies can effectively lower the amount of shareholder's equity they need to stay in business. By definition, this tends to inflate ROE. Therefore, its crucial to look for companies that have a high ROE and low D/E.

Cash Flow
One way to gauge a firm's cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks -- items that enhance shareholder returns.

Trust Strategy for Mutual Funds rather than only ranks

A month ago, Scott(a cautious investor by habit) decided to invest Rs 3 lakh in a 'good' mutual fund.
He looked up the performance rankings of various funds, to try and zero in on the best fund. But a month later he is still confused, because there was no consistency or consensus amongst rating agencies.
Different financial web sites, magazines and newspapers came up with different conclusions as to the top rated funds.
This is because, the rating methodology adopted differs from agency to agency.
In a bid to prove that they are special and more incisive than the next agency, they adopt all kinds of techniques and statistical tools to come up with dissimilar results.
Why rankings differ
Most agencies adopt risk adjusted ratings, however, the definition of risk differs from agency to agency.
Some adopt the Sharpe ratio, some use the Sortino ratio and yet others look at standard deviation and beta.
Then there are others who choose particular parameters like size of assets, portfolio turnover, tenure of the fund manager with the fund, fund size, expense ratio then proceed to assign weights to each of these parameters to arrive at a composite ranking.
Others declare that they use a proprietary system which remains unknown to the public at large.
So, how do you pick the best fund?
Here are three simple steps to sort out the good from the bad.
1. View rankings with a pinch of salt
Most of these arcane rating methodologies are solutions in search of problems.
Don’t ignore them totally, however, when you go through them, keep your pinch of salt ready.
2. Ignore new funds on the block
If a mutual fund has been around for less than a year, ingnore it! Essentially - ignore one month, three month or six month returns and rankings. I will go to the extent of saying -- only look at those funds that have existed for over three years. Not only will you eliminate a whole lot of ‘me too’ upstarts, but it will also give you an idea about the sustainability of the returns of the fund.
3. Scout for common funds amongst various rankings
Now that you have significantly reduced the sample size, try and find the common funds that come up in the top ten lists of the various agencies. In other words, arrive at the lowest common denominator.
Quick tip: It is important that you invest in a well-managed fund, however, whether it is the top performing one or the second or the fifth, matters little.
Secondly, a topper today may come in fourth next year and so on. As long as you have invested in a quality portfolio that has stood the test of time, the particular ranking from any particular agency should matter little

Stock Analysis - Fundamental and Technical Analysis

Stock Analysis

What Stocks to Buy?
And
When to Jump-in or Jump-out?

Jump in when it's time to en-cash Growth

 

Even though you can't figure out ahead of time what a company's growth strategy will really be worth, you can get a good handle on what the market thinks. Simply subtract the other two parts from a company's market price. The remainder is the market's current estimate of the growth strategy's worth.

With that information in hand, you can make better investing decisions. In essence, the less you pay for a company's growth strategy, the better your chances of winding up on top. After all, if the strategy comes cheaply, then even if that strategic growth doesn't materialize, the company you're holding is still worth something. And if the strategy does pay off, then you've likely got yourself a company worth more than you paid for it.

That, in a nutshell, is how we value investors gain our edge. We certainly don't ignore growth. After all, no less a value investing luminary than Warren Buffett admits that "value and growth are joined at the hip." Instead, we simply steadfastly refuse to overpay for the growth we expect to see from our companies. By doing that, we ensure that a larger chunk of that growth finds its way to our pockets.

Buy Cheap Growth

Technorati Tags: Markets, Stocks, investment

Penny Stocks Trading - Learn with Small Stocks

Trading with Small Money and Learn

They are risky but they can get you fly also!

Invest in Penny Stocks to start with

The Secret of Making Money in the Stock Market

The stock market is a proven wealth builder and can and should benefit all participants. It is only fair that each one of us should be entitled to a piece of the action.
One thing these traders know is that the market is not an issue of trial and error but a fully quantifiable market by any fundamental Mathematics. You see, when we went to school we learn about the Standard Deviation in probability and statistics. This Standard Deviation is Mathematics and is quantifiable in modern science. Standard deviation was introduced by Mathematician Karl Pearson in 1893 although the idea was by then nearly a century old. This is the single most important idea that should explains all those mysteries, myths and legends you hear of in stock market.
Everything on this planet has properties and, or, characteristics. A stock, just like you and me, has properties and these properties are quantified by calculating the Standard Deviation of the stock. It varies from stock to stock. Our brains are lazy and what we can not understand we turn to astrology which gives our brains a rest. Rather than use planets in signs of the zodiac and financial astrology, or imagining of the latest rumors, invest that time in the study of probability and statistics. If its not you to study, who should? Probability and Statistics is that study that has to do with tossing a coin to get a tail or a head. And as simple as it may sound, tossing a coin and getting a head for only two consecutive times is an extremely very difficulty thing contrary to what our lazy brains would want us to believe.
Standard Deviation is all about vibrations. Vibrations is like in music, vibrations in a string, water vibrations, earthquake vibrations, light and electromagnetic vibrations. The stock market is like vibrations too. For the price to move it must vibrate. The stock spends a lot of time vibrating in a neutral sideway range which unfortunately we do not like. We want the stock to go to the roof the next day after we have bought it. Vibrations are waves. Waves have crests and troughs and travels from one price to another. One crest is often followed by a second crest which is followed by a third crest and so on and so forth. Every crest is separated by a trough to create an alternating pattern of crest and troughs.
Like a bouncing tennis ball, a lower bounce than the previous bounce means the ball is coming to a halt. In the stock market, strength is quantified by series of crests where each crest exceeds the highest point of the previous crest and weakness by series of troughs where each trough goes lower than the lowest point of the previous trough.
People out there will tell you to trade in the direction of trend and they go further to say getting the trend is easy: do this and that. Contrary to the believe that determining the stock's trend is easy, in real time this is very difficulty and you can not have a probability of 100%, otherwise each one of us would be a winner in the market. Some investment advisers and the media are either oblivious and always bullish or immoral, merely giving the public what it wants. It ’s only a question of, is it this group of stocks or that group, this sector or that sector?
Back to crests and troughs. Whenever two crests meet up with one another they produce a bigger crest which is constructive, and, whenever a crest and a trough meet one another they tend to cancel each other producing a smaller trough or crest which is destructive. If you have ever wondered why carpenters saw the wood in the directions of the grains rather than up against the grains, wonder no more - these guys find it easier and the bundles they produce are sliced clearly leaving a smooth surface with minimum defects.
A bigger crest or trough is made up of smaller troughs and crests. How many of the smaller ones makes the bigger trough and crest is the puzzle that will make our lazy brains consult astrology. Lets leave that as it is because the market moves yoyo up and down, so we comfort ourselves.
The real forces that move the markets are the moving averages. They are a measure of accumulation of strength and weakness over time due to news, economic growth reports, manipulation, fear and greed. There are many moving averages just as there are different types of traders. It is through the dynamics of the moving averages that there are crests and troughs. The bad thing about these moving averages is that they only tell us about what happened rather than what is happing.
One of the most successful trading tool since time immemorial is multiple moving averages crossover, and the acceleration in all averages is either positive in all averages or negative in all averages that you are using. If the acceleration in averages is positive, you go long, and if the acceleration is negative, you go short. This really is multiple time frame where you trade using the shorter trend but only if the longer trend supports it.
Good trading requires you to have safety measures upfront. Always make sure that every trading position that you open has a corresponding stop loss order, repeat, every position that you open has a corresponding stop loss order. I can repeat this until breakfast tomorrow. Trading without stop loss orders is like driving an automobile with faulty breaking system. Every now and then check to see if your stop loss orders are still active. If your broker's system fails, when it come back it may come without your stop loss orders. These stops are not free. It is among those fees that should keep your broker in business and you should grandly pay him even if your stops are rarely used. And why not? And talking about brokers, get yourself a good and inexpensive broker. There are many out there. A broker who charges more than $1.0 per 100 shares of stock is expensive and if you are paying more than that, then you will develop fear of exiting trades as you contemplates the broker's commission you are to incur. A good broker should embrace modern technology and you should promote them because if its not you, then who? And never get married into certain stocks. A company and its stock are two very different things. A stock that is not making money for you is not a thing. Throw it to the dogs.

Technorati Tags: Markets, Money

Wealth Building with Market?

Beginners should avoid complicating things trying to get rich in a day by venturing into every nook and cranny without knowing a thing or two about them.
To begin with, you need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order. Choose the right broker rationally. This is a crucial point of money making from stocks.
Making money from stock markets requires trading in the stock market. Cautious buying, holding and selling of stocks generate profits and money. Stock trading is the function that interacts and organizes in the stock market.
As a beginner, you must understand in effect how the market works. You really don’t have to know all of the technicalities of buying and selling stocks.
Fresh business ideas just don’t come on like a light bulb; ideas only click the mind by exploring the business market. eFunHosting contains articles about ideas, tips and tricks and market news to only update a businessman but also brainstorm fresh business ideas
This market involves buying and selling of millions of shares all over the world, and generates profit.
The first and foremost you need to know is the functioning of the exchange floor, irrespective of whether you trade through the floor or electronically.
When the market opens, hundreds of people are seen fast moving about shouting and signaling to one another, staring at monitors, and entering data into terminals, or busy on cell-phones on the exchange floor. It looks like a complete fiasco. However, by the time the end of the day approaches, the market has worked out all the trades, and is all set for the next day.
These are the steps in a simple trade on the exchange floor of any major Stock Exchange:
You instruct your broker to buy a number of shares of a company at the current market price.
The broker’s order department passes the order on to their floor clerk, the dealing official, in the exchange.
From this person it goes to one of the firm’s floor traders whose task it is to find another floor trader wanting to sell that number of shares of the company you wanted. Each floor trader has particular knowledge of which floor traders deal in what stocks.
The two come together on a price and seal the deal. The notification process moves backward along the line and your broker gets back to you with the final price. You receive the confirmation notice in the mail after a few days.
Beginners should avoid complicating things trying to get rich in a day by venturing into every nook and cranny without knowing a thing or two about them.
To begin with, you need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order. Choose the right broker rationally. This is a crucial point of money making from stocks.
Depend on your comprehension and your broker, who must be a professional. Never bypass understanding fully the cause(s) behind a bad result when it occurs. Learn from your experiences, document them, and keep reading them once in a while.

Technorati Tags: Markets, Stocks

Smart Money Drives the Financial Markets

A speech from a former syndicate trader, Tom. Would like to watch more videos of this person. That provided awesome knowledge piece on trading and investing.

Technorati Tags: Finance, Investment, Trading