Your Questions About How To Pick Stocks

Charles asks…

How to use the required rate of return to achieve a good portfolio?

I understand this isn’t the the best way to do it but i’m interested in how to do it using formulae. Thanks

John answers:

This is called ‘basket weaving’. You take the betas of the stock in the required rate CAPM formula Ks=krf+beta(km – Krf).
Then beta of your portfolio=beta1xX1+beta2xX2+beta3xX3 and so on till the number of securities are determined by you. Here X1, X2, X3 etc are the proportion of allocation for each security. If you need high return pick up high beta shares, less risky, almost market return betas etc;. I hope the CAPM abbreviations are known since required rate was mentioned in the question.

David asks…

How do you make cooked chocolate pudding?

I’m supposed to bring cooked chocolate pudding to a dinner thing tomorrow.
Does anyone know how to make it? I’m just picking up stuff from our local grocery store.
And how long does it take to make?

John answers:

I believe you are referring to the old recipe for Mud Pudding from the Hersey cookbook.

It has just basic ingredients, however Coco powder, brown sugar and baking powder are not always stock items in all houses. Takes about an hour to bake. Nasty rich and can give you a stomach ache./

from memory (as I am at work) all measurements are very rough guesses

flour 1 cup
sugar 3/4 cup
salt 1 TS
baking powder 2 TS
coco powder 2 TbS

mix in
milk 1/2 cup
butter (margin e) 2 tbs

topping
brown sugar 1 cup
coco powder 4 tbs

pour boiled water (Let sit for a few mins) over top 2 1/4 cups

bake 1hr

Donald asks…

Im new to investments and want to purchase some stock. What the best route to purchase a specific stock?

I know specifically what stock I would like to purchase but am unfamiliar with how to do it. Whats the safest and best way to do so. Is it difficult to do online or should I see someone in who specializes in this. As I said, I already know what stock I want. I just need to know how to do it. Thanks for the help.

John answers:

Two choices,, if you need advice on what to buy you should get a full service brokerage account, they will tell you their recommendations and then make the transaction for you,, or get an online brokerage account that is cheap to make trades,, like etrade.com but they wont tell you what they think you should buy…. You could always subscribe to other services that pick stocks and have good track records like fool.com or www.thewallstreethunter.com…. Either way,, you need some good ideas and then you can buy the stock on your own…

Good luck

Susan asks…

How do I buy preferred stock?

I know how to buy common stock, but how do I buy preferred stock?

John answers:

Actually, you buy it exactly the same way as common stock. The big problem with preferred stock is knowing where to research it. In other words what the dividend rate is, the current price, and the perceived quality of the issue. Another aspect of buying preferred stock is finding issues that are actively traded. Some are not. That can be both a positive and a negative. Sometimes especially in volatile markets one can pick up an issue of preferred stock at a very reasonable price by placing a somewhat lower limit offer on the market. It is possible in that way to entice panic sellers.

If you live in the U S, here is a link to the universe of preferred stocks.

Linda asks…

How to pick companies for investing in?

We all know how Warren Buffet made his millions in investing in undervalued companies – hidden gems in the market that most people didn’t really care about. My question is, in these times when one is overloaded with information from every corner, how does one go about finding these kinds of companies. I mean, you can’t read every 10K for every company that looks cheap. How do you short-list these companies before doing some serious research on them?

John answers:

Stock screening is a good way to start if you have really no ideas, you can screen it by multiples, debt…
The best thing is to look around you and look for product services which are doing well.
Try to find the company behind it and check the financial statements, the stock valuation.
The most easier is to invest in something you know well (thanks to your work, experience, hobbies)
A good book on it is: One Up on Wall Street by Peter Lynch
He has a lot of example on how to find companies around you.

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