Your Questions About How To Pick Stocks

Mary asks…

Why do we need or have intraday trading in stock market?

I wonder why do we need or have intraday trading in stock markets? Isn’t this just equal to gambling?
For those who are new to stock markets, intraday trading means you have sell the stocks the same day you make the purchase, Or similarly buy the stocks same day you hypothetically sell in the morning.

John answers:

Those that are good at intra-day trading would hardly say it was gambling….and they would be correct…..those that have no skills and rely on rumour and buzz to make their picks are gambling.

Though I don’t personally day-trade because it is too much work, there are a lot of people that do. Obviously you lack the skills to trade in this kind of market and would be wise of you to stay out of it.

Lisa asks…

Anyone can offer me a sample report on individual stocks analysis?

If inscribe, our teacher asked us to analyse an individual stocks, but i’m not familiar with structure of that kind of report, can u do me a favor?

Thank u in advance!

John answers:

Quote – ALLIED NEVADA GOLD CORP (AMEX:ANV)Quote | Charts | Option Chain | News | Historical | Executives | Earnings | Ratios | Income Statement | Balance Sheet | Cash Flow $6.10 Change: 0.12 (1.93%) Investors Are 100% Bullish and 0% Bearish

Are You Bullish or Bearish on ANV?
Chart By Date Range: 1m | 3m | 6m | 1y | 2y 12 Mo. Price Change : 38% – ANV has outperformed the S&P 500 by 47% Click Here For Free Annual Reports
Gurus Buy Materials, Dump Hershey
The best investors at stake out large claims in the materials sector, and go for gold, too. 10/10/2007
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Materials companies and a gold explorer are among the biggest buys of the best investors. 10/10/2007
View All Headlines

Key StatsMarket Cap ($ Millions)357Diluted EPS (TTM)0.00P/E Ratio (TTM)0.0Avg Volume (3 Month) (1000s)7452-Week High Price18.7052-Week Low Price3.80Beta1.87Common Shares Outstanding (1000s)57,349Forward Annual Dividend Rate ($)0.00Forward Annual Dividend Yield (%)0.00(ANV) Picks

William asks…

I am a 19 year old, first time stock buyer. What is a good brokerage firm, with low fees and dependability?

I am interested only in picking my own stock. Right now I am leaning towards Fidelity.

John answers:

Scottrade. $7 per trade, no inactivity fees or maintenance fees. They’ll even pay you a small interest amount on your uninvested balance every month. I’ve been with them for a while and I have absolutely no reason to complain. They are the absolute cheapest, best value for self-directed investors like us.

Sandra asks…

How do you distinguish between large and small stock dividends?

I understand all of the concepts and recording methods behind stock dividends but I don’t understand the less than or greater than 20-25% part. My book says that it is considered a small stock dividend if the dividend is less than 20-25% of shares outstanding and a large stock dividend if it’s more than 20-25% of shares outstanding. I’m having trouble making sense of this. I guess if it’s less than 20 it’s definitely small and if it’s greater than 25 then it’s definitely large but what if it’s 22%. Does is just become a judgment call by the board? Can someone please explain this to me?

John answers:

I am 29, and I want to give you the best financial advice. Ratios exist in academics. They are tools used by institutional investors (those with hundreds of millions of dollars) in deciding stock picks in a well-diversified portfolio. They do not apply to small investors.

In response to the other guy’s advice… Choose the one with the highest target price. Well, Enron had a then-current-market high target price even the day they filed for bankruptcy. Equity investments are way to risky for someone your age. Academically, you can determine a set of risks, and quantitatively determine the metrics that determine each risk, and use that to make a stock pick. And, despite your good effort, you can lose everything due to economic issues.

What you have to understand is that stock prices are set by the market, and market prices are influenced by economic conditions. No metrics (ratios) will help you decide what is a good stock in this economy.

If you were talking of the stock market in 1995, then you would have well-played those metrics to bet on Enron. If you sold in 1999, you would have made a lot of money (given that your tax planning was adequate). But your metrics would have failed you… Your ratios would have lied to you… If you held on until 2000 and especially 2001.

As a (professional) financial adviser told me — an ex-Colonel in the military — you need to start with cash savings, work up to FDIC-insured vehicles (CDs, etc.), and then take on some mutual funds and 401(k)-type retirement vehicles, and THEN — worry about equities (stocks).

If you want a personal experience, I invested $100,000 in a “diversified” set of five mutual funds when I was 17. One year later (2001 — September 11 attacks happened), and I watched my investments fall 30%. Luckily, I had $80,000 in CD and cash holdings, so I could weather that storm. I then saw my mutual fund holdings regain their value. I sold all of them before 2008 due to purely personal reasons (e.g., I wanted to spend the money). Had I not made that decision, I would’ve seen a much greater drop, and I would still not have recouped my initial investment.

And that was with mutual funds. When you start talking about equities, you are just playing a game of craps in Las Vegas. Do not be fooled by all of the academia — the ratios, the metrics —

Equity investments are a form of gambling, and the house always wins.

A mutual fund is a type of gambling where the “house” is less likely to win due to diversification. And they also lose money when the economy tanks.

You could use the PEG ratio to make equity investments with some idea that you will make money, if and only if you 1) make a substantial investment (i.e. $100,000) and, 2) know when to sell and when not to sell.

That means you have to watch those stocks everyday, and have the fortitude to see losses and not sell, and see losses and know when to sell. That requires acumen, not ratios. Very few people have that, and only large investors have the capital available to use that strategy.

The best way for you to have money is to SAVE IT — even if it is in a glass jar on top of the fridge. Put money back and don’t spend it. This is not the investing market/economy you want to enter at your age.

Hate to be a naysayer, but I know this from experience.

Good luck to you!

Joseph asks…

How can I make stock out of a chicken carcass?

I don’t want to use a whole chicken to make stock, but I don’t want to waste the carcass.

John answers:

Easy, I’m making some right now out of leftover chicken wing bones.

Toss the mostly picked bones in a pot. Cover with about 6-8 cups cold water, some baby carrots from the freezer, a quartered red onion, a spoonful of garlic, celery tops or some stalks, a small handful of black peppercorns and salt, a few bay leaves. Simmer for a few hours and you’re done!

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