Your Questions About How To Pick Stocks

James asks…

Good Cheap Stocks?

Hi i’m 19 and i wanted to invest some money in the stock market. I’m willing to put in 1k-2k but i was wondering what are some good solid stocks that are rather cheap so i can get more shares. Anybody know of any? thanks.

John answers:

Fundamentally, you can use various key financial ratios to start screening which stock worth your hard earned money. From there, you can go to the next level by further study how they perform qualitatively. Look here for more info:

How to Pick A Good Stock
http://www.stock-investment-made-easy.com/good-stock-pick.html
Guide in Analyzing Stock
http://www.stock-investment-made-easy.com/analyzing-company.html

then, you must study how much the stock worth. To do this stock valuation, you have to calculate intrinsic value. Once you got it, buy the stock when it is at its margin of safety, either it was discounted than its intrinsic value, or discounted from the past historical prices. Look here for details:

How to Calculate Intrinsic Value
http://www.stock-investment-made-easy.com/calculate-intrinsic-value.html
How to Determine Margin of Safety
http://www.stock-investment-made-easy.com/margin-of-safety.html

now the last point but the most important things, how you can make money from it? Look, good company will grow over time. If you invest for your retirement, you can sell the stock after 20 years with as much as 30% return per year! Doesn’t it sounds good? And besides, you’ll be earning dividends year after year, which will also grow annually!

Penny Stocks, Short Cut to Wealth
http://www.stock-investment-made-easy.com/penny-stock-investing.html

Mary asks…

Bad stocks??

So there’s this “stock project” where we have to pick some stocks we would want to invest in and why, then we have to pick bad stocks we would not invest in and why. I can’t think of any bad ones! I know, GM or Ford, but everyone in my class is doing that so I need something else…I know I already asked this questions but all the stocks I got were going up!

John answers:

I think you should look at what the best traders are buying and selling. The stocks that they are selling short (long=false) would be what I consider “bad” stocks. You can find this info at http://www.top10traders.com – this is a free site that lets you create a portfolio of stocks with $100,000 in “play” money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas.

Here are this month’s best traders:

http://www.top10traders.com/Top10Standings.aspx

Good luck!

Daniel asks…

Stocks !!! What determines the value of a stock.?

I recemtly started investing in Shares, my decisions are based on TV Analysis and co- worker suggestion. However i am skeptical about it. I do not feel contented about the way i invest my money . I have a few questions.
1, What determines the value of a stock. ( I think it’s demand ,and financial performance of the company does not really matter …Is that true.. )

2, Past Super mega performnace of a stock does not gurantee a level of security for the futur yeilds.How can we decide wether to invest in such stocks.

3, Are the TV guys really reliable. Becoz a lot of mnipulation can be done if the demand of a stock is huge ( I mean the dirty game )

John answers:

Stock valuations are generally based on future cashflows and the expectation that the company will pay dividends. Realistically, you’re correct. The value of any stock is the perception of the investors, or demand as you put it.

To answer your second questions, again you’re correct. In fact, I would argue that recent mega performance is an indicator of average to under-performance in the future. The average expected return from stocks is roughly 11%.

As for the TV guys, if they’re so great at picking stocks… Why are they on TV and not managing a huge fund? Also, everyone else is watching the same thing you are so trying to jump into the bandwagon will usually result in some scrapes and bruises.

Jenny asks…

Good stocks September 2011?

I joined an extra curricular activity in school called the stock market game. We compete against other schools, so I want to pick good stocks. Don’t say Nintendo, because I already did that a couple of years ago, went straight down!

John answers:

This is not a simple answer, as you found out. Stocks are companies that do well for alot of reasons. When you are dealing with real money its even harder.

If I had to pick one thing that should be up, its gold. You can use the GLD, or get into a mining company’s stock.

But I think you should really learn how to pick stock yourself, so you can do it for real someday. So learn from your school . The economy is very volatile now , stocks are up one day and crashing the next, so if you pick a stock that has been up all year and is now really low, that might be a great choice.

Donna asks…

Apple Stock Question?

I’m soon going to be 18 and my parents own stock and are telling me that it would be a wise idea for me to also look in to it. i feel that maybe they are right so i looked around a little and thought maybe i would like to invest the $500 or so in to Apple Stock. I’m kind of new at this and would like to know where i can find some good information about this and also if there are any other look things to invest a little money in that I can make a profit from

thanks guys

John answers:

Investing is a fantastic idea. The sooner you can get started, the sooner you can retire and do whatever you want.

That being said I would be cautious about investing in a single stock unless you are familiar with financial analysis and understand how the stock market works. Warren Buffett (one of the greatest investors of all time) often recommends that non-professional investors choose passively managed index funds rather than picking their own stocks.

A passively managed index fund is like a single stock that owns hundreds of different stocks within it. So in other words you just buy one index fund and you automatically own a piece of hundreds of different stocks. This ensures that you will not make a mistake and choose a stock that turns out to do poorly.

Popular mutual fund companies include Vanguard, T Rowe Price, and Fidelity. Just look them up, give them a call, and tell them you want to invest in the stock market. They can get you started.

However if you would like to take an active approach to investing and pick your own stocks you certainly can. Just make sure you understand how the stock market works and how to analyze a business so that you can make a good decision. Most people will hire an investment manager to handle this, but managers generally require larger minimums like $50,000 or more. Its very important to select a good manager with a strong track record that is not paid on commission. Picking stocks or selecting a good investment manager can be hard work. That’s why a lot of people prefer passively managed mutual funds and prefer to diversify heavily.

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