Your Questions About How To Pick Stocks To Buy

Paul asks…

Do day traders research about a paticular stock the day before buying them?

Do day traders find stocks and research them a day before they buy them, or do they just pick stocks in the morning before they would buy in?

John answers:

They might do research a stock that they want to day trade. They mostly pay attention to patterns in stock prices, and the volume traded throughout the day. A lot of their trades have to do with trends in the market.

Charles asks…

I want to invest for the next 10 to 20 years. Should I buy individual Biotechnology or Big Pharmaceuticals?

I was thinking instead of trying to pick individual biotechnology stocks I would buy Big Pharmaceuticals because they will eventually BUY the biotechnology companies. What do you guys think? Thanks for any help!!

John answers:

It would be far better to invest in a no-load mutual fund rather than a few companies. This dilutes a lot of the risk if one company runs into trouble. For example
https://personal.vanguard.com/us/funds/snapshot?FundId=0052&FundIntExt=INT
Please note though that this is a sector specific stock and an aggressive pick – but if you are talking 10-20 years then you can safety assume more risk. But overall you should still have a balanced and diversified portfolio. As for reasons, there is no guarantee big Pharma is going to buy all the biotechs.
But in the US at least they still tilt the playing field toward them through their armies of lobbyists making Americans pay the highest drug prices in the world. Nobody knows what the future holds though.

James asks…

Is it better to buy funds and spiders than individual stocks?

I was watching a finance show over the weekend and Ben Stein said unless your name is Buffet it’s hard to pick individual stocks well. A safer way is to buy funds. I am thinking of getting spy which is a composite of the S & P index. Are these safer bets than individual stocks?

John answers:

Yes, investments in ETF and funds, especially index funds, are a safer investment than investing in individual stocks. The reason: when you buy SPY, for example, you are buying into 500 shares, some of which go up and and some of which go down. Some of the moves of these 500 individual stocks cancel one another out. When you only own a handful of stocks, it is much likelier that all of them go up or down at the same time, which makes them riskier. The returns of a combination of 500 stocks is normally much more stable than the return of a combination of 5 stocks.

Thomas asks…

What are the best/decent stocks to buy now?

In my class we need to pick a stock for our group to buy and as you can tell,stocks are NOT my forte.=/ So,please give me some good advice and why you choose that particular stock.
*best answer will be awarded of course :)*

John answers:

PBR-Petroleo Brasileiro-This is a very good stock to own right now. Oil is up-more money for the company, dollar is weak- means better conversion rate from brazilian money to american money, also it is an emerging market- which means this company has more to grow. I will not discuss fundamentals since this is already too long.

Mandy asks…

what are your best criterion for picking value and growth stocks?

Everyone has their own proven method. For me,nothing is more important than the balance sheet and ratios. What do you guys consider most important when picking stocks? Please do not name any real stocks.

John answers:

Here are some of my value parameters.

Buying a stock that has a single digit PE and a growth rate that is at least 3 times higher than the PE number.

I also like finding a company that has a market cap less than its free cash (Cash- all debt) and their current business has to generate a positive cash flow from operations.

I also like to buy stocks with cash flows per share well below the industry average.

Note in some industries I deviate from these rules like in the oil and gas sector reserve growth and exploration trends hold more importance.

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