Your Questions About Successful Trading Companies

Charles asks…

What are the basic steps of a financial advisor, if he or she is given 2 companies to analyze?

A financial advisor is given two companies in order to analyze the companies using its balance sheet in order to invest in one of the best one’s. What are all the steps to follow…… his case for a successful report for the customer, say for eg. the two companies are big food producers…………

John answers:

Financial advisor are not stock analysts. They advise people on where to invest their money. And as the 1st responder mentioned, regretably many like to stear their clients where they obtain the best commissions besides charging their clients 1 1/2% of their assets for their advice.

Security analysts are the ones that analyze companies as to their relative investment potential.

Nowadays, much of the work is actually done by computer but there are still some dyed in the wool old time analysts around. Mostly working for themselves.

Step 1. Compare sales growth or lack of same
step 2. Look at the debt/equity ratio
step 3. Look at the profit margin
step 4. Look at the pe ratios
step 5. Look at the cash flow
step 6. Look at the dividend history
step 7. Look at management compensation

At this point the analyst should have some idea of the relative merits of the two companies. Efficient market theory states that it will be a toss up between the two. The theory may be correct in many instances especially with more widely traded stocks.

John asks…

What is meant by the term ‘unrestricted market’?

It is to do with a company launching a share issue. Can anyone help?

John answers:

This question is very broad, but I suggest that the term “unrestricted market ” refers to one positive aspect of “globalisation” which helps to remove the barriers for smaller poorer nations to invest in and trade with more “developed” countries in other parts of the world. This in turn stimulates international trade and aims to promote a system of fair trade–sometimes successful and sometimes not!

The answers above are for guidance only and should not be acted upon without you receiving independent financial advice relevant to your circumstances. To find and IFA please call 0800 085 3250 or go to

Mandy asks…

what courses do I need to take to prepare me to be a good stock investor?

Do I need economic to understand the economy? Do I need to understand the financial statements
in order to understand the financial strength of a company? Do I need to understand how the stock
market works and how the trading works? And anything else? Should I study the couses in a college?

John answers:

Technical analysis is by far the most useful way for individual investors to become successful. The sear volume of information that you require to continually absorb makes fundamentals impractical for most of us and you will always be a few steps behind the big money that moves markets.

By using a few simple technical analysis techniques you can quickly learn to shift the odds of entering a profitable in your favor.

Betty asks…

Why were the English colonies more successful than the Dutch colonies?

A. The English sent many more colonists.
B. The English were more concerned with conversion.
C. The English traded with the Indians.
D. The English did not attempt agriculture.

John answers:

Definitely A.

The WIC (West Indische Compagnie = West Indian Company) was really into piracy business. Their main business was taking Spanish and Portuguese ships and colonies as prize. The biggest catches were Brazil (for a while) and the Spanish Flota or treasure fleet by Piet Heyn. The colony of Nieuw Amsterdam was much more a trading post than a settlement.

Most governors of Nieuw Amsterdam complained about the lack of colonists.

David asks…

What is PE Ratio of a company ? How does it affect the company’s share ?

Is it a good share to invest if PE is high ? Or is it good when the Profit by Earnings ( PE ) ratio is low ? Any short term targeted stocks for recommendation ?

John answers:

Price to earnings is the relationship between the stock’s price and their annual earnings per share (EPS).

So a stock that earns $2/share and sells for $60 has a P/E of 30.

The theory is if a stock has a low P/E, then it might be undervalued and eventually the stock market will realize this and the stock’s price will increase.

However, you must be careful. Some industries have low P/Es in general and some (like some internet companies used to) have very high P/E ratios. So not only would you want to consider the P/E of the stock itself, but also the companies within the sector too.

FYI, using P/E ratio is an “old” way to pick stocks used for generations since other data on companies were not as easily accessible. Nowadays, selecting stocks is a much more refined process where you might consider earnings, earnings growth, sales, sales growth, insider trading, as well as a number of other attributes.

You might consider picking up How to make money in Stocks in good times and bad by William O’Neill whose CANSLIM method is very well known.

That’ll help you get a good basic understanding of what makes a successful stock successful!

Hope that helps!

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