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Here are 25 Sensible Stock Investing ?rules? for individual stock investors.

–1. Remember Buffett?s Rule #1: Don?t lose money. Maintain a fiduciary duty to yourself.

–2. Pick only excellent companies to invest in. Avoid the ones with major flaws.

–3. Determine a rational value for any stock you are considering. Always try to buy at an advantageous price.

–4. Learn the difference between investable trends and noise in the market.

–5. Don?t get stuck in one way of thinking. In investing, as in life, seek balance.

–6. Remember that a 50% loss followed by a 100% gain equals zero. How likely is that 100% gain? If it is improbable, avoid the 50% loss in the first place.

–7. Manage your portfolio intelligently. Investing is not a set-it-and-forget-it activity.

–8. Any investment in the stock market carries risk. Learn how to manage it.

–9. Do everything you can to stack the odds in your favor.

–10. Read, analyze, and do your own thinking. Always keep learning.

–11. If you are interested in a company, write out its ‘’story” in a few sentences. If you can?t understand it enough to do that, don?t invest in it.

–12. The tortoise usually beats the hare over the long haul.

–13. Stocks don?t all go up and down together. Find the ones that are going up.

–14. Over the long term, stock prices follow corporate earnings. Look for companies with good prospects for sustained earnings growth.

–15. The market is rational over the long term and rewards sensible investing.

–16. Invest in dominant companies. They will be able to sustain earnings growth.

–17. Don?t trust management which has demonstrated lack of integrity.

–18. Investing should be fun. Read more…

Valuation means assigning a ”proper” value, or price, to a stock. The quote marks around ”proper” remind us that while the word implies that there is a single ”correct” price, in fact the concept is theoretical. Valuation is nevertheless an important guide to what price at which to buy or sell a stock. If you pay too much for a stock?more than it is ”worth”?your returns will suffer forever after.

Many large-scale institutional investors?mutual funds, brokerages, hedge funds?have developed complex mathematical models for determining a stock?s ”proper” price. The individual investor needs to go a different route.

Fortunately, a second method exists which is just as good, easy to understand, and readily available. This second method uses what are called valuation ratios.

Valuation ratios divide the stock?s current price (P) by quantifiable aspects of its business: its earnings, its revenue, its book value, and so on. Each ratio is then compared to historical norms to tell whether the stock is fairly priced at its current price P.

Here are some common valuation ratios that the Sensible Stock Investor uses:

–P/E, or price-to-earnings ratio. This compares the stock?s price to the company?s reported earnings. This is the famous ”multiple” that one often hears about.

– P/S, or price-to-sales ratio, which compares the stock?s price to the company?s revenue.

– P/B, or price-to-book ratio, which compares the stock?s price to the company?s book value Read more…

The first step to buy sell stocks online is to find an online broker.

Online brokers offer many inexpensive tools and services and they are all looking for your business. Choose a broker, request an application form, make a deposit, and you are on your way to buying and selling stocks online.

How do you choose a broker?

1) Make sure they have a website that is easy to navigate, and you can move from screen to screen quickly. There are going to be times when you are looking at more than one chart, waiting for the right price to buy or sell a stock. You want the web pages to load quickly.

2) The actual trading screen must be well organized and give you the ability to double check your information before you make the trade. If you only wanted to trade a 100 shares of a stock and you typed in 1000 by mistake, you will be able to pick up your mistake with the confirmation screen.

3) Make sure you are getting real time quotes, not quotes that are delayed. If the quotes are delayed 15 or 20 minutes, that can make a big difference in your profit or loss. A stock can move 1 point in that time with no problem.

4) Make sure your orders are executed quickly. Again that can make a big difference if they take to much time to fill your order.

5) They provide you with quick confirmation on your orders.

6) They provide you with current portfolio updates, and account balances.

7) An alternative way of Read more…

The way stocks react to significant price shocks is important for finding good entry and exit points. A common question traders and investors ask themselves is whether to purchase after a stock takes a big fall on a bad earnings report, for example.

If we’re to believe the efficient market hypothesis then the shocked stocks price is reflective of all new information so wouldn’t warrant a purchase (based solely on the price shock.) However, if there are exceptions to the EMH, or if it takes time for the price to reach it’s EMH point, then there is value in studying reactions to price shocks.

In this article we’ll study how stocks recover from various levels of price drops in one day. This will help us understand if there is any advantage to purchasing directly after one of these events.

Analysis Setup

The data was based off a group of randomly selected days from the years 2004, 2005 and 2006. The next few days afterwards were then analyzed to build the statistics below.

Stock price was restricted to those above $1. This was done because penny stocks are very volatile and could skew the data. Studying penny stocks is very interesting as well, but a separate concern.

Stock volume was restricted to those above 25,000 on a daily basis. Again, this was done to prevent skews in the data. Low-volume stocks behave differently than larger volume ones.

Buckets were created for easier representation and analysis, based on the amount of the initial price shock. The buckets were chosen as 1-5% drop, 5-10%, 10-20%, and an extra one for all stocks as a comparison.

Note: The selection of the years 2004, 2005 and 2006 as the period for the test has implications we should expect up-front. The market during this period was generally considered bullish we should expect somewhat different results were we to analyze a bearish period.

Tracking price high after the drop

The first part of the analysis was to examine the price highs achieved several days after a significant downward price shock. We’ll check the performance of the stocks in each bucket for several days after the drop.

Here are the average price highs achieved by each bucket 1, 2, 3, 4 and 5 days after the initial drop compared to the close on the drop day:

All stocks: 2%, 1.5%, 1.0%, 1.4%, 1.5%
1-5% drop: 2.1%, 1.9%, 1.5%, 1.6%, 1.8%
5-10% drop: 3.8%, 3.2%, 2.3%, 2.4%, 2.5%
10-20% drop: 4.2%, 3.5%, 7.1%, 6.8%, 9.4%

Analysis

First of all, there are no negative values because we’re looking at the highs. It would be very rare for a stocks highest trade price to never reach it’s close on the previous day, especially during a generally bullish market.

The stark contrast between the 10-20% bucket vs. the others is very surprising. All other categories have a negatively-sloped line but 10-20% has a significant positive slope. If we carried this out further than 5 days we can assume it would achieve a similar slope to the other categories.

Why the swift partial recovery for 10-20%? One point to note is that of all the stocks found in this category Read more…

Most investors today want to invest sensibly, but many are not sure how to get started. Well, the first stage is to identify excellent companies as possible candidates for your investment dollar. One way to do this is to use a point-based scoring system, such as the trademarked Easy-Rate system presented in the new book, ”Sensible Stock Investing.” This approach enables the individual investor, in a reasonable time, to score companies and rank them against each other.

There are three categories in which a company can score points:

–The company’s Story.

–The company’s Financial Picture.

–Bonus Points.

The company’s Story is a few sentences about what it does and how it makes money. Famed investor Peter Lynch said that before buying a stock, he liked to create a two-minute monologue about the company: what’s good about it, what’s necessary for it to succeed, what pitfalls it faces. Lynch said, ”Once you’re able to tell the story of a stock…so that even a child could understand it, then you have a proper grasp of the situation.” The book Sensible Stock Investing shows you how to construct the story and how to score it. A handy questionnaire helps you to focus on the important facts. Answer those questions, and you’ll have the company’s Story down cold.

The importance of the company’s Financial Picture should be obvious. The time-pressed individual investor needs to home in on the most important data and ignore the ”noise.” Financial information is abundant and free these days. The danger is getting lost in the deluge instead of extracting meaning from just the right elements. Sensible Stock Investing shows you how to score the five most important financial factors in a company’s record, plus how to rate its dividend policy. The book also provides a formatted way to record this information to make scoring the company easy. Even if you know nothing about finance and accounting, filling out the form is straightforward and fun. Sometimes your eyes will pop out as the financial Read more…

Most people look for stockbrokers and financial planners who are in on every fast moving stock and make them money on everything that comes along. However that is truly the way to get burned, pay the most in commissions and over time lose all your money. Although it is not popular the truth really is that the Best Financial Planners put you in long-term stuff and act like a Security Guard.

Why you ask? Well really you could do this yourself you say. Sure you can, but few people do. You could study the best mutual funds and your risk tolerance and do it yourself, but would you? Probably not, you would get stupid and greedy and lose it all or you would seek to take some of that money and spend it on needless crap. And do not tell me you do not have any needless crap. I have been to your garage sales?

This is why I say that; The Best Financial Planners put Read more…

The SPX weekly chart below shows short-term resistance around 1,325, i.e. yearly high and weekly upper Bollinger Band. On Friday, SPX rose to 1,324 3/4 and was turned-back to close at 1,319 3/4. Also, the FOMC announcement is Wednesday. So, SPX may trade below 1,325 before then.

The daily NYSI (brown line) made lower highs throughout the current cyclical bull market, while SPX made higher highs. On Friday, NYSI closed at 727, which is below the 772 most recent high, while SPX hasn’t reached a new high. So, SPX may rise to a new cyclical bull market high before beginning an intermediate-term downtrend.

Sentiment indicators, e.g. the CPC 10-week MA (above price chart), remain bullish. However, the NYMO 10-week MA (below price chart) has turned bearish. Another major mixed signal is September has been the weakest month for the stock market. However, the price of oil fell below a long-term support level a week ago (see daily oil chart below).

Also, the SPX chart shows there’s major support around 1,280 (i.e. 10

Producing the necessities of the bathroom and other everyday items, Procter and Gamble (PG) continues to be an excellent investment in all areas. With marginal competition and loyalty from its workers, PG will provide investors with an excellent opportunity to achieve high capital gains.

Elusive to negativity, Procter and Gamble continues to follow its high respectability with its amazing fundamentals presented each quarter. Over the last four earning reports PG had beat expectations in terms of EPS all four times and beat revenue estimates each time as well. The laud extends to the PG?s excellent margins in terms of revenue, profit, and operating margins, and especially there should be high praise for PG doubling the amount of total assets over one year for this flourishing company. The P/E remains solid at around 23 which is supported for some reluctant investors with a great dividend payout of 1.24.

PG also has the reputation of providing long term investors with a steady persistent growth without too much volatility. While PG did falter a bit during late 2000 to 2001, the situation remained dubious for all equities of all sectors. However, unlike some of these other equities, PG remained resilient and in a matter of a few years returned back to its record high of near 65 points: an almost 100% increase over about five years.

With an inevitable recession approaching in the coming months, Read more…

With the recent decrease in oil prices, you may be eager to get back into the transportation game with the potential of making a decent return in certain equities. One of these specific equities could be General Motors (GM). While may experts are hyping the motion that oil is on its way down for an extended period of time, my views tend to differ which may not make GM as enticing as it is now.

Cringing on the future market of oil commodities, GM shows an incredible inverse relationship in terms its points juxtaposed to the price of oil. For example from 2004 to the beginning of 2006, an accurate representation of when oil prices escalated at its highest peak, shares of GM fell from near 55 points to close to 20 points in April of 2006. While the stock has made a small come back to near 35 dollars as of September of 2006, such an increase is unfortunately due to the decrease in oil as the dependency on oil is more extreme than almost any other factor. Since GM is highly touted for its truck and SUV lines, the big gasoline consumers, sales are directly affected by gas prices to such an extreme that if prices of oil climb enough, sales may become inverted as consumers may exchange their GM trucks or vans for more efficient automobiles produced by different companies. Such a transition will hurt GM?s fundamentals and future guidance placing immense pressure for big institutions to sell their shares.

Now, you may be reading such a sentiment and be thinking that oil prices have fallen nearly 13% over the last few weeks which make this a perfect buying opportunity for GM. While the logic seems reasonable, in the rational expectations of the stock market, the reverse thinking will always bring in more positives than negatives. With such a sentiment of bliss surrounding shareholders of GM, shares will rise for the duration of the period of low oil prices. With this in mind, shares may increase a few percentage points for the next few weeks causing some capital gains. If you do tend to hold on to your shares for this period, I would advise selling around the 35 to 40 point range, if GM is ever to reach a number again. One innocuous looking cell in the Atlantic Ocean positioned to assail the Gulf of Mexico can have the effect of causing oil prices to go back to the 80 dollar range. It?s still hurricane season, there are still ongoing conflicts in the Middle East, and the oil market is a very Read more…

Many people are turning to the stock exchange to make some extra money on their savings, or to even replace their normal income. Options are another tool you can use to trade on the stock exchange, and can be used for normal stocks, futures and indices. If you spend some time learning about how trading options works, it’s possible to make consistent, good returns on your money. For simplicity’s sake, I’ll use trading options on stocks for the examples that follow.

An option is really another way of saying you have the right, or the choice, whether to go ahead with buying or selling a number of stocks on a certain date. When you purchase the right to buy stocks, that’s known as a call option. When it’s a right to sell your securities, it’s called a put option. Initially, most people start out simply, either buying a call option for a stock they’re interested in purchasing anyway, or else buying a put option on stocks they already hold, to protect their investment if the price plunges suddenly. All of the contracts have an agreed price. So in the case of a put option, the stock may be trading at $5.00, and you buy a put option that gives you the right to sell the stock you hold at $4.50 in two months time, if you choose to exercise that option. This means that if the price drops to $4.00, you’ve protected yourself. If the price doesn’t drop, then you let the option expire and keep your shares.

Buying an option requires paying a premium. It’s important to calculate out how much you’re willing to pay for an option, so that it remains cost effective. Options are more expensive the further they are from expiry, and gradually their value falls as the expiry date approaches. The good thing about options is that you can spend a small amount of money (the premium) Read more…