How to Analyze Stocks

• Company and Industry Overview

Find out something about the company’s business and its industry.
It may be in a business or market sector that you favor or that you want to avoid. For instance, the home building industry usually prospers when interest rates drop and suffers in a rising interest rate environment. So your take on the future direction of interest rates would influence how you view homebuilders.

• Market Capitalization

Market capitalization defines a company’s total value (share price multiplied by number of shares). The biggest firms are designated large-caps, and progressively smaller firms are termed mid-caps, small-caps, and micro-caps. There is no good or bad market capitalization, but each size has its own pluses and minuses in terms of potential risks and rewards. Generally, larger companies are considered safer, and smaller firms offer more growth potential. However, even these generalities vary with current market conditions. You may decide that a particular company size range best suits your needs or, conversely, that you’re open to all possibilities. Whatever you conclude, eliminate candidates in this step that don’t fit your requirements.

• Valuation Ratios

Valuation ratios such as price to earnings (P/E) or price to sales (P/S) define how market participants view your candidate’s earnings growth prospects. High valuations reflect in-favor stocks, that is, those seen having strong growth prospects, and thus appeal to growth investors. Conversely, value players look for stocks with low valuation ratios, indicating that most market players (growth investors) view them as losers. Any given candidate will fit into either the growth or value categories, but not both. The valuation ratios give you a quick read as to whether you have a value or growth candidate on your hands.

• Trading Volume

Trading volume is the average number of shares traded daily.
Low trading volume stocks spell trouble because they’re subject to price manipulation and mutual funds can’t buy them. Here’s where you’ll toss these bad ideas.

• Float

Corporate insiders such as key executives and board members are restricted as to when and how often they can buy and sell their company’s shares. So insider owned shares are not considered available for trading. The float is the number of outstanding shares not owned by insiders, and thus available for daily trading.Acceptable float values depend on your investing style. Large firms typically have floats running from a few hundred million shares into the billions. However some investors seek out firms with much smaller floats, typically below 25 million shares. Since the float represents the supply of shares available for trading, these small floats mean that the share price could take off like a rocket if the company hits the news and the demand for shares overwhelms the available supply.

• Cash Flow

Where reported earnings reflect myriad accounting decisions, cash flow is the amount of cash that actually flowed into, or out of, a company’s bank accounts as a result of its operations. Consequently, cash flow is the best measure of profits. Except for the fastest growers, viable growth candidates should be reporting positive cash flow. Here’s where growth investors should eliminate cash burners from consideration. On the other hand, viable value candidates may very well be reporting negative cash flow resulting from the problems that caused their fall from grace.

• Historical Sales and Earnings Growth

Whether you’re seeking out-of-favor value prospects or hot growth can chapter didates, your best prospects are firms with a long history of solid long-term sales and earnings growth. In this step, you’ll dispose of stocks that don’t meet this basic requirement.

• Check the Buzz.

There’s no point wasting time researching a stock if the company’s main product has just been rendered obsolete by the competition. At this point, get up to speed on the buzz surrounding your candidate. Negative buzz is bad news for growth stocks, and you should disqualify such growth candidates. It’s a different story for value prospects, however. The negative buzz is part and parcel of the market’s disenchantment with the stock, and is contributing to making it a value candidate. You will eliminate many of your bad ideas during the quick pre qualify check, most in less than five minutes once you get the hang of it. Take your survivors on to the detailed analysis.

What Is the Danger of Buying on Margin?

One way to purchase stocks is to buy them on margin. Buying stocks on margin allows investors to pay for a fraction of the stock (usually around 50%, but it cannot go beyond this), and then borrow the rest from their broker. Also referred to as leveraging, buying stocks on margin can result in a large return when the stock goes up.Buying on margin allows you to purchase more stocks by using the assets you already have as collateral for the loan, and it also lets you to react quickly to new investment opportunities because you have the added money in your account.

Investing vs. Saving

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What's the difference?  Investing uses money to potentially create more money; saving generally stores money away. Whether a person prefers to invest or to save often depends on his or her tolerance for risk.

Many think of saving as the "safe" way to go. But investing carries its own range of safe to risky choices — with bonds and money market accounts at the more conservative end and equities (stocks) at the more risky end. In addition to risk tolerance, the decision to save or to invest also depends upon other factors, including your time horizon and goals.

Savers are generally more concerned with maintaining the amount they put into an account, i.e., their principal, rather than its potential for generating more income. Saving via low risk vehicles with moderate returns, such as money market funds, a type of mutual fund, offers more liquidity and may be considered more suitable for meeting short-term savings goals.

On the other hand, investors are generally more willing to risk their principal investment, for the potential of higher returns. Investments, such as stocks, bonds and mutual funds, will fluctuate in value. Strategies, such as diversification, don't ensure specific returns but can help manage the risks of investing. By spreading your money among different types of assets, such as equity and fixed-income investments, you can strive for a comfortable balance of risk and return potential that will meet your needs.

Rather than choosing one approach or the other, consider combining them. Then you can blend the relative stability of saving with the accumulation potential of investing, as your individual needs dictate.

Stock market investment rules

The stock market investment rules are listed below:

1. Make investments in the larger companies with price-earning ratios (P/E) of 10 or below.

2. Keep investments limited to the top 2 - 3 companies in each industry or service group.

3. Invest in companies operating in high growth (or sun rise) industries.

4. The price-earning ratio and earnings per share are important tools to estimate the fair value of shares.

5. High price-earning ratio implies that: super growth is expected in the company's earnings in the near future; investor confidence is high; and watch out for low earnings per share ( an earnings per share of 15% of par value of a share is reasonable).

Investing vs. Saving

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Trend Trading for a Living: Learn the Skills and Gain the Confidence to Maximize Your Profits

What's the difference?  Investing uses money to potentially create more money; saving generally stores money away. Whether a person prefers to invest or to save often depends on his or her tolerance for risk.

Many think of saving as the "safe" way to go. But investing carries its own range of safe to risky choices — with bonds and money market accounts at the more conservative end and equities (stocks) at the more risky end. In addition to risk tolerance, the decision to save or to invest also depends upon other factors, including your time horizon and goals.

Savers are generally more concerned with maintaining the amount they put into an account, i.e., their principal, rather than its potential for generating more income. Saving via low risk vehicles with moderate returns, such as money market funds, a type of mutual fund, offers more liquidity and may be considered more suitable for meeting short-term savings goals.

On the other hand, investors are generally more willing to risk their principal investment, for the potential of higher returns. Investments, such as stocks, bonds and mutual funds, will fluctuate in value. Strategies, such as diversification, don't ensure specific returns but can help manage the risks of investing. By spreading your money among different types of assets, such as equity and fixed-income investments, you can strive for a comfortable balance of risk and return potential that will meet your needs.

Rather than choosing one approach or the other, consider combining them. Then you can blend the relative stability of saving with the accumulation potential of investing, as your individual needs dictate.

6 Different Investment Philosophies

Investment Philosophies: Successful Investment Philosophies and the Greatest Investors Who Made Them Work

To be successful with any investment strategy, you have to start out with an investment philosophy that is consistent in substance and one that corresponds not only to the markets you decide to invest in but your to your personal and individual characteristics as well.

What is an Investment Philosophy?
An investment philosophy is a logical method of thinking about markets, how the stock exchange system works, how and when you should buy or sell and even the types of mistakes that you believe consistently underlie investor behavior. Most investment strategies are fashioned to capitalize on mistakes caused by some or all investors in pricing stocks. Those errors themselves are determined by far more canonical presumptions about human behavior and investment philosophies.

The following broadly identifies the distinct investment philosophies and the purpose each philosophy has on the investor.

1. Fundamental Analysts
The basic idea in fundamental analysis is that the genuine value of a stock can be associated to its financial features of the business: its growth expectations, risk visibility and cash flow statements. Any deviance from this straight value is a sign that a stock is under or overvalued.

Fundamental analysts would be conceived a long-term investment strategy. Since investors that are employing this plan of attack are commonly taking a great number of 'undervalued' stocks in their investment portfolios, their hope is that, on the average, these investment portfolios will serve better than the marketplace to make them profit.

2. Franchise Buyer
The school of thought of a franchise buyer is better conveyed from an exclusive successful investor: Warren Buffett.

"We try to stick to businesses we believe we understand," Mr. Buffett once wrote. "That means they must be relatively simple and stable in character. If a business is complex and subject to constant change, we're not smart enough to predict future cash flows."

Franchise buyers focus on a couple of businesses they understand considerably, and seek to take on undervalued business firms. Oftentimes, as in the instance of Mr. Buffett, franchise purchasers maintain influence on the management of these firms and could alter financial and investment policy within the company.

As a long-term strategy, franchise buyers are appealed to a specific business enterprise since they consider they are undervalued. They are also interested in how much additional value they can produce by restructuring the business organisation and operating it correctly.

3. Chartists
Chartists think that prices are motivated as often by investor psychology as by any fundamental financial variables. The information accessible from trading (price movements, trading volume, short sales, etc.) establishes an indication of investor psychology and emerging price movements.

They propose that stock market prices act in predictable patterns, that there are not adequate marginal investors capitalising from these patterns to eliminate them, and that the mediocre investor in the market is motivated more by emotion instead of by intellectual analysis.

4. Information Traders
Stock prices move on information about the public company that is released. Information traders seek to trade in advance of fresh information or concisely after it is divulged to financial markets. They stick to the buying on good news and selling on the bad philosophy. These traders trust they can foresee information announcements and guess the market response to them better than the common investor in the market.

For an information trader, the direction is on the kinship between information and alterations in value. They might purchase an 'overvalued' stock if they consider that the succeeding information announcement is going to drive the price to go up, because it bears better than anticipated news.

The relationship between how undervalued or overvalued a company represents and how its stock price responds to current information plays a function in investing for an information trader.

5. Market Timers
Market timers believe that the reward to foretelling turns in the stock market is a lot more outstanding than the payoffs from stock picking. They contend that it's more painless to forecast market movements than to choose stocks and that these predictions can be founded upon elements that are noticeable in the markets.

Market timers employ tools that can be used to assess all stocks, and the outcomes from the cross section can be applied to ascertain whether the market is over or under valued. For instance, as the number of stocks that are overvalued, utilizing the dividend discount pattern, increases proportional to the number that are undervalued, in that respect may be reason to think that the market is overvalued.

6. Efficient Marketers
Efficient marketers consider that the market value at any point constitutes the most dependable appraisal of the true value of the business firm, and that any endeavor to exploit detected market efficiencies will cost more than it will attain in excess profits. They presume that markets aggregate data promptly and precisely, that marginal investors quickly exploit any inefficiencies and that any inefficiencies in the market are stimulated by friction, such as transactions costs, and can't be arbitraged away.

For efficient marketers, a valuable practice is to decide why a stock sells for the price that it does. Since the fundamental premise is that the market price is the most beneficial approximation of the true value of the company, the objective becomes determining what assumptions about growth and risk are implied in this market price, rather than on finding under or over valued firms.

What investment philosophy do you employ when trading in the stock market?

Market Timing-stock market trade

Market timing is the most important expertise you must master to become a successful trader. This is where the majority of stock market traders fall by the wayside. Buy too early and you are squeezed out on any temporary falls. Sell short too early and you are squeezed out on any up moves, even if, after a few days or so, you are proved correct in your analysis. Understanding what the volume is telling you; recognising testing, stopping volume, up-thrusts, or no demand, will get your timing surprisingly accurate.

Some investors, especially academics, believe it is impossible to time the market. Other investors, notably active traders, believe strongly in market timing. Thus, whether market timing is possible is really a matter of opinion.

It is very difficult to be successful at market timing continuously over the long-run. For the average investor who doesn't have the time (or desire) to watch the market on a daily basis, there are good reasons to avoid market timing and focus on investing for the long-run.

When you do decide to short the market do so only on an up-day/bar if possible [see no demand, up-thrusts, ultra-high volume up bar with next bar level or down], and only if there are signs of weakness in background such as lower tops, down trend, high volume on up day/bar with no corresponding up move following, all signs of weakness.

Study your own trading weaknesses then form a plan to combat them. Perhaps one of your weaknesses is to have no plan ready in the first place! It is recommended to write your plan down before you trade. Once on paper you are more likely to adhere to it.

If you are a stock trader, only trade in active stocks that have a history of moving in an orderly manner. Never buy stocks because they look cheap on the assumption they will have to recover one day. Only buy stocks that are acting stronger than the parent Index. A stock needs to be resisting down moves in the Index.

FTSE Bursa Malaysia

Introducing the FTSE Bursa Malaysia Second Board and MESDAQ indices.
FTSE Group and Bursa Malaysia are enhancement to their index series, The family includes:

• FTSE Bursa Malaysia Large 30 Index
• FTSE Bursa Malaysia Mid 70 Index
• FTSE Bursa Malaysia 100 Index
• FTSE Bursa Malaysia Small Cap Index
• FTSE Bursa Malaysia EMAS Index
• FTSE Bursa Malaysia Fledgling Index
• FTSE Bursa Malaysia EMAS Shariah Index
• FTSE Bursa Malaysia Hijrah Shariah Index
• FTSE Bursa Malaysia Second Board Index
• FTSE Bursa Malaysia MESDAQ Index