The more I am involved with the stock market, the more I am convinced that the best way to build up wealth is to, first and foremost, master the skill to identify great stocks. Buy them at bargain prices and hold them for the long term is the best strategy. This is the surest way to financial freedom for your golden years.
Easy as it may sound, it is, in actual fact, not that easy. If you don't know how to read an annual report and understand the figures there, you will never be able to become a good stock picker.
So the first you need to do is to arm yourself with some accounting knowledge. You must at least be able to understand the Balance Sheet, Cash Flow Statement and the Income Statement. Once you know these, you can go on to calculate the key ratios such as:
the PER, EPS, NTA, Current Ratio, Quick Ratio, PSR, PEG, PBV, Debt-to-Equity Ratio and others.
Knowing how to calculate these ratios is not enough. You must understand their meanings and implications. Once you have learned and understood these key statistics, looking for a winner becomes a possibility.
There is an awful lot of work to do before you can say, " I found a winner".