Sunday, December 23, 2012
The Best Way to Stock Market Success
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:
PER, EPS, NTA, Current 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.
obviously, there is an awful lot of work to do before you can say, " I found a winner".
Once you have decided on a stock you wish to invest, don't rush in to buy. Have a good look at its daily chart and weekly chart. This will clearly show you how the stock has been performing. With the charts you can easily see the highs and lows of the stock. Pay special attention to the latest transactions of the stock to figure out what is happening.
Buying at major support level is generally safe.
For those who wish to see quick money, buying at upside breakouts at low level is advised.
At high levels, upside breakouts are extremely dangerous but can be extremely profitable as well. If you are an inexperienced player, you should never attempt to buy at high level breakouts.
While there should not be a limit to your gains, there must be an absolute limit to your losses.
Never bet without a stop-loss in place.
This blog is a monarchy and I am the monarch. If you don't like what is written here, don't tell me. Just unfriend me.