Welcome to my investment analysis and advice blog. I’m not going to offer all of the same advice you hear everywhere, because a lot of that advice is boring (while pragmatic and not to be ignored).
Let us begin briefly with essentials you need to know reading this blog. You will only have to go through this once, and then we can get to interesting stuff.
P/E – Price/Earnings, A measure of a company’s current share price relative to its per share earnings.
EPS – Earnings per share. Net income earned on each share of a company’s common stock. Additionally it is calculated as (Net Profit – Dividends on Preferred Stock)/ Average Outstanding Shares. EPS going up more than expected = good, EPS lower than expected = VERY bad.
Debt/Equity Ratio. What if the stock you are looking at is borrowing too much? Debt/Equity Ratio gives you an easy way of looking at that. Calculated as (Long Term Debt + Short Term Debt)/ Book Value of Shareholders Equity. Usually its between 0.1 and 3.0, 0.1 means it has a large safety margin when it comes to interest rates rising, and 3.0 meaning the opposite.
Market Capitalization – Market Cap. Market Cap is the size of the company. How big the waves it splashes are in its market and the global market. It is calculated as following: Current Share price * Shares outstanding. Terms like Small-cap and Blue chip are referring to Market Cap.
Economic Growth: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time (Usually set to each year or financial quarter)
HDI: The Human Development Index is a statistic that looks at life expectancy, education, and per-capita income to rank countries for it’s level of development.
Today I won’t really point to any stocks I consider worth owning in anyone’s portfolio. That will come in my next post. Instead what is best is that you understand what each investing strategy brings to the table, and infer the one you think will work best for you.
Style Investing, put simply is looking at underlying characteristics in common to certain types of investments. For example, choosing securities from broad categories of securities like Small-cap or Tech. This is useful to anyone who lacks the money to diversify by buying a ton of individual stocks, as you can give your portfolio exposure to a broad range of markets. Value Investing, a very sane approach to investing belongs as a sub-style within Style Investing.
Don’t be persuaded to believe Index Investing is a “be all and end all” approach, or that it’s de-facto the safer way to invest in the stock market. This isn’t accurate as some index fund are leveraged, like UWTI, and easily and very commonly swing 5-15% one day then shoot down 5-15% the next day. You can also play it safe (relatively) with something like the SPDR S&P 500 ETF Trust, which seeks to replicate the S&P 500 index. Adjusted for inflation, the S&P 500 has returned ~7% yearly on average since it’s inception. You could definitely do worse. You would be performing on-par with the market. Consistently (5+ years) beating the market is very difficult and is not done by many. But it’s definitely possible.
I made this blog not to teach people how to perform on par with the market, but how to, as an active investor, see greater returns. If you read this entire post start to finish, congratulations, you probably have the dedication to do quite well at anything.
In my next post right here I go more into depth in the first sector I wanted to talk about, Biotechnology.
I strongly recommend Benjamin Graham’s (Warren Buffet’s Mentor) book Intelligent Investor. You can order it on Amazon here