There are basically two different types of investors. There are the informed investors such as the insiders and those who have access to the corporate information as it hits the wire and then there are the uninformed investors who have to get their information after it has already been factored into the stock price. The trick in obtaining winning stock picks is to be able to be linked in some way to being one of the first to act on good financial news. Learning how to perform stock picking like the institutional players is one avenue toward finding those winning stock picks that will be able to make you money with your stock market investing.

One of the important things to consider with your stock picks is how the earnings have performed against the analysts expectations. Analysts spend a lot of time researching companies and discussing the company with the investor relations personnel. Investors relations departments are set up to always strive to put the best foot forward. So what they say needs to be taken with a grain of salt. However, they also realize how the game is played. They know that they want their earnings report to come close to what the analysts are predicting. If they are consistently high, then they will not be trusted. If they come in below the prediction, then their stock price will get slammed. Therefore, if there is going to be any kind of significant change to the prediction, that change gets leaked to the analysts.

Surprise earnings is one method that can be used to determine if an investor should look into a stock further. Surprise earnings are when the actual earnings report comes in above the expected earnings. The thinking amongst investors is that earnings surprises are kind of like cockroaches. If you see one, then there is a good chance there will be more to come. Therefore, if a company has a positive surprise earnings then you should watch that company closely.

Forecast trends is another thing to watch. If an analyst increases his prediction of what a companies earnings is going to be, then other analysts take notice. They do not want to be left behind in their predictions. If a change happens, then they also will look into why that change came about. They will be doing further analysis. If you see two or more analysts predictions change, then you should certainly be looking into that stock as a potential investment.

Another ratio to review is the PEG ratio. This ratio is a valuation gauge which compares P/E growth to forecasted growth. It is usually the case that stocks with a PEG ratio below 1 are considered undervalued while PEG ratios above 2 are considered overvalued. This may not always be the case, but it certainly bears looking further when this is found.

Winning stock picks like the institutional players is the direction that we should all be striving to achieve. By accomplishing this task, we may be further along the road to finding those legitimate stocks amongst the thousands that exist in the stock market.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Everyone you talk to including your Uncle Dan has a winning system to make money in the stock market. It seems there are as many systems out there as there are people. The question is, how does a novice beginner make sense of it all. How do you mitigate the risks and how do you pick the correct stocks.

The first thing to do is to learn what works for you. Just because Uncle Dan has a can’t miss system, it may not be the best for you. Do some research. Try some ideas. Some sources advocate using paper trading sites to finesse your trading system. This is where you do not actually trade with your money. You are given some paper money and you go up against other traders to see how well you can do. This is a good process for deciding what will work for you. One drawback of this process is that if it is not your money, you have no emotion in the outcome. It is easy to pull the trigger when it is not your money. You may do quite well with play money and not so well with your money.

That brings us to the next part of the equation. After you determine how you are going to pick stocks, what will determine when you enter the market and what factors indicate to you to exit a particular stock, do not let emotions tug you in a different direction. You need to follow what has worked for you in the past. Too often when our personal financial stake is at risk, we fall apart and are unwilling to pull the plug or make the plunge. Leave your emotions in your back pocket when you invest.

In determining when you should buy a particular stock, you must first determine what type of stock you are investing in. Growth stock expect the high rate of stock price growth to continue. Value investors are looking for stocks that are undervalued for the amount of earnings the company has or is expected to have.

The p/e (price earnings ratio) which is calculated by taking the price of the stock divided by the earnings per share is a good determiner of the value of a stock. Some stocks may be a good buy even though their p/e is above 20 while others may not be a good buy with a p/e below 20. The thing you need to look at is how the company compares to other companies in their industry and what the historical p/e has been for the company. So the answer of when to buy a stock is when the p/e is lower than its peers and you can not find anything wrong with the company.

Proper analysis is the correct method to use when determining the stocks to purchase. Buying on speculation rarely wins. Someone gives you a hot tip. Run from that situation. If a stock is expected to boom but does not have the earnings background to support the expected price, it is not worth the gamble. It may go up but eventually will come back down. This is known as “pump and dump”. Those giving the tips are trying to pump the stock up so they can dump. Don’t fall for it.

So even though there are many different trading systems, probably the correct system is to determine the types of stock investments you want to concentrate in, do sound analysis, perform proper asset allocation in your investments and then go for it.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

Deciding on your investment time horizon or time line is a crucial step in determining your investment strategy. Your time horizon is the time from when you begin an investment strategy and when you need the money.  For example, if you were saving for a home and wanted to move in after 3 years, your time horizon would be 3 years.

Knowing your time horizon is crucial because you need to know how aggressive you can be with your investments. All things being equal, you can be more aggressive with a longer time horizon.  There are specific strategies and asset classes that make sense for each investor’s time horizon and that should guide you in the decisions you make.

Time diversification or remaining invested through several market cycles helps you to reduce the risk involved with investing.  Time diversification is especially useful with stock investments where in the short term, there may be both up and down swings.  Time diversification helps to smooth out those swings.

Because you can reduce some of the risks through time diversification, a longer investing time period allows you  to take on greater risks and thus benefit from a higher return on your investment.  With a shorter time period you will not be able to diversify over several market cycles, so you will need to settle for lower risk, lower return investments.

To make the most of time diversification it is important to remain invested over more than one market cycle.  A market cycle is a period of time of at least five years.  If you can invest in more than two or three market cycles, the opportunities open up.

For instance, with a time period of 2 – 3 years, you should probably invest in money market or certificate of deposits.  For a time period of 4 – 8 years, you can probably invest in government or corporate bonds or even some high value stocks which are known to consistently pay dividends.  For greater than 8 years you can probably invest more in small company or growth stocks.

If you are establishing a goal for retirement, you need to remember that with retirement goals, depending on your age, you are probably investing on an extensive time horizon.  However, with this goal, you need to realize that you really have two time horizons.  You have the time horizon which goes to your retirement age, but then there is the time horizon from retirement to death.  Many people are living into their ninety’s now, so you should really plan accordingly.  You should still plan on some aggressive investments even after your retirement.

Another thing to remember is that as time progresses, your time horizon shrinks for your goals.  A time horizon of 8 years after a period of 4 years now becomes a short term time horizon.  You will need to constantly evaluate your time horizons and plan accordingly.

Identifying your risk tolerance and time horizon helps to set your investment strategy.  Your strategy will help you decide how much of your portfolio is going to be invested in bonds, stocks, and stable value and money market funds.  This is known as asset allocation and is discussed in another lesson.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind.  The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials.  Trading of securities may not be suitable for all users of this information.

A simple definition of stocks is a share of ownership in a particular company.  You may also hear them referred to as stock shares or equity.

In the old days before computers, a stock share was identified with a certificate.  When you purchased stock in a company, you were issued a stock certificate with the number of shares you had purchased.  You then placed this certificate in a safety deposit box and maintained possession of it as you would any other asset.  This is not necessary with the advent of computers.

When a company wants to generate cash for its continuing operations or to purchase a company, it can either borrow the money or it can issue stock.  That is it sells a portion of the ownership of the company to whoever purchases the stock.

Holding a company’s stock means you are a part owner of the company.  Technically you do own a small part of each of the assets of the company and are entitled to a share of the earnings or loss of the company.  You also can vote on the leaders or officers of the company and certain regulations or changes the company wants to make.  Once a year you can even attend a shareholder meeting where you can meet the officers and vote in person.

Since you own a portion of the company and are entitled to a portion of the company’s earnings, when the company does well or the other owners or potential owners think the company will do well, the value of your stock increases.  That is, someone is willing to pay more for a share of stock because of the belief that the value will increase in the future.

In addition to the potential increase of your investment through the increase of the cost of a share of stock, some companies also pay dividends.  They will pay a sort of interest on the amount of shares you own.  They are choosing to share a portion of their earnings directly through this process.

There are two types of stock.  One is called common stock and the other is called preferred stock.  Even though it is called preferred stock, it is generally not the preferred stock to own.  It is called preferred because if there are any dividends paid, they are paid to the preferred stock owners first.  Also in a liquidation of the company, the preferred stock owners will get paid first.  However, the preferred stock owners do not have the right to vote on the officers and the value of their stock will generally not increase on the open market.

Another benefit of common stocks is that they are highly liquid for the most part.  There is usually always a market where the shares can be traded.