CL King
Blog Post
Points to Consider when investing in The Stock Market
- By Wilbur H. Stewart
- •
- 30 Dec, 2017
- •
Here are six actions you can start with:
1) Consider the P/E ratio of the market as a whole and of your stock in particular.
Most of the time, you can ignore the market and just focus on buying good companies at reasonable prices. But when stock prices get too far ahead of earnings, there's usually a drop in store. Compare historical P/E ratios with current ratios to get some idea of what's excessive, but keep in mind that the market will support higher P/E ratios when interest rates are low.
2) When inflation and interest rates are soaring, the market is often due for a drop...be alert.
High interest rates force companies that depend on borrowing to spend more of their cash to grow revenues. At the same time, money markets and bonds start paying out more attractive rates. If investors can earn 8% to 12% in a money market fund, they're less likely to take the risk of investing in the market.
Of course, severe drops can happen in times of low interest rates as well. Look for red flags in the financial news, such as the beginning of the recent housing slump or the international credit crisis. Don't let fear and uncertainty keep you from participating. Remember that the market goes up more than it goes down. Even poor market timers make money if they buy good companies.
3) Do your homework.
Study the balance sheet and annual report of the company that's caught your interest. At the very least, know how much you're paying for the company's earnings, how much debt it has, and what its cash flow picture is like. Read the latest news stories on the company and make sure you are clear on why you expect the company's earnings to grow.
If you don't understand the story, don't buy it. But, after you've bought the stock, continue to monitor the news carefully. Don't panic over a little bit of negative news from time to time. Nearly every company has an occasional setback.
But if there is serious evidence of fraud or declining prospects, act quickly. Restating earnings is often a clear sign that all is not well with a company's accounting practices.
4) Be patient.
Predicting the direction of the market or of an individual issue over the long term is considerably easier that predicting what it will do tomorrow, next week or next month. Day traders and very short term market traders seldom succeed for long. If your company is under priced and growing its earnings, the market will take notice eventually.
5) Take advantage of periodic panics to load up on shares you really like long term.
It isn't easy to do, but following this advice will vastly improve your bottom line.
6) Remember that it's not different this time.
Whenever the market starts doing crazy things, people will say that the situation is unprecedented. They will justify outrageous P/E's by talking about a new paradigm. Or, they'll bail out of stocks at the worst possible time by insisting that this time, the end of the world is really at hand.
If you watch these cycles over a period of 20-30 years or so, you'll learn a valuable lesson: It's never different this time. Ignore the hype, and carry on.
For more details you can consult with the experts at C.L. King & Associates. The company has managed First Mortgage Bonds offering, bond and stock offering for Walmart, NextEra Energy Capital Holdings and many more.
To learn more, please visit here: http://www.clking.com/
1) Consider the P/E ratio of the market as a whole and of your stock in particular.
Most of the time, you can ignore the market and just focus on buying good companies at reasonable prices. But when stock prices get too far ahead of earnings, there's usually a drop in store. Compare historical P/E ratios with current ratios to get some idea of what's excessive, but keep in mind that the market will support higher P/E ratios when interest rates are low.
2) When inflation and interest rates are soaring, the market is often due for a drop...be alert.
High interest rates force companies that depend on borrowing to spend more of their cash to grow revenues. At the same time, money markets and bonds start paying out more attractive rates. If investors can earn 8% to 12% in a money market fund, they're less likely to take the risk of investing in the market.
Of course, severe drops can happen in times of low interest rates as well. Look for red flags in the financial news, such as the beginning of the recent housing slump or the international credit crisis. Don't let fear and uncertainty keep you from participating. Remember that the market goes up more than it goes down. Even poor market timers make money if they buy good companies.
3) Do your homework.
Study the balance sheet and annual report of the company that's caught your interest. At the very least, know how much you're paying for the company's earnings, how much debt it has, and what its cash flow picture is like. Read the latest news stories on the company and make sure you are clear on why you expect the company's earnings to grow.
If you don't understand the story, don't buy it. But, after you've bought the stock, continue to monitor the news carefully. Don't panic over a little bit of negative news from time to time. Nearly every company has an occasional setback.
But if there is serious evidence of fraud or declining prospects, act quickly. Restating earnings is often a clear sign that all is not well with a company's accounting practices.
4) Be patient.
Predicting the direction of the market or of an individual issue over the long term is considerably easier that predicting what it will do tomorrow, next week or next month. Day traders and very short term market traders seldom succeed for long. If your company is under priced and growing its earnings, the market will take notice eventually.
5) Take advantage of periodic panics to load up on shares you really like long term.
It isn't easy to do, but following this advice will vastly improve your bottom line.
6) Remember that it's not different this time.
Whenever the market starts doing crazy things, people will say that the situation is unprecedented. They will justify outrageous P/E's by talking about a new paradigm. Or, they'll bail out of stocks at the worst possible time by insisting that this time, the end of the world is really at hand.
If you watch these cycles over a period of 20-30 years or so, you'll learn a valuable lesson: It's never different this time. Ignore the hype, and carry on.
For more details you can consult with the experts at C.L. King & Associates. The company has managed First Mortgage Bonds offering, bond and stock offering for Walmart, NextEra Energy Capital Holdings and many more.
To learn more, please visit here: http://www.clking.com/
