Hi! I’ve noticed a lot of posts that are “beginner” or “VERY BEGINNER! or “Looking to learn”
So I decided to write about how I personally buy/sell stocks based on qualitative and quantitative reasoning. For example, In 2016, 63% of Apple’s revenue comes from iPhone sales and they had $245 Billion in cash. In 2017, Apple will release their iPhone X which will probably bring in more revenue.
So this is step 1 of 10. You can go to my personal blog or you can just read it on reddit.
THE SETUP
This is the first of 10 part series of my “10 Step Guide to Investing in Stocks for Beginners”
There are many different ways to play the stock market. I am going to explain how I personally invest in individual stocks. If you are looking for passive investing, this is not the place so you can probably stop reading this and go buy some low cost index funds. I personally recommend Vanguard or Schwab because the fees are very low.
Also before investing in stocks, I recommend getting rid of any credit card debt and/or student loan debt. It is very hard to move the needle if you are paying 20% interest on credit cards and/or 6% on student loans. Also recommend having a minimum of 6 months to a year of living expenses because when the stock market takes a down turn you don’t sell your investments and take losses because you don’t have funds to live.
I am going to split this 10 part investing guide into 2 different sections. Qualitative and quantitative. Qualitative meaning exploitative research. Quantitative is very numerical based research.
The Setup is all about basic house keeping. You should gather any important information about the company.
These things include:
– Get the last 5-10 years of annual reports (10-K’s) and/or quarterly reports (10-Q’s) – Executive compensation documents (Proxy Statements) – Morningstar.com – this is a stock market data company that lays out revenue year over year along with many other things. – Which category is this company classified under? Growth, Slow Grower, Standstill, Asset, Cyclical. (I will explain each in more detail later) – What industry is this company in? Technology, commodities, consumer goods, financials etc.
Company Categories
Growth
These are stocks that are growth at a rapid pace. Usually growth stocks are small to medium sized companies, however large companies STILL can be growing pretty fast and small companies can have a negative growth. It is all about the future market opportunity and the tapped market. These growth companies are growing their revenue at a high rates 15%+ and may not be making any profits because they are reinvesting majority of their profits back into the business to grow.
Slow Growers
These are usually big old companies that have been around a while and a lot of them pays a dividend. A few examples are Proctor and Gamble, Cisco Systems, American Express, etc. These companies may have departments are rapidly growing, however the company’s revenue and/or Free Cash Flow as whole is growing at less than 7%.
Stand Stills
These tend to be big companies, but also companies that is being disrupted and maybe a negative grower in the future. An example of this is Target. From 2008 to 2013, they were constantly growing their revenue, however since 2014 – 2017 they have either lost revenue or kept revenue the same. These companies may have slowly lost their competitive advantage, change of habits and/or tapped their entire market.
Asset / Hidden Value
These are a lot harder to recognize since these maybe hidden or just Intellectual Properties so they are not shown on the balance sheet. A common example is real estate companies. The market value of the entire company might be $2 billion, however on the books they might have $4 billion worth in assets so if you bought the entire company you instantly doubled your money.
Cyclical
These are companies that well during a time horizon and some times they don’t do so well at a certain time horizon. A good example of this is car makers. Car makers or airlines are cyclical and for a few years their car sales goes up and one year it drops quite a bit.
Also figure out what industry the company is in. This is because based on the company's industry there are parts of qualitative and quantitative analysis that will greatly affect your decision. For example, auto maker's have very high capital expenditures because they have to build and maintain large factories while software companies do not have factories to maintain.
TL;DR
Get necessary documents needed.
Figure out what category the company is in.
Figure out what industry the company is in.
Submitted November 04, 2017 at 11:24PM by stock_market_noob http://ift.tt/2yvJCBF
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