The Bull Hunters Guide

Hello fellow Bullhunters

The Bullhunters Guide to the US Stock Market has certainly been an eye opener for me and I think we got more than what we bargained for when Sean wrote this eBook and offered us a free download of it.  Although the information provided us is short and sweet, it is all very useful information which gives us a look behind the scenes at the goings on of the US Stock Market.

Today we will be discussing some other ways that you can make money from the stock market so here is the next excerpt…

Conservative stock investors like to buy undervalued stocks and hold them until they are fairly valued (or even overvalued).  Many times, these investors concentrate on dividend-paying stocks. 

Buy and hold proponents feel that the market is often irrational in the short-term.  Good stocks can go down; bad stocks can go up.  But in the long run, they believe that the cream rises to the top.  Buy and holders aren’t concerned with the day-to-day fluctuations of their portfolio.  They take their time before buying a stock and by the time they pull the trigger, they’re confident that they’ve made the right decision.  When their stocks suffer substantial losses, they often buy more.  This is called buying on the dips.

By buying on the dips, investors lower their cost basis.  For example, if an investor bought 100 shares of Ford for $10 and then bought another 100 at $9, his basis would be $9.50 per share - ((100*$10)+(100*$9)) / 200.  When the stock hit $11 he would have a profit of $1.50 per share instead of just $1.00 per share.

Not everyone agrees with the buy and hold strategy.  Aggressive investors think that they can maximize their profits by trading more frequently.   They see no reason to hold a stock when they think it is going to go down.  Why not just sell it, and then buy it back when it has bottomed.

Buy and holders think this sort of philosophy is conceited.  They say that frequent traders are trying to outsmart the market which is something that cannot be done on a consistent basis.  Buy and holders also point out that the commissions associated with frequent trading can take a big bite out of profits.  But aggressive investors still say that their way produces better results.

These two strategies are from one end of the scale to the other.  They speak for themselves.  So whether you want to make a quick profit or be on the conservative side and buy and hold, there are pro and cons for both.  It also depends on if you are building a portfolio or trading for cashflow.  This is something that only you can consider and also be aware of whether these strategies fit into your trading system.  They may or may not and there are other strategies to consider like renting shares for cashflow which is more conservative than day to day trading.

We are not done with the Bullhunters Guide yet.  There is more on the way so keep an eye out until next time.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

Social Bookmarks:

Hello fellow Bullhunters

Okay… so we have discussed how a corporation works.  We have taken a look at how to determine the value of a stock and if a stock is just a piece of paper.  We have even considered the components of the DJIA and how they cycle.  Now it is time to look at HOW we are going to make money on the stock market by weighing up growth as opposed to value of stocks.  More of The Bullhunters Guide to the US Stock Market.

The name of the game in investing is maximizing your returns.  Simply put, you want to buy stocks that are going to make you money.  There are two ways that this can be done - capital gains and dividends. 

We’ve already discussed dividends.  They are distributors of company earnings to shareholders on a per share basis.  But most of the 13,000 publicly traded stocks don’t pay any dividends at all - does this mean that they are worthless… of course not.

You realize capital gains when you sell a stock for more than you paid for it.  Gains in a stock that you have not yet sold are said to be unrealized capital gains.

Stocks go up because people want to buy them - it’s all about supply and demand.  People decide they want to buy a given stock because they think that it offers them a good chance of maximizing their future.  Institutional investors (banks, pension funds, etc.) who purchase the bulk of shares are looking further ahead - 5, 10 or even 20 years (or longer).  The question they ask themselves is At what rate will this stock grow its earnings into the future.  Once they answer that question they ask How much am I willing to pay today for those future earnings.

One way to evaluate a stock is by looking at its price-to-earnings ratio  (P/E ratio or just P/E).  A stock’s P/E ratio compares its current selling price to its earnings share (EPS)  If Wal-Mart’s most recent selling price were $48.32 and its most recent EPS number were $2.56, then its trailing P/E ratio would be $18.88 (48.32/2.56 = 18.88).  If Wal-Mart expected EPS of $2.80 next year, then its forward P/E ratio would be $17.26 (48.32/2.80 = 17.26).  Some people like to look at the trailing P/E because it is a historical fact and not a projection.  Others like to look at the forward P/E because what happened in the past is irrelevant - it’s the future that’s important.

Who’s good at maths because that was a lesson and a half.  Well Sean really worked on this and all the links go to his Stock Market Glossary of course so you can follow those in to see what they all mean just in case you are not quite clear on all the terminology.

It’s all a science that must be studied to know the ins and outs of the stock market and know what you are trading and how much you could potentially make.  So whether you think the trailing P/E ratio is the marker or the forward P/E ratio is the marker is entirely up to you.  As long as it follows your trading system is what is important.

To Your Success

Angela Recchia
Graduate Support
Universal Wealth Creation © 2004 - 2007

Social Bookmarks: