The Bull Hunters Guide

Recently, we’ve been discussing a host of stock picking strategies and looking at the applications of each. We’ve dealt with underlying fundamentals such as fundamental analysis, and qualitative analysis, as well as the two immediate offshoots from those: growth investing and value investing. We’ve even looked at a more modern methodology that comprises a fusion of both growth and value investing: GARP investing.

Income Investing

This week, however, we’re going to look at an investment strategy that is arguably the most straightforward of them all. In that the end goal of investing is to ultimately turn a profit and generate income, the stated goal of income investing is right in line with that: to pick the stocks that will provide the most steady income.

This runs counter to what many investors think about income. Typically, they view investments like stocks as being a risk with little to no guarantees outside of certain option spreads. For steady, secure income they look to more traditional alternatives like savings bonds. However, when we’re looking at stocks that pay out dividends, it’s certainly possible to draw a good steady income, just from one’s stocks.

Income investors usually tend to invest in those stocks that are tied to older, established businesses, rather than trying to find the next big thing. The reason for this strategy is that these companies have a very solid foundation in the marketplace and “aren’t going anywhere”. They have no real need to reinvest their earnings into themselves, so very often they tend to pay them out to their shareholders in the form of annual dividends.

The Highest Dividends

However, it isn’t just about picking those companies that pay out the highest yearly dividends. Good income investors will also look at a figure called the dividend yield, which is calculated by dividing the annual dividend paid per share by the price of the share itself. This will give one a percentage figure that determines the dividend yield. Typically, income investors look for a high dividend yield no matter what the actual numbers are – a figure somewhere around 5-8% seems to be the sweet spot that most are looking for.

In the end, income investing can be boiled down to the following summary: finding companies with good, high dividend yields that will allow the investors to receive a steady income in dividends over time without much concern for growth or undervaluing or any of the other principles that make up the other popular strategies.

See you next week for part 7 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Over the last few entries, we’ve been looking at different stock picking strategies and how they measure up, as well as the fundamental principles that inform them. The purpose here isn’t so much to find one magic strategy that always picks winners, but rather to inform the reader to be able to look at strategies and tell how sound they are based on the principles that form the backbone of those strategies.

Value and Growth Investing

In the last two entries, we talked about value investing and growth investing. In other words, investing based upon the perceived value of a stock, and investing based upon the projected growth of a stock over a period of time. Today, we’re going to expand upon both of those slightly by looking at a new kind of strategy that forms something of a hybrid of the two, taking the advantages of both are trying to meld them together into a cohesive whole. This is called GARP investing.

The GARP Strategy

The GARP strategy basically involves looking for companies that are undervalued by the market as a whole, yet have solid potential for sustainable growth in the near future. In particular, those who employ the GARP strategy tend to look for those companies that fall into the gap that’s overlooked by pure value or pure growth investors. In other words, a GARP investment would probably be not as undervalued as the pick of a pure value investor, but would still qualify as undervalued enough to earn a profit based upon its future growth potential.

The True Nature of The GARP Method

There is a lot of criticism about the GARP method out there, because of its perceived unwillingness to commit to one method or the other. This conception, however, betrays a misunderstanding of the true nature of the GARP method. The claim that it fails to establish meaningful standards of worthiness for an investment don’t hold water, because if one looks at GARP in isolation from other strategies, it still defines a very specific set of characteristics that adherents should look out for.

GARP = Growth At a Reasonable Price

See you next week for part 6 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Recently, we’ve been talking about stock picking strategies. Which ones work, which ones don’t, and more importantly, how to tell the difference between the two. In particular, we’ve looked at fundamental analysis and qualitative analysis, two of the major schools of thought when it comes to determining the inherent value of a company that one is considering investing in.

Mechanical stock picking strategy

Today, we’ll switch gears a little bit and look at a stock picking strategy that’s a little more mechanical in its approach. This is known as value investing. Value investing is often considered to be the most fundamental of all strategies, and as such, it’s thought to be rather sound in most cases.

Value Investing

When one practices value investing, one tries to find stocks that are said to have strong “fundamentals” as a result of investigating them with fundamental analysis. The “value” of a stock is determined, however, not just by the strength of its fundamentals, but also by the price at which it’s selling. A good value investor, only looks for strong companies whose stock is currently selling at a very low price because the rest of the market mistakenly thinks of that company as being rather poor, and “undervaluing” it. The idea is, basically, that there’s nowhere for that company to go but up, and the value investor is among the only ones who can see that.

The good value investor

Of course, just buying any old cheap-o stock isn’t going to fly. The value investor, more than those who use other strategies, has to really know something about what he or she is investing in. They must recognize that one is really investing in a “company”, not just in a “stock”. That company is run by people; it’s supported by numbers and strategies of its own. By looking at these, a good value investor can confidently assess that a company is really on its way up rather than its way out.

As a combination of both fundamental analysis and qualitative analysis, value investing is one of the most lucrative and powerful investment strategies out there for a trader who is willing to do his or her homework.

See you next week for part 4 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Recently in this blog, we’ve addressed the topic of general stock market tips that were intended to help new investors come to terms with some of the myths and rumours that dominate the market, as well as to avoid some typical mistakes that often spell the downfall of first time investors. Having addressed a sufficient amount of those, however, it’s time to move on to some more specific topics. In particular, we’re going to begin to discuss the different strategies that are normally employed for choosing winning stocks and comment on the pros and cons of each one.

Having it all figured out

Everyone out there seems to have it all figured out when it comes to the market. They all think they have the sure-fire formula for picking up on the next big thing and hitting it big all with one well placed investment. The truth is, of course, that no one can accurately predict the future all of the time. If they could, there wouldn’t be any fun in playing the market!

As one plays the market and grows accustomed to its ups and downs, one can’t help but to begin to see patterns. This is just the nature of the phenomenal (and shortcut-loving) human mind at work. Everyone develops their own strategies. Be that as it may, there are certain strategies that have risen to the forefront and tend to be seized upon as “sound strategies” by a majority of individuals.

Fundamental analysis

The first of these, and the most important is the concept of “fundamental analysis”. Simply put, this is, of course, the analysis of the fundamentals of a company. But what exactly does that mean? The main theory here is that stocks tend to have a “real value” which is separate from the nominal value that it is being traded at on the market.

This “real value” is determined by looking at a number of factors, including the projected future cash flows of the company in question (the same thing you would look at when buying a company outright, which in a very real sense, is what stock trading is all about), as well as how fast it will generate the profit it seems to be ready to generate, and what that passage of time means in terms of inflation.

Differing schools of thought

Phew. It’s a lot to think about, and maybe that’s why there’s so many competing schools of thought on how best to determine what the real value of a company is. Those differing schools of thought are what we’re going to be discussing over the next several posts in this blog.

Until then, happy trading!

See you next week for part 2 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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This is the last post for a while to cover the topic of basic investment strategies. In the coming installments, I’ll branch out into more diversified topics and try to get a little more in depth into each one. In the meantime, I hope you’ve enjoyed this series on basic stock market strategies and I sincerely hope that they’ve improved your ability to successfully invest in the market and see good returns.

Please refer your friends to this blog so they also can enjoy a free way of improving their investment knowledge. Now, back on topic: Basic Investment Strategies.

Reinvesting your interest

For this article, I’ll cover a tip that more people need to take advantage of in order to keep the cycle of their investment going. Namely: reinvesting the interest.

First of all, never draw from your portfolio for spending money unless it’s absolutely necessary. You should have a separate savings account for matters such as that, and it’s from here that you draw when you need to travel, or make repairs to your home, or things of that nature. Your portfolio is a long term investment, and drawing from it early is a blow that will strike you much later down the road, with a force magnified many times over.

Moreover, because it’s a long term investment, avoid the trap of seeing the interest generated by your investments as “free money”. Sink it right back into your investments by buying more shares, so that the cycle can continue and that your payouts will grow larger and larger.

Check the balance of your portfolio

Try and keep a schedule going where you regularly check the cash balance of your portfolio, and when it hits a certain amount, spend some time looking around and buy new shares, either in new holdings or more in ones that you already have a stake in.

By treating your investments in this way, you are ensuring that your profits are maximized because the interest will continue to compound over the years (and usually at a rate much, much higher than typical means of savings such as bonds and savings accounts). Your portfolio will thank you for it.

Thanks for hanging around for the 12 week series of Basic Investment Strategies. I sincerely hope you have enjoyed it. Please leave a comment in this blog if you appreciate the effort and I will reward you with plenty more stock market investment strategies.

Join me next week as we start our trek into some more in-depth investment topics: Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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