The Bull Hunters Guide

Last time, we talked about how short selling is a valuable trading technique that can go a long way towards ensuring your long term profitability as a trader. The ability to profit during a bear market is one of the hallmarks of a seasoned trader, and something that can really make the difference between an amateur and someone who knows what they’re doing.

Short Selling Transaction

Let’s take a look at how a short selling transaction might play out, so that we can better understand the situation for ourselves. In doing so, we can come to realize just when employing a short sell transaction might be useful to us, and when it might become a disaster.

Presume that you take a look at the market and come to the conclusion that a certain stock is about to plummet. You can see it on the horizon, but you haven’t heard the rumbling elsewhere yet. It’s something that’s not anticipated, just a hunch that you have.

Let’s say that stock in that company is currently selling at $100. You decide you’re going to capitalize on their failure and short sell a bundle of shares valued at $1000.

Two Possible Outcomes

Flash forward a few months and we can see two possible outcomes. In the first, your predictions proved to be correct, and the value of the stock dropped from $100 to $50. Now, you’re forced to buy back the stock in question that you short sold, but in so doing, you’re only spending $500. That’s $500 profit on your initial investment!

But suppose the opposite had happened? If the value of the stock had instead surprised you and risen to $150, then you’re be forced to pay back $1500, losing a total of $500 on the trade.

Clearly, short selling is something that we have to carefully study if we’re going to be able to do it wisely and profitably. Next time, we’ll take a more in depth look at some of the risks involved in short selling.

See you next week for part 4 of Short Selling.

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

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Hey there. Welcome once again to our series of posts covering some of the most popular and effective methods for selecting stocks. These methods have been documented and compiled over the years, and while they differ dramatically in terms of execution and philosophy, they all share the common element that, depending on who you ask, they work!

While every stock selection is something of a gamble, it’s our hope that by looking at these time-tested strategies, you’ll begin to gleam some idea from them of how winning stocks are usually chosen, and begin to develop your own strategy that will be effective for you.

Beating The Dow

Today, we’re going to look at what is probably one of the simplest methods in all of investing. This method was first presented in a book by Michael Higgins called “Beating the Dow”, and is commonly known as the “Dogs of the Dow” method. Selecting stocks by this method couldn’t be easier. You simply take a look at the top 30 companies with the highest dividend yields, according to the Dow Jones Industrial Average, and then spread your portfolio among the top ten.

That’s really all there is to it. You just check back every so often, perhaps every quarter, and make changes based on what you see, so that your portfolio always accurately reflects the top ten dividend yield stocks at any given time.

Depending On The Dividends

Clearly, this strategy is depending highly on the dividends that you’ll receive from the stocks in question, but it always takes into consideration the future potential of those stocks. The idea is basically that, if a stock is in the Dow top 30, it will typically be a strong stock with enough of a foundation to weather passing storms and eventually return to a position of prominence, whereupon you can sell it for an amazing profit. In the meantime, you just enjoy those dividend yields.

Well, that’s it for now. Told you it was a simple method. Next time, we’re going to wrap this series up by taking a look at the last method on our list: technical analysis. Stay tuned!

See you next week for part 10 of Stock Picking Strategies.

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

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This continues our series of in-depth looks at the different strategies that are commonly employed by big name investors when they go to choose the stocks that they’re going to invest their hard earned money into. In fact, though it’s the case that everyone out there seems to have their own system for doing things, there are a fairly set number of strategies that seem to pop up over and over again. It’s these that we’ve been examining, as we feel they’re the most noteworthy.

CANSLIM

Having discussed all the basic and secondary strategies already, we’re going to move on to a stock picking strategy that represents something of a modern hybrid of picking techniques. It’s known as CANSLIM, and the whole idea is that it allows one to pay attention to a lot of different objective factors at the same time (seven to be exact) in an attempt to pick a stock without relying on subjective forecasts of future values that might not end up holding water.

Because it’s such a complex strategy, we’re going to cover it in two separate blog entries. Three of the aspects will be covered this time, and four next time, finishing it up.

What Does CANSLIM Stand For?

First off, the C in CANSLIM stands for “Current Earnings”. This is meant to indicate that you need to look at whether or not a stock’s earnings per share have risen on a consistent yearly basis. Generally speaking, if a stock’s earnings per share are continuing to increase over a period of a year, it’s said to be in good condition as far as this criteria is concerned.

The A stands for “Annual Earnings”. This indicates that one should look at whether or not a company has shown a good consistent growth over a period of years. Clearly, this implies that companies with a history of at least a few years tend to be in better standing in the CANSLIM method. However, there’s something of an exception…

The N stands for “New”. This means that CANSLIM strategists tend to look for companies that are offering something new. Because they also look for consistent growth over a long history, this means that they usually seek out old companies that are undergoing changes that alter the way that they do business. This could be anything from new management, to a new product line.

Next time, we’ll cover the other four aspects of CANSLIM.

See you next week for part 8 of Stock Picking Strategies.

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

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Last time in this blog, we discussed value investing, which is essentially the strategy of finding a company that looks to have good prospects but is undervalued by other onlookers who are playing the market. One then buys stock in that company while it’s at a low price, and then enjoys the returns when their prediction pays off and the company’s value increases despite prevalent opinion to the contrary.

Growth Investing

Today, however, we’ll be looking at a competing strategy that has enjoyed just as much success and notoriety over the years: growth investing. Whereas value investors look at the present state of a company in order to forecast the wisdom in investing in them, a growth investor more or less ignore that in favour of attempting to assess a company’s future growth potential, regardless of its current price. In other words, while a value investor would ignore a high priced stock, regardless of the company behind it, a growth investor would not. He or she would look at the factors that would let them realize that that high priced stock is about to become a super-high priced stock, meaning they’ll be making just as much of a profit as the value investor would have in his or her value priced stocks.

Sudden explosive growth

Since a growth investor relies heavily on companies that experience sudden explosive growth, it makes sense that they would look to the two arenas that see that kind of activity most often: new businesses, and businesses in industries related to new technologies. There’s no hard and fast formula for determining whether or not a company that matches this criteria will actually experience the explosive growth that growth investors are hoping for, but by looking at certain matters of fundamental analysis such as whether or not the company has grown in the past, and matters of qualitative analysis such as how their current position in the market is looking, one can put together a reasonable assessment of a company’s potential future growth.

Risk levels for the investor

There is some sense in which growth investing is said to be riskier than value investing. While this may be so, it’s certainly a strategy that has met with a lot of success over the years, and continues to do so for those who know how to wisely employ it.

Join us next time as we look at more time-tested strategies for choosing the right stocks, at the right time.

See you next week for part 5 of Stock Picking Strategies.

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

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Hello again, and welcome back. This time, we’re still discussing the different theories on how best to choose a stock that is poised to give big gains in the future. It sure sounds simple enough, but there are a lot of conflicting ideas out there, and we’re planning to examine each one in turn to see just how well they hold up.

The goal of fundamental analysis

Last time, we talked a bit about fundamental analysis, and how its main goal was to look at the numbers of a company in order to generate a mathematically supported future projection for the company’s cash flows. Since this is essentially the same kind of appraisal one would do when buying a company, it makes sense to apply it to the stock market, and indeed most of the strategies we’ll discuss here are simply an extension of evolution of the idea of fundamental analysis in some way or another.

Qualitative analysis

The first of these is qualitative analysis. What qualitative analysis has to say might seen very obvious, but it’s something that some of us don’t care to admit because it tends to throw a very large monkey wrench into our carefully controlled fundamental analysis calculations. The main idea behind qualitative analysis is that attention must be paid to the subjective, “quality”-based parts of a company, as well as the objective aspects of the situation (the numbers).

Appraising a company

To appraise a company in the qualitative sense, investors tend to need to do a lot of research and ask a lot of questions. Of course, in many cases, a lot of the research will already be done for them, but they still have to take the initiative to seek it out before they put their money down. Questions like the following tend to be very helpful in accessing the subjective quality of a company.

Where did the company come from? No company springs up overnight. Discover the company’s origins, and by extension, whether or not the company really seems to have a solid foundation under it.

Company policies

What ideas drive company policies? Companies that are in their respective industries to turn a fast buck and then cash out may have good numbers on paper but are clearly not wise ideas for long term investors. It pays, then, to know a thing or two about the philosophy behind a company’s leaders.

A close eye on “who’s in charge”

Who are the people in charge of this company? Oftentimes, a company will change hands, and this can happen without small scale investors even being aware of it if they aren’t paying attention. For this reason, it’s important to keep a close eye on the individuals in charge of the companies you’re invested in, in order to make sure that the individuals running them seem qualified for the job.

Of course, it’s also important to analyze the industry as a whole. No company exists in a vacuum, and the trends that affect the industry will affect the companies within that industry as well.

Real value of a company

As we can see, this whole concept of using “strategies” to pick stocks is going to be a lot more complicated than perhaps we foresaw. Of course, there are some sound tips coming up, and plenty of valuable information, but for now, meditate on this all important concept: the real value of a company has to be measured at least in part by real human inquiry, not just calculations and optimistic graphs.

See you next week for part 3 of Stock Picking Strategies.

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

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