The Bull Hunters Guide

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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This is probably another one of those common sense tips that tends to be overlooked and swept under the rug in favor of the latest “hot tip” or whatever happens to have come down the pipe. Nevertheless, these tips have been around for a reason: they’re important, and their wisdom bears repeating. This time around, we’re going to talk about the old adage of sticking with what you know.

Get the best results from what you know

You’ve probably heard this advice given most often in conjunction with the exercise of writing, under the pretense that by writing about the topics that one is most intimately familiar with, one can produce the best results. The same applies to investing. If you put money into industries that you don’t know the first thing about, you’re going to get into trouble and fast. Suppose that you open up your morning news paper to the technology section and read about Company X having developed an all new standard for etching circuits onto the surface of a microchip, one that can double the number of circuits of past chips. If you know nothing whatsoever about computer chips, then you wouldn’t know exactly what this meant for Company X. You wouldn’t be able to (accurately) speculate as to what it meant for them in terms of near future stock market activity and your hands would be tied. Everyone knows that following an industry’s developments is one of the best ways to know what’s going to happen in its corresponding market presence, so it pays to invest in those industries that you understand well enough to follow.

Satisfaction from investments

Furthermore, you’ll have the advantage of feeling more passionately about your investments, and you’ll derive a greater emotional satisfaction out of working with them. After all, part of the appeal of the stock market is that it’s a lot more fun than just letting your money sit in a bank somewhere! If you have an investment in a company that you used to work for, for instance, or a company that produces a product you use on a daily basis and feel a personal fondness for, you’ll have more invested than just your money. This isn’t just sentimentalism, either; the more you personally care for a company and its products, the more carefully you’ll be inclined to follow the trends that affect it, and ultimately affect your investment.

See you next week for part 9 of Basic Investment Strategies.

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

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In the last couple of installments, we’ve talked about things like acknowledging that slumps and temporary downs are a normal part of the stock market, as well as the fact that analysis of past performance is not in any way a reliable indicator of future performance. Today, we’re going to put those two principles together to understand a little bit about how to deal with situations that look truly bleak; how to handle them without resorting to panic.

Panic is the enemy of your finances

Panic is the enemy in any situation regarding finances. Financial matters are extremely important to all of us because they represent more than our bank account or our portfolio, but also our livelihood and the quality of life that we are able to lead. As such, every financial decision is one that warrants a lot of sound deliberation and consideration before committing to it. It’s unfortunate, then, that the fast pace of the stock market sometimes encourages people to make rash decisions, especially when they think they see dark clouds looming on the horizon.

The downward trend of panic

Say that you have money invested in several different stocks, and you’re beginning to notice an overall downward trend. For whatever reason, this leads to a panic. You start to picture how it would be to lose every cent that you’ve invested and be reduced to nothing. You sell off every stock you own and adopt a totally new strategy, investing in a number of totally new stocks across the board, whose performance seems more likely to live up to your standards. However, in doing so, you miss out on a unpredicted surge in the stocks you just sold.

Adjust your investment strategy

If you had taken just a little more time to think about things, you might have realized that your stocks were in a sound industry, one that had been around for years. As such, the risk of a total bottoming out is virtually nil. You could have adjusted your strategy and maybe invested in some other stocks without totally selling off your current interests. However, panic robbed you of that potential.

Panic is the enemy. Let rational, sound judgment be the basis of your financial life, not it.

See you next week for part 5 of Basic Investment Strategies.

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

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The tip we’re going to cover this time deals with fads and trends and what effect they really have on particular stocks and the market as a whole. You often hear of people “analyzing” stocks by looking at their past performance and trends, in hopes of gleaning some bit of insight into how the stock will perform in the future. Despite the conventional wisdom, this is by and large a waste of time.

The Gamblers Folly

Ever hear of the Gambler’s Folly? Imagine a guy watching a Roulette wheel in Las Vegas. He sees it come up black an astonishing ten times in a row. He might say to himself, “That’s it. Statistically speaking, red is bound to come up next, the odds favor it!” and put all his money down on red, certain that it’s time had come. However, imagine as well that a different man who had not been watching the wheel just now walked up for the first time. Would it be more reasonable for him to bet on red as well? Of course not.

The reality is that each time the wheel is spun, there is a perfectly equal chance of whether it will come up red or black, and what colors have come up on the previous ten spins have absolutely nothing to do with influencing that outcome. The stock market, of course, isn’t just a game of chance, but the point still stands: past performance is a very unreliable indicator of future performance. There are just way too many variables involved in the market at any given time to think of things that way.

The Next Big Thing In The Market

Nevertheless, you’ll always hear people talking. They might go on and on about some great new technology or service that has been seeing astonishing gains recently. It’s “the next big thing“, they’ll say, and people tend to buy into it in droves.

However, the cold fact is that once people are talking about a stock, it’s probably already too late for you to get in on it. The reason they’re talking about it is the good past performance it’s had, and as we’ve just seen, that’s no way to judge a stock. Therefore, resist the temptation to look at past performance and follow fads in investing. You’ll never get ahead that way.

Instead, take the time to learn about the factors that really do influence the market and study them. It’s the only way to formulate a predictive strategy that can be called anything close to accurate.

See you next week for part 4 of Basic Investment Strategies.

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

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