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Basics of Evaluating and Choosing Stocks


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 6 years ago '05        #1
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Truechaldean 
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Basics of Evaluating and Choosing Stocks
 

 
I know the couple of threads on stocks in this section have been getting a lot of attention so I've made a very basic introduction to evaluating stocks to help out a little. Again this is just the very basics but it will hopefully help some people out.

How to Evaluate Stocks

>>Two Basic Ways<<

Fundamental Analysis Vs. Technical Analysis

Fundamental Analysis
  • LONG TERM INVESTING
  • Examines info about the company’s health and potential to succeed.
  • Used to learn about a company.
  • Looks at a company’s growth, management, earnings, ect…
  • Should form the core of evaluations for individual investors. Used to help determine a company’s intrinsic value (The price a stock should sell at in normal market conditions.)


Technical Analysis
  • SHORT TERM TRADING
  • Examines the past behavior of the stock price in different market conditions and attempts to predict the stock’s future price based on current and projected market conditions and trading volume.
  • Used to learn about a company’s stock.
  • Looks at trading volume and chart trends.



Fundamental Stock Measurements

Cash Flow per Share
Stream of cash through a business. Reveals how easily a company can deal with unexpected expenses or opportunities.

Earnings per Share (EPS)
A company earnings divided by how many shares are outstanding. The bigger the number the better.
Example: Company ABC earns $10,000 and has 1000 shares so their EPS is $10

Net Profit Margin
A company's profit divided by their gross income. High net profit margin can indicate good management that can control costs. High net profit margins are the hallmarks of companies that dominate.
Example: Company ABC has profit of $1,000 for every $10,000 of income so their net profit margin is 10%

Price/Book Ratio
Compares the stocks price with how much the stock is worth right now if somebody liquidated the company.
(Not the best measure for every company. Example: the Value of McDonalds goes way beyond frying machines and cash registers. So more investors are willing to pay more than book value for it.)

Price/Earnings Ratio (P/E)
Price of a stock divided by the company's EPS
Example: $40 stock with $2 EPS = P/E of 20 vs $100 stock with $10 EPS = P/E of 10 ($100 stock is a better value because you are buying more earnings power with your money.)

Price/Sales Ratio (P/S)
Price per share divided by sales per share. Compares stock price with sales revenue.


Technical Stock Measurements

Moving Averages
Smooths out the bounciness of the raw price so you can better detect its trends. Position of the current price in relation to the SMA provides hints on where the price is heading next.

Relative Strength Index (RSI)
Alerts you when a stock’s price has stretched to far in one direction or the other and is due for a snap back towards the middle. To far up = Overbought and To far down = Oversold

Volume
The amount of stock that’s traded on any given day, week, or time period. Measured in either the amount of shares traded or the dollar amount moved as a result of that trading. Rising volume on a rising stock price shows buyers controlling the market. Rising volume on a declining price shows something sellers controlling the market. The stronger the volume, the more persistent the stock’s price trend.



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23 comments
 

 6 years ago '04        #2
Weezie BABY 
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Thanks I was looking for something like this... I was wondering if we could start a groupme about stock investing where we could all share our ideas? Who's for it?
+1   

 6 years ago '10        #3
Ambassador 
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This is a good thread for beginners who're interested in getting their feet wet.
+1   

 6 years ago '04        #4
reazon_opt 
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good looks

 05-12-2014, 04:48 PM         #5
Frank Underwood 
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good looking out bro

 06-10-2014, 11:43 AM         #6
priz133 
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gud lookin out

 5 years ago '06        #7
chrisf249 
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 Weezie BABY said
Thanks I was looking for something like this... I was wondering if we could start a groupme about stock investing where we could all share our ideas? Who's for it?
I'm down

 4 years ago '15        #8
JdamienH 
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 Weezie BABY said
Thanks I was looking for something like this... I was wondering if we could start a groupme about stock investing where we could all share our ideas? Who's for it?
Im interested too. I just opened a td ameritrade account and im lost. very glad I found this

 4 years ago '15        #9
Tw1tter Gang 
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Join these facebook groups to learn with traders:

PMJ Stocks

Commodity Futures Market

Technicals = charting. Not to interested in the companies margins and stuff, just reading charts, drawing ur lines, and picking entries and exits..

Fundamentals = looking at company share price × earnings, margin valuations and such.

Micro = individual stocks of company's

Macro = the bigger picture, ETFs, indices, currencies, commodities...

Learn at investopedia.com

Open up a PAPER TRADING account at thinkorswim.com and practice.

And Google everything u come across, if u wanna be succeful u have to never stop learning aND digging. It's a passion and if u ain't got the passion u should quit immediately...

But I will say this, when ur stock or option runs.. it's the best high u will ever get. Better than drugs or self, u see ur wealth and power grow on screen, and when I take a loss it is the most humbling thing Ever.

And u need a process. After 4 years of trading is finally found my process. Pm me if u want help.

See ya on the boards


Last edited by Tw1tter Gang; 02-22-2016 at 01:46 PM..
+1   

 4 years ago '04        #10
eazyvaboy 
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Lookin at getting in a few petro and oil stocks I have been watchin. 40% down on the 52 week high and with announcement by Saudi that the freeze is coming; with that and speculation, the price should be jumping up soon.
+1   

 4 years ago '15        #11
716God 
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 Tw1tter Gang said
Join these facebook groups to learn with traders:

PMJ Stocks

Commodity Futures Market

Technicals = charting. Not to interested in the companies margins and stuff, just reading charts, drawing ur lines, and picking entries and exits..

Fundamentals = looking at company share price × earnings, margin valuations and such.

Micro = individual stocks of company's

Macro = the bigger picture, ETFs, indices, currencies, commodities...

Learn at investopedia.com

Open up a PAPER TRADING account at thinkorswim.com and practice.

And Google everything u come across, if u wanna be succeful u have to never stop learning aND digging. It's a passion and if u ain't got the passion u should quit immediately...

But I will say this, when ur stock or option runs.. it's the best high u will ever get. Better than drugs or self, u see ur wealth and power grow on screen, and when I take a loss it is the most humbling thing Ever.

And u need a process. After 4 years of trading is finally found my process. Pm me if u want help.

See ya on the boards
I just downloaded thinkorswim and opened up a paper trading acct...I have literally zero experience with investing or stocks, so this will hopefully be the start of something profitable for me.

 4 years ago '16        #12
melomastah 
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props for this mang

 3 years ago '08        #13
Soda Pop 
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Just started last week TD Ameritrade, looking to learn more.
+1   

 3 years ago '06        #14
jester2trife 
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A really Big lesson I cannot overstate: subscribe to newsletters and short sell the sh*t outta them...

 2 years ago '15        #15
voltron 
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Anyone on here looking at trading when insiders buy/sell?



I'm looking into getting back into trading. Before I stopped I would throw money in using this strategy and would get small gains (5-15%) here and there.

 2 years ago '07        #16
j_k1dd 
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Could someone explain all the different technical trends people can look for that can be used alongside their fundamental analysis?

 2 years ago '12        #17
acefresh 
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 jester2trife said
A really Big lesson I cannot overstate: subscribe to newsletters and short sell the sh*t outta them...

 2 years ago '12        #18
frankieboyj26 
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 jester2trife said
A really Big lesson I cannot overstate: subscribe to newsletters and short sell the sh*t outta them...
any example newsletters you can recommend so I can have a general idea?

 1 year ago '04        #19
Yd4001 
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 Ambassador said
This is a good thread for beginners who're interested in getting their feet wet.
Facts I'm at the point were I wanna learn/read up on this for not only me but to teach my kids a lil something

 1 year ago '04        #20
Yd4001 
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 jester2trife said
A really Big lesson I cannot overstate: subscribe to newsletters and short sell the sh*t outta them...
I dnt quite understand what you mean by this...about to do some googling but clarification would be dope

 9 months ago '07        #21
Damagegadget  topics gone triple plat - Number 1 spot x1
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 Truechaldean said
I know the couple of threads on stocks in this section have been getting a lot of attention so I've made a very basic introduction to evaluating stocks to help out a little. Again this is just the very basics but it will hopefully help some people out.

How to Evaluate Stocks

>>Two Basic Ways<<

Fundamental Analysis Vs. Technical Analysis

Fundamental Analysis
  • LONG TERM INVESTING
  • Examines info about the company’s health and potential to succeed.
  • Used to learn about a company.
  • Looks at a company’s growth, management, earnings, ect…
  • Should form the core of evaluations for individual investors. Used to help determine a company’s intrinsic value (The price a stock should sell at in normal market conditions.)


Technical Analysis
  • SHORT TERM TRADING
  • Examines the past behavior of the stock price in different market conditions and attempts to predict the stock’s future price based on current and projected market conditions and trading volume.
  • Used to learn about a company’s stock.
  • Looks at trading volume and chart trends.



Fundamental Stock Measurements

Cash Flow per Share
Stream of cash through a business. Reveals how easily a company can deal with unexpected expenses or opportunities.

Earnings per Share (EPS)
A company earnings divided by how many shares are outstanding. The bigger the number the better.
Example: Company ABC earns $10,000 and has 1000 shares so their EPS is $10

Net Profit Margin
A company's profit divided by their gross income. High net profit margin can indicate good management that can control costs. High net profit margins are the hallmarks of companies that dominate.
Example: Company ABC has profit of $1,000 for every $10,000 of income so their net profit margin is 10%

Price/Book Ratio
Compares the stocks price with how much the stock is worth right now if somebody liquidated the company.
(Not the best measure for every company. Example: the Value of McDonalds goes way beyond frying machines and cash registers. So more investors are willing to pay more than book value for it.)

Price/Earnings Ratio (P/E)
Price of a stock divided by the company's EPS
Example: $40 stock with $2 EPS = P/E of 20 vs $100 stock with $10 EPS = P/E of 10 ($100 stock is a better value because you are buying more earnings power with your money.)

Price/Sales Ratio (P/S)
Price per share divided by sales per share. Compares stock price with sales revenue.


Technical Stock Measurements

Moving Averages
Smooths out the bounciness of the raw price so you can better detect its trends. Position of the current price in relation to the SMA provides hints on where the price is heading next.

Relative Strength Index (RSI)
Alerts you when a stock’s price has stretched to far in one direction or the other and is due for a snap back towards the middle. To far up = Overbought and To far down = Oversold

Volume
The amount of stock that’s traded on any given day, week, or time period. Measured in either the amount of shares traded or the dollar amount moved as a result of that trading. Rising volume on a rising stock price shows buyers controlling the market. Rising volume on a declining price shows something sellers controlling the market. The stronger the volume, the more persistent the stock’s price trend.



not sure if this fits thread, but seems like a good place for everything stock related

if anyone can enlighten on the following terms

Rate of return


Perhaps enlightenment on brokerage accounts
(account values, trade values)

Trading periods

this Bullish (8.5) 10 Firms †

 6 months ago '14        #22
El Caballero 
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 Damagegadget said
not sure if this fits thread, but seems like a good place for everything stock related

if anyone can enlighten on the following terms

Rate of return


Perhaps enlightenment on brokerage accounts
(account values, trade values)

Trading periods

this Bullish (8.5) 10 Firms †
rate of return is just the % you get back on your investment

for example you bought one share of a stock worth $100
you sell it for $200 a year later

100% rate of return (not realistic but just an example)

idk exactly what you want to know about brokerage accounts your question is vague
...a brokerage account is just an account you use to hold and trade securities

idk what you mean by trading periods but the NYSE is open M-F (minus their holidays) from 9:30 - 4

this is when most stocks are traded but there are after hours trades and there are other markets around the world

 6 months ago '07        #23
Damagegadget  topics gone triple plat - Number 1 spot x1
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 El Caballero said
rate of return is just the % you get back on your investment

for example you bought one share of a stock worth $100
you sell it for $200 a year later

100% rate of return (not realistic but just an example)

idk exactly what you want to know about brokerage accounts your question is vague
...a brokerage account is just an account you use to hold and trade securities

idk what you mean by trading periods but the NYSE is open M-F (minus their holidays) from 9:30 - 4

this is when most stocks are traded but there are after hours trades and there are other markets around the world
you pretty much answered everything I needed to know..thanks



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