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Stocks: cut risk yet amplify profits - investing


It is chief to note that every smart financier wants to curtail risk while maximizing profit potential. Yet conservative investment assumption tells us that in order to become more intense returns, you have to become more intense risk.

You may be astounded to find that this normal wisdom is not at all times true.

When I was a expert stock trader, I made most of my profits from appreciation in my portfolio, not in short term trading. In other words, I was a arrangement trader. Any losses in my stock positions were taken out of my pay at the end of the month - in fact, I had to pay back any loss. If you are in this position, you desperately want to learn all the techniques to make large profits lacking risking much. I became an practiced out of necessity. So while my trading balance had effectively no trailing months, my gains were as much as 300% per year.

In my stock picking, I first looked for stocks that were so cheap they could not go down. If they did go down, I was happy to buy more for the reason that at those prices, you could buy the whole ballet company and sell off the assets for a profit.

From this group of "safe" stocks, you choose the ones most apt to have large appreciation.

A stock is cheap in my book if it sells below the insolvency value of its assets, and most cheap if it sells someplace near the net total of cash it has on hand. So the first two actions of value I looked for were book value per share and cash per share.

Book value is the value of the shareholders impartiality agreed on the books of the company. Generally, since you are import a share of stock, you will want to know the book value per share.

The one caveat to looking at book value is that companies often have ethereal assets on the books, benevolence and the like. You have to take these ethereal assets with a grain of salt. The safest thing is to look for "tangible book value. "

Book value per share is often calculated for you in the a number of Internet fiscal stock examination programs available.

The next indicator to look for is cash per share or functioning funds per share. Functioning center is contemporary assets minus in progress liabilities. These assets are near to cash or will by and large be twisted over in one year: receivables, account and the like.

To amount the healthiness of effective capital, break up existing assets by contemporary liabilities to get the "current ratio. " A in progress ratio of two to one or develop commonly indicates a solid company. As long as the circle does not have any long term debt, or at least none appearance due in the near future, the business is in the money and be supposed to be about for a while - diminutive or no liquidation risk.

Next, we look for low price-earnings (P/E) ratios. In my opinion, exchange high P/E stocks to chase cyst companies is alluring real risk. If the business disappoints in earnings, not only will the stock drop from lower earnings, the P/E ratio will deflate as well, bountiful you a amplify hit.

OK, so you have found a ballet company that is advertising at or below book value with a in progress ratio beat than 2:1, and a low, low P/E. It may be that the stock will not go down, but will that stock go up?

Picking budding industries and development companies is more than I can tell you here, but there are two clear-cut effects you can look for first: (1) Is the band exchange its own stock, or has it bought its own stock at about this price, and (2) are the insiders creation hefty purchases of their stock?

Next, you can look at the ratio of revenues or sales to bazaar morals or the buck quantity of sales per share. By and large speaking, the band with a moderately high total of sales per bazaar value or sales will have more act on the upside. That band has more revenues to make profits from.

After you have tapering the field using the above techniques, there will be no proxy for intense groundwork about ballet company prospects to find which of those cheap stocks that truly give you aloof returns, what I call my "Home Run Stocks. "

About The Author

John Lux is a previous OTC Agent and creator of the book, "How to Find a Home Run Stock. " To read the book and find your own Home Run Stocks, click http://www. asklux. com/investing-books/home-run-stock. htm. Email John at john@asklux. com


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