How To Select Stocks Of Optimum Value

How To CHOOSE Stocks For Your PortfoliO



A lot of people keep asking me to suggest 3-5 stocks, which they could make a part of their long term portfolio. How about trying and picking the stocks yourself following some simple rules? In this article I would like to talk about certain things which investors can look at before buying a stock so as to ensure it is a good investment.


Stock Selection Criteria -1

Whenever I think I spotted a good stock I would try and look at the shareholding pattern on the company. If no institution (Foreign Institutional Investors (FII's), big Mutual Funds) own it then it’s good news for me. Then I would try and search the net to see if analysts cover this stock. If I find no analyst research reports on this stock then for me it’s a sure buy. To many this might sound surprising but it’s a fact that if you find such a stock before analyst and FII's do then you will surely do well owning it. Of course all other factors need to be checked as well (fundamentals and business).

Always remember when a stock is too much in news and limelight it is already overvalued. So most of the times you will do better buying a stock which hardly anyone knows about.


Stock Selection Criteria - 2

Try and invest in companies where insiders are buyers and even the company is buying back its own shares. People working in the company, putting money in the stock of the company is one of the biggest indicators of the health and future of the company. The insiders know more about the company than any of us. Similarly if a company is buying back its shares it shows the confidence the management has in their business. It’s also one of the greatest indicators of a company having faith in their own future.



Stock Selection Criteria -3



Invest in companies whose products people have to keep buying or products which are a necessity. These companies will never do badly unless they do something amazingly stupid. So products like soaps, cosmetics, food, drugs, building materials, tea and even beer are some things which people will keep buying and using. It’s better to invest in these companies than to invest in a company which is a maker of Computer or seller of intangible services, etc. These products are not a daily buy.

Stock Selection Criteria – 4



Invest in companies which have a niche product. The examples of these companies can be largely found in drug, chemical and even some technological companies. These companies have certain products which no one else is allowed to make. So if a company has got a multi-year patent for an exciting product then the company is a sure buy.





Stock Selection Criteria- 5



Invest in companies which are not super growth companies. This again would look surprising to many people. But just go back and look through the past and you will observe that companies which have growth at 80-100% for 3-4 years fail miserable later. It’s better to own companies which are growing at 25-40%. This in my opinion is a safe range for growth. Remember: What goes up fast also comes down fast.



Stock Selection Criteria - 6



Invest in technology users and not technology producers. This theory varies from case to case and might not be applicable in some scenario. But to make things clear let me give an example. There are many computer makers in the market and hence there is big price competition among them. This leads to lowering of prices which affects the company margins. But suppose there is another company which is a major computer user. This company would stand to gain because of the price competition. So it’s better to invest in the computer user than the computer makers. This theory will apply to whole lot of industries if you think carefully.



Stock Selection Criteria – 7



Look for companies which have valuable assets. There are many companies listed on the Nigerian stock market which have got valuable assets like a large piece of land and skyscrapers in a prime location in the city. At times markets and analyst miss out on pricing these assets. So if investors find a company trading at a market capitalization near to its asset value or less than it then it’s a screaming buy. For this investors need to study the company and its annual reports well and compute its Tobin’s Q ratio. Also knowing someone in the company helps.



These things which I have listed down are mainly not related to financials. So any investor can check out for these things before investing. In my opinion following these rules will surely help in making better investment decisions.

I would also try and list down some simple things one can look into company financials to at least have some idea of its fundamental strength.



Some Companies Which Investor Should Avoid:



· Companies which are making new forays and diversifications every other day. These Companies are not sure what they want to do.



· Companies which get major chunk of its revenue from one or two clients. Imagine what would happen if these clients stop giving orders.



· Companies which have very high FII and Mutual Fund holdings. Because they have already been too much into limelight and are overvalued already.



Some things Investors should not try doing:



· Investors should not try and predict the stock markets. If you think I’m wrong then try it out. It’s impossible to try and predict the market movements. So it’s better just to think about the company and invest according to its business and prospects. Don’t try to time the markets.



· Predicting the economy is also of no use. This is also something no one can do. The Chairman of the Federal Reserve, Mr. Ben Bernanke, first said that the US economy would recover in second half of 2008. It didn’t happen. Then he said that the economy would recover in the second half of 2009. This also will not happen and realising that, he came out with a statement saying that the economy will recover in 2010. But I am sure he is not even 1% sure of this as well. So trying to predict these things is waste of time. This time can be used to research and find some good companies.





Adapted by:

Layi Olaleru

Cordros Capital Limited

info@cordros.com

Stocks Fundamental

Investment in stocks involves capital outlay. And this capital outlay may come from earnings from ones employment, business or retirement funds. Stocks investments have a risk and return that is positively corellated. Investment can sometimes be forced savings and reqiures discipline. Savings through investment is a vehicle for retirement planning.The twin concepts of SAVING and INVESTMENT are cultures to imbibe. While savings ensures you have something to fall back to incase of emergency, investment multiplies what you have save and ensures that there is a reward for you in the future. For you to be successful with money management you must embrace this twin concept

Investment Is a Plan

Most investors invest in various investments vehicles as stated in the previous article without a plan, and as a result they also lost money in the market. According to Robert Kiyosaki in his book: RICH DAD GUIDES TO INVESTMENT, investment is a plan.
Investment entails a complete and total body of knowledge. And for one to be successful with his investment, it means one will be totally commited to his investment education. But most atimes investors entrust their hard earn money completely in the hands of the so call professional without understanding how the money is being managed.
The time people spend in searching or shopping for the non essential things in life, like groceries. toilettries, automobiles, rented apartment etc, if half of the time is used in planning and shopping for investments, alot of people will be financially free.
Before commiting funds into any investment, take out time to research the investment, determine you entry and exit strategy look all both the risk and reward side and weigh the two before taking ACTION. With all these in place you can then be said to be investing with a plan.

WRONG REASONS WHY PEOPLE BUY STOCKS

Despite the recent melt down in the Nigerian capital market, stock investments still remains one of the most viable investment vehicles in Nigeria, particularly in the area of liquidity and the entry and exit window provided by this investment vehicle.
Investors confidence, has been battered in the market in recent times. The reason is that people have varied reasons for investing in stocks. We will be looking at some of these wrong reasons, why people invest, that makes them lose money in the market.
Some invest because they just feel like it. This is wrong because investment is a plan. And you should have a plan on groung before investing.
Others invest because they heard that stocks investment is good and profitable. So they go ahead and invest without due diligence.
Yet some others invest because everyone is doing it.
These and many other reasons are why people loose money in stock investment. Watch out for the reasons to invest in the stock market, if you really want to make money in the market.