Prosper Newsletter: December 2006 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Student Learns Stock Strategies to Provide a Positive Net Gain!
The most important things that I've learned would be where to look for information to help me find good companies and several solid strategies on how to trade them. I learned about options and how they can be traded individually for potential profits as well as how to use them to safeguard against excessive loss. I've applied my learning's to paper trading and have had success with the techniques I've learned. I have made many paper trades and the net of all of those trades is positive, but that seems like a small accomplishment compared to the knowledge I've gained from the program. Learning about an entire new subject matter has been exciting and rewarding.
- Adam H.
Huntington Beach, CA
The stock market has really been on a roll lately. October or should I say 'rocktober' was the best rally for the month of October in years. Earnings reports for the month have been stellar. Department stores as well as apparel stores have seen a lot of growth in the past month as we are looking forward to the Christmas season. There has been some slowing in the retail sector. Wal-Mart (WMT) saw the lowest increase in sales that they have seen in 6 years. In the mean time the market is awaiting the results of this year's election and has been down a bit and flat. Earnings continue this month and still the expectations look really good. We are expecting more of a run in the market at least for the rest of the year.
We don't really have a 'featured product'. Our product is stock coaching. Do you have any ideas? Once we have these electives up and going we can choose one of those.
Fundamental Analysis
When you think of fundamentals, what do you think you are looking for? You are looking for the criteria that could make the stock move in price. The two main factors that make the market move are greed and fear. The main driving force is fear - fear of a company's earning potential or the lack of its earning potential.
Fundamental Analysis of a Stock
(Go to www.moneycentral.msn.com and type in the stock you wish to analyze. You should limit your "watch list" to no more than 10 stocks)
- The Average Daily Volume should be at least 1 million
- The difference between the 52 week high and low should be at least $20
- The Institutional Ownership states the percentage of outstanding shares that are owned by the larger institutions (such as mutual funds, 401k plans, etc.), it is a positive sign when this percentage increases.
- Earnings/Share: needs to be a positive number!
- Div/Share: (dividends per share) this should not be high, and should definitely not exceed 50% of the Earnings/Share number
- P/E: (price of the stock divided by earnings per share) compare against the industry standard to see if this stock is overvalued or undervalued or overpriced. The industry standard for a fairly valued stock is a P/E of 20.
- Click on the "Earnings Estimate" link in the light blue shaded area on the left side of the screen, just left of the P/E ratio. This shows the analysts' estimate projections for a company's earnings. Periodically, you should be comparing actual earnings to these estimates. Also, look at the Growth Rate - it should be consistent.
- Keep up-to-date on the news surrounding the stock. Get a feel for what kind of news moves the stock and get a feel for how they precede that information.
- Click on the "Company Report" in order to find out more about the particular stock. In the Company Report, look under the "Stock Activity" heading to find the Volatility (Beta) number. The beta is measure of the stock's price movement in relationship to the S&P500, which, by definition, is "the market." Normally speaking, you would like the volatility to be at least 1.5. Which means there is more volatility - more opportunity for making money.
