Time to answer more great reader mail. One from someone who is struggling to analyze value stocks, and one from someone who is completely lost at what things to focus on as a beginner.
When you say you can help, how much would your book help me? I love the idea of your Value Trap Indicator. I am slowly becoming a more disciplined and patient investor, comfortable with averaging down and paying attention to balance sheets and cash flow, but my 8-5 is a counselor so I have limited time to research and read (with a family of 5 kids).
I have around $50K in my Roth IRA and $20K in my 401K. I would like to pickup some values in the sale that is happening in the market (I sold a large portion of my Vanguard 500 index about 3+ weeks ago in anticipation of the market downturn). Money is tight right now and I just want to make sure your book will help me with the formula to put into a spreadsheet that will. Help me analyze value stocks in a better manner. Thanks for the help, love your content.
The spreadsheet does exactly what you are looking for: a pre-calculated formula which allows you to compare value stocks. However, you have to put in the time and effort with regards to researching the stocks. There is no quick solution.
If you are already comfortable with sifting through balance sheets and cash flow statements, I’d say the book is a perfect next step to translating that data into a concrete numerical comparison. What you’ll have to do with the spreadsheet is manually fill in the common financial data points in each of the major statements (income, balance sheet, and cash flow).
The number of data points isn’t what’s time consuming, but if you are evaluating many stocks or many years the time involved can be quite liberal. I’ll tell you that when I’m evaluating a stock, I figure out if I want to buy it or not within 5-10 minutes of using the spreadsheet and the 10-k. You can easily get to this point after using the spreadsheet a couple of times.
About the reading… The book included with the spreadsheet package breaks down in extensive detail which data points are used to analyze stocks and the reasoning behind it, with historical examples to back it up. You’ll also collect valuable insight on which value stocks became the investor’s worst nightmare of a “falling knife” investment.
As always, remember the importance of dollar cost averaging, diversification, and long term investing. In perilous times such as these, the principles become that much more essential.
My biggest frustration honestly is not knowing where to begin. I have read a decent bit but I still feel like I don’t know so much….I opened my first account on Trade King but I haven’t done anything beyond that. Do I have to watch a ticker all day? Do I have to read articles about hot new companies all day? Do I have to wake up at 6 a.m. and read the paper and be there when the markets open???
First off, congratulations on starting your journey. Opening an account is a common first hurdle that many wanna be investors fail to do. And going with TradeKing will ensure you of lower commission fees which leads to better returns. [click to continue…]