Mike's 10 Must Follow Rules for Making Consistent Profits in the Stock Market
Rule #1: Think Like a Fundamentalist
My list of fundamentals is relatively short. Your list may be more comprehensive, which is perfectly reasonable. There are two extremely important aspects of reviewing a stock's fundamentals, however, which should be included in any fundamental analysis of a stock:
- Give more weight to Rate of Growth over various time-frames; the more recent the increase in growth, the better.
- When attempting to select a stock from a group of stocks under consideration, ONLY compare the fundamentals of one company to another within a single industry. It does little good to compare the fundamentals of a Technology stock to the fundamentals of an Energy stock.
Here is the list of fundamentals that I consider most important in the review of a company's relative strength:
- Look at the Earnings Growth Rate of the company, over time. At a minimum, look at the RATE of growth over the following time-frames:
- Year-over-Year
- Quarter-over-Quarter
- Last 3-Years
- Return on Equity
- The higher the better
- Look for ROE of more than 15% to 20%
- Look at the Profit Margin Growth Rate of the company, over time. At a minimum, look at the RATE of growth over the following time-frames:
- Year-over-Year
- Quarter-over-Quarter
- Last 3-Years
To just look at a company's current fundamentals (i.e., Current Profit Margin) and draw a conclusion about the health of the company without looking at how much the company's Profit Margin has increased over time, is completely missing the reason for looking at fundamentals. As an investor, I want to buy GROWTH. I am not looking to buy status quo. I can get status quo in a CD.
Continue to Rule #2, Avoid Expensive Stocks. |
