Dear readers ,
On our weekly seminar on Tuesday, we covered some really interesting topics. In the preparation of the seminar, we knew that the content would be a lot. This is why I am here to comment on the material and to give you some extra information.
We talked about the well known platform Plus500. It is a good start for everyone who wants more practice on a demo account. Compared to other popular platforms , Plus500 has higher commission fees for financial transactions and this can be partially explained by the fact that the minimum deposit that you can make is relatively low, which is 100 euro. Nevertheless, they provide you with free demo account where you can create your own portfolio. The companies listed in the platform are not many, mostly the big market cap. companies, but you can trade most commodities, Forex, exchange funds and even Bitcoin, (a so-called virtual currency) one interesting alternative of trading.This is how the platform looks like- it is really simplified and if you are a beginner this is the perfect choice for you to make a trial :
What really matters is the three main types of stocks that you will always identify clearly, when you build your portfolio. Strictly speaking, each pick could be a different combination of the three. Here they are:
The dividend yielders are normally companies with huge market capitalization. A dividend yield is paid annually and it is measured as a percentage of what is paid for each dollar that you have invested for positions in equity market. These companies do that with the aim to satisfy customers and attract even more investors. The interesting thing is that there are proponents of the belief that dividends yield attract investors , in particular the big investors. The belief is that investors are looking for a secure income stream such as investing in bonds. In planning your finances , you want to have some predictability on your stream i.e. dividend yield is a number that changes over time. Moreover, dividend yield is taxed more than what you would accumulate as a capital gain from a trade.
One example that you were presented during the seminar was Caterpillar (ticker:CAT , market cap:62bn. ) . One thing to one is that this company has some volatility and it is relatively a lot bearing in mind the market cap. of the company. So, you can buy it for two reasons : the annual dividend yield and the potential growth as you can see from the graph for the last year :
The growth stock is a company stock that tends to increase in capital value over time. Those kind of stock requires extensive research and they cannot be summarized as large market cap. or small market cap. . There are different stock screeners indicators but here is a sample one taken from finviz.com : ( the screener is provided by Todor Hristov )
The numbers that are on this screener are:
1. P/B, or price to book ratio which shows the value of the share after a company is liquidated i.e. it shows to some extent the real value of the share.
2. Net profit margin is calculated when you divide the net income of the company over its revenues. It indicates how much a company hold for each dollar it makes. The example with Caterpillar , which has a profit margin of 7% , which means that for one dollar that it makes , it holds 0,07 cents.
3. P/E is defined by the current price of the share over the earnings that the company is making for the same share . It it is good to have it under 15 because that shows undervaluation i.e. a potential growth stock. However, bear in mind that this could possibly ''hide'' some opportunities for a growth stock. An example of that would be companies in the IT sector, where P/E is above 15.
4. Sales growth past 5 years - you want to make sure that the company is operating and it is selling something.
5. Return on equity - this indicator reveals what is the company doing with the money that the company has accumulated from the investors.
6. Insiders Transaction - it has to be positive because you want to make sure that the insiders ''like'' their assets. If insiders transaction is negative then this mean that the managers/group presidents/CFO's ,etc. no longer want to hold their positions. You can always find the most recent transactions on finviz.com and here is what you can see for CAT :
7. Sales growth qrt. over qrt. , this is the growth in revenue over the quarters . It is helpful to use it because you can see that the company has positive sales. It is good if it is just positive because if it for example more that 30% then you may be listed only stocks that are already overvalued. Remember , you want strongly undervalued stocks not stocks that have already ''exploded'' !
8. Current Ratio - it shows if a company is able to pay its short term obligations. you can add it for your stockscreener because it ensures you that the company has a backup in case of e.g. market problems, stagnation .
I think this is one good growth stock screener for a beginning.
A speculative stock is something else to look at. I am not going to give a sample stock screener because the indicators could be quite diverse. A such stock is must be a short term because it could either volatile or it could be a company that is about to go bankrupt, each time the scenario is different with this kind of stocks. If you remember the example during the seminar with Radio Shack. Jan Svenda, the president of the society, bought it when he found interesting articles about the future of the company. A hedge fund bought some of the stores of the retail companies. He was there for the upward trend. Although, the overall upward movement was 300% , he was able to catch 150%, which is a lot just for a few days/one week. He found it, he read it, he saw the opportunity and BAM... he bought it at the right time. it feels like you see the trend you buy it but there is a lot of research behind it. I can give you one advice: there is the so-called 8K,which is the events/aquisitions ir everything that has happened in the company over a period of time. Each company is obliged to do that by the U.S. government. You can find those financial statements online.
So far, we have talked about only about buying shares, however , there are other alternatives that you can use . One that we saw during the seminar was shorting a stock . First of all, not all companies' shares can be shorted. For each different company, it is indicated whether it is shortable. To short a stock is when you borrow the stock from your broker and then sell it . So, why would you do that at all? For example, if the price of a stock is 100 dollars and you borrow it. Immediately after that you sell it and you have 100 dollars in your account. But the price falls to 50 dollars. Now you have to pay to your broker ONE SHARE. Which means that you have to give him 50 dollars-> which means that you are left with 50 dollars profit. just because you predicted downward movement you made money out of it . Amazing ! I am using really untechnical language because sometimes people get confused by this. Basically, you are researching the company '' the other way around'', you are first selling your stock and then you buy it. One more thing that you should know is float short, which is the percentage of shares sold short. You can always find this indicator on the list at finviz.com . You can use float short to pick a company that is heavily disliked by the trend and you can make your fundamental research on it and take a decision to go short. One point that was made during the seminar was that if a company overstate its earnings this can result in investors think that a stock will go down.
This is the content that we had on our seminar. I think it was one good post for you all keen investors.See you all on our next tuesday session !
SIS Committee
