Sunday, August 26, 2007

3 winning way to pick stocks like a PRO

Tonight, I want to share with you the three ways I pick stock which earn me over 10% return in last few years of stock investing
1) Pick stocks that has lower P/E ratio. Price/Earning is a measure of the stock’s current price relative to its earning. The higher the P/E ratio mean the stock ‘s current price is traded on the high side. Vice verse, the lower the P/E ratio, it means the stock ‘s current price is traded on the lower side. I suggest you pick the stock that has lower P/E, as it has a higher chance to go up in price once the market correct itself. The historic average of P/E is about 15.
2) Pick stocks that has higher return on Asset. Assume you spend 100 dollar in capital expenditure building up your business, each year the business bring your 10 dollar profit. Then your return on equity is 10%. The higher, the healthier the company. I’d suggest to pick stock that can give 10% return on asset or more for your portfolio
3) Pick stocks that earn high dividend return. Just like putting money in the bank where they give you 2-4% interest. Buying stock giving dividend could be a safe and consistent way to earn your interest. Some stock give out dividend every quarter,others give out dividend every month! I normally buy stocks that can give at least 7% annual return with a very consistent history of paying out dividend. The longer the history, the better chance you will earn the dividend in future. Combining the above three winning ways to pick your stock, it could be a very powerful, safe and rewarding investment you could get.

3 comments:

charlene said...

I am a little confused about the P/E ratio, the lower is better? can you explain a little bit for me? thanks

529pm said...

p/e --> price divided by earning. Lower p/e could either mean 1)price has been reduced 2)the earning has increase 3) the combination of both effect. In any of these cases, it would mean a buy opportunity. Of course, not all low p/e stock worth to buy, but it does give us the indication how the stock is performing compare others.

Unknown said...

it is much more clear now,thank you