101 Investing Tips

44) Don’t put more than 10% of your money into one company.
See number 43 and remember it.
45) Stock splits don’t make you richer.
If you have a pie and cut it in half, the two halves still only make one pie. Any stock split or dividend still gives you the same percentage ownership. What it does do is make the shares more affordable. Many times a novice investor thinks he should buy shares in an even hundred lot, called a round lot. With $2500 he can not buy a round lot of a $50 stock but can a $25 stock.

101 Investing Tips

42) You can begin to build a diversified portfolio of long-term growth stocks with as few as nine companies.
Diversification is mandatory to preclude disastrous mistakes. By having a minimum of nine stocks that keeps your exposure to just over 10% in any one stock. Make sure they represent different industries.

43) Don’t put more than 10% of your money in your company’s stock.
Remember what happened with Enron. We all tend to fall in love with our company stock based on loyalty. Even if you own the company events and bad judgments can make things go wrong. More so if you are an employee.

101 Investing Tips

38) The best way to find a cheap growth stock.
Divide the forward PE ratio by the expected growth rate. Less than 1.2 may be an undervalued growth stock. The caveat is the assumption of earnings and growth.

39) Stocks come in all sizes- Large-cap stocks
Large cap have market value of $5 billion or more.

40) Midcaps
Market value of $1-5 billion

41) Small-caps
Less than $1 billion

101 Investing Tips

36) The difference between forward P/E and trailing P/E.
Remember there is a huge difference between what has happened (trailing) to what investors expect to happen (forward).

37) The difference between a growth stock and a value stock.
With growth stocks you are betting more on the come. They are exciting, mesmerizing and risky if you are on the wrong side of the curve. Value stocks are more staid. These are a Ben Graham or Warren Buffett type investment. Buy out of favor solid value and wait for it to perform.

101 Investing tips

34) Price/cash-flow ratio.
This is very complicated but the cash flow is the real test. Look at cash flow from operations first.
35) Price/book-value ratio.
This reflects how much assets are valued at book value. If assets are undervalued or written down considerably this can help find undervalued companies.

101 Investing Tips
32) Price/earnings ratio.
This is the ratio of how much you pay divided by the earning. Look at it this way how much would you pay to buy a business that did not have a published value everyday.
33) Price/sales ratio.
Another common sense ratio. How much do you pay for a dollar of sales? This is a good indicator of profit margins.

101 Investing Tips
31) A $2 stock can be expensive. A $100 stock can be cheap.
The stock price makes no difference. It is what you pay for each dollar of earnings, assets, sales or cash flow.

101 Investing Tips
29) The bear case.
Combine this with number 28. Take the contrarian view and think of all the reasons it will not go up.
30) Great companies don’t necessarily make great stocks.
It is very easy to pay too much for a great company. If everyone else already thinks the same way it will be overpriced and could stub its toe.

101 Investing Tips
27) Don’t discount dividends.
Dividends can account for 40% of the total return on stocks. This is “ muy importante” to your portfolio returns.
28) The two-minute drill.
Before you buy a stock give a sales pitch to your spouse. You may come to entirely different conclusions.

101 Investing Tips

25) There’s a difference between investing and speculating.
When you invest it is the same as buying into a business. When you speculate you are betting on the greater fool theory.

26) Earnings drive stock prices.
Remember the ups and downs but to not forget that stock prices follow the path of corporate earnings.

101 Investing Tips

23) Nothing tops the 401(k).
The great triple threat: no taxes on the contribution, matching dollars from employer, and tax deferral on gains. But look for the 401K Roth this could be the best especially for younger workers.

24) Watch what you watch.
Stay away from the TV investing shows and infomercials. They typically promote systems and overtrading. Nothing beats good old fashion value investing

101 Investing Tips

20) Don’t rely on the regulators.
Do not count on the big brothers to oversee your investments. Just look at the debacles we have had in then last five years. Remember the regulators are the same bunch that run the government. Remember how bad they handle it.
21) Never let tax considerations be the main driver of an investing decision
Enough said

+It is not often you see real insight from a military techno thriller, brain candy, escapism novel. The following is a quote from Harold Coyle's "Pandora's Legion" I felt it summed up my attitude about the two parties.
"Well, it's like this, Doctor. The Democrats want illegals in our country. They talk about Mexicans doing work that Americans won't, but that's just a smoke screen. A guest worker program could handle that problem. No, those illegals who get the right papers are eligible to vote---some of them vote anyway---and they nearly always go Democratic. That's because they know the liberals provide funding and dispensation. On top of that, our constitution says that any child born in the U.S. is automatically a citizen. Even if the mother is there illegally. That's insane. But it'll never change."
"Then what about the Republicans? Don't they ever...."
"No, ma'am. Hardly ever. See, they mess their diapers at the thought of being accused of racism by the Democrats. And the Demos know that, so they use it like a club to beat the Goopers down."
"Goopers?"
Keegan laughed. "Oh, that's my expression. I sort of made it up. GOP: Grand Old Party. The Republicans." He shrugged. "Goopers."
The Brit shook her head slightly. "I still do not understand, Terry. If the Republicans--your Goopers--have the majority, why do they cater to the illegals and the political opposition? I mean, those people won't support the party anyway."
"I guess you'd have to ask them, ma'am. I'm a former Gooper myself, for a lot of reasons. Probably the biggest, though, is that the Republicans don't really stand for anything, except election. They want to get along with the Democrats, and the Demos are bent on destroying the country."

101 Investing Tips

19) Some things are best left to the pros.
Do not be lulled into a sense that you can or will achieve the returns that professionals make. They have a much lower transaction cost and can react quicker and make more informed decisions that then average investor.

20) When you buy a stock, you think it’ll be a winner. But you’re buying it from someone who’s happy to let it go.
There is always a buyer and a seller. Each made their own decision , probably for much different reasons.

More to Come.

101 Investing Tips

17) Save more
This dovetails with “Start Early” An extra $50 per month is worth $132,000 at retirement. Who can not give up a cup of coffee per day.

18) When planning for long-term goals, assume that your overall portfolio will earn 5% to 6% a year.
Every once in a while we all have to take a reality check. You hear about making 10 to 20% a year. What people want to do is overlook is the drawdowns (losses). The other factor is taxes. For every gain there is an offsetting tax. History has the stock market averaging 9% over long periods of time. Subtract a 20% tax and you are left with 7.2%. There is also the uninvested cash or interest bearing accounts. These all make up your “Portfolio”. Try for more but have realistic expectations

I am not a big fan of having lots of employees because they are so hard to keep up with. We do have a lady that did something yesterday that we could all learn a lesson from. She had made an error of omission about a month ago. It materialized again yesterday.

The omission was not a big deal but there were a couple of frustrated customers. When asked about the problem she said, "I forgot, it was my mistake, it will not happen again and here is how I will make sure it doesn't happen again". Who could ask for anything more. She did not try to shift the blame. She did not try to cover it up. She did not make excuses.

We all make mistakes but it shows a lot of character to own up and take responsibility.
We need more individuals with that kind of character.