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.