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"I'm constantly amazed at popular explanations of why stocks behave the way they do, which are volunteered by amateurs and professionals alike."
          -- Peter Lynch

Analyzing Stocks

There are ten basic ingredients to look at when evaluating stocks:

  1. Industry Ranking -- This can be looked up on line or in Value Line
  2. Timeliness -- relative price performance for the next twelve months
  3. Safety -- all stocks carry risk, but it is possible to calculate their relative risk; the narrower the band of fluctuation, the lower the rating, and the safer the stock
  4. Debt -- the higher the debt the company is in, the higher the risk
  5. Beta -- compares the volatility of a stock's price relative to that of the total market; the lower the beta, the less volatile
  6. Sales and Earnings -- high levels of sales and earnings insinuates a higher growth rate
  7. Stock Price -- low stock prices allow you to buy more shares and makes it easier to buy shares in an even lot to reduce transaction costs
  8. Price-Earnings Ratio -- price of a security divided by earnings per share
  9. Upside-Down Ratio -- helps identify stocks whose prices are more likely to rise than fall by calculating this; evaluates the relative odds of potential gain versus the risk of loss for a given price per shares
  10. Management -- want companies run by managers with solid track records that can bring the company to the next level of growth

Click on the following links to learn more about the different techniques for investing in the stock market:

Fundamental Analysis

Quantitative Analysis

Technical Analysis

Trading

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