Monday, August 17, 2009

Investments VS Savings

Why invest? Simply because it can help us beat inflation. Inflation pulls our purchasing power so we have to do something about it. Can interest rates work?

Let's check it out!

- the gradual acquisition and safekeeping of wealth
- Reward: LOW
- Risk: Very LOW

- Provides the avenue for wealth to grow more meaningfully
- Rewards: HIGH
- Risk: Low to Very High

Interest rates work if you start investing in the stock market and KNOW HOW TO PICK GOOD STOCKS.

1. Know Prices
a. Actual Value
- the real value to which a stock can be said to be worth, it is commonly stated as fair value or target price
- studied through fundamental analysis

b. Market Value
- that value determined by market forces (demand and supply) and is conmmonly known as market price
- reviewed through Technical analysis

2. Know some Fundamentals

Fundamental Analysis
- a technique that attempts to determine a security's value by focusing on underlying factors that affect a company's actual business and its future prospects.

"We buy quality stocks today for what we believe it will be worth TOMORROW"

Remember: What you don't know you don't touch!

3. Do a Top Down Review
Ask these questions
- Is the economy growing?
- What industry seems attractive?
- What are the best stocks in the industry?

4. Know a Company's Prospects
(Company Analysis)
Look for companies that show:
*The ability to grow earnings = look for strong or increasing profitability
Watch earnings per share (EPS= income/ number of shares)

*Good or Cheap Valuations = look for good stocks whose Market Value is notably lower or discounted to its Actual Value

*Good Story = look for new buzz, solud products/services or catalysts for growth

5. Choose the Best
Compare and contrast.


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