Wednesday, June 10, 2009

Book's Gist: Motley Fool Investment Guide

1. What makes a Co. a good investment?
- Powerful brands
- Important and/or repeat-purchase products or services
- Compelling business model
- A track record of consistent, reliable earnings and sales growth
- Lots of potential for future growth
- Strong financial numbers: low or well-managed debt, robust margins, etc.
- Industry leadership and innovation
- Management integrity and quality

2. Right Time To Buy
- Price Dips (non-permanent!)
* Find out why the stock is down
* Determine how reasonable the drop seems. Say the company announces sales growth slowing by 10% over the next six months. Given what you know, should the stock be punished with a 30% drop?
* Is the company financially healthy? Able to pay its debts? Generating strong returns?
* Does it seem able (and likely) to recover from its current situation? Is there a lot of promise in its pipeline? Is it ripe for a "turnaround"?
- Catalysts
* A company is aggressively buying back its own stock (or might begin to do so), which will increase the value of remaining shares
* Perhaps a company you're looking at may be a takeover target. (Companies are often purchased for more than they're currently trading for.)
* A company plans to spin off a division, move into a new line of business, or expand into a new company
* Settlement of a major lawsuit hovering over a company's head could boost investors' interest in it
* New management, new products, new patents, new technology, etc

3. When to Sell
- You need the money within a few years
- You find a much more attractive place to invest your money
- You're hanging on for emotional reasons
- You've lost confidence in the company
- The reasons you bought are no longer valid
- You can't remember why you bought in the first place
- You don't know what the company does and how it makes money
- The stock is significantly overvalued relative to your target price, if you have one
- You can't keep up with the company
- You hold too many stocks
- You hold too few stocks

4. When NOT to sell (maybe)
- If everyone else is selling (frenzy)
- If you've made a significant gain (unless speculating / short-term investing)
- If the stock drops by X% (unless speculating / short-term investing)

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