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In this episode, Mirriam MacWilliams Chief Trainer/Wealth Mentor shares with you tips on how to identify a good stock, depending on your current concerns and financial goals.
| HOW TO IDENTIFY A GOOD STOCK? |
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Buy high, sell higher.
Understand the numbers behind the company.
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Understand different risks of different instruments. |
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Understand how stock market works. |
How do you identify a good stock or share?
The way to begin really is to understand the numbers, behind the company. The numbers behind the company, which in fact are called the fundamentals.
If there is a stock that is seeing higher sequential revenues, higher sequential earnings per share, and the institutions are likely to participate in the stock, it makes for a good candidate for an investing position.
And the beauty of investing in the US stock market is that all the tools that you need to be able to make an educated decision, can be obtained on the internet for free.
Will you recommend a beginner to go into stock markets? Would it be riskier to go into stock markets, considering other instruments?
I don't find any less risky being in stock market than being in any other instruments. I think that the key is to become an informed investor.
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Understand different risks of different instruments (e.g. Long and short term estate loans in the US). |
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Understand how stock market works |
Once you understand how the stock market works, you position yourself to take advantage of the market.
What are growth stocks and dividend-yield stock and what are their differences?
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A growth stock is a stock that is looking to capture rapid revenues.
This may come at the expense of their earnings-per-share. As soon as they have generated a lot of revenue, what they are looking to do, is take that money and quickly put it right back into the company ,and grow the company. |
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A dividend yield stock is a company that is paying you to own their stock.
I would say that the dividend yielding stock has outperformed growth stocks, over the last four or five years.
But that should not scare someone away from a growth stock. If your personality is such that you can, because of your age, participate in having a little bit more risk in your portfolio, then a growth stock makes sense. |
Is it possible to find a stock that has both qualities?
Generally, you don't find one that is growth stock, that is also high yield dividend stock which are not usually common.
But this is where diversification comes along. Use option trading to build up the other portion of the portfolio.
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Diversify your portfolio
Cash 30%
Invest 70% - 20% in high-yield stocks
30% in growth stocks
50% in options
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Risk profile
current job status
age
risk appetite
financial goals
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Quote an example of a profile, of a candidate, who should be considering growth stocks, or those that should be considering dividend yield stocks.
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Growth stocks
For those with 20, 30 years ahead of them |
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Income-producing, dividend-yield stocks
For those nearing retirement age |
Perhaps a balance of both growth and dividend yield stocks in my portfolio?
The younger you are, the more you want to participate in growth stocks, as opposed to the dividend ones.
As you get older, you might want to flip flop that. Set aside a certain amount of money that is in cash position, and set aside a certain amount of capital that you will be using for leveraging purposes.
Will you advise for a beginner to invest in companies that have already established its name in the market? Perhaps a Multi-national company?
I myself want to do that. I want to participate in a stock that is somewhat widely recognised, I want to participate in a stock where I can gather as much information as I need in order to make an educated decision on that company.
That's why investing in the US makes sense. We can locate stocks, just be punching in the symbol on the stock, and get a rating on the stock.
What about Information Technology and Tech stocks?
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Growth stocks
For those with 20, 30 years ahead of them |
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Income-producing, dividend-yield stocks
For those nearing retirement age |
These are what we call high-flying stock, which I generally don't participate in. I normally participate in New York Stock Exchange, the listed stocks, the blue chips.
I entered the stock market at a time when, not just Google, but a lot of the technology stocks were experiencing those huge moves daily. I captured the middle to the end of the Bull market in the US. So, I am used to big moves.
I realize that a stock moving up strong, can also pull back strongly. That's why I most inclined not to participate in these type of stocks.
But I do still participate in some tech stocks such as Apple computer, Yahoo and Ebay. There are certain times when it is the right time to enter, there are times when it is the right time NOT to enter, but it all start again with the fundamentals.
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