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Stock Investment Trade Offs Between Feelings and Facts

31 March 2008 - Markets - Editor

The men in our web content team have rebelled. First it was this thinly disguised praise of women stock investors: What do Women Want from the Stock Market?

Then we upped the ante with a suggestion that the feminine way is better: Invest in Stock with Yin not Yang

Here is a peace offering to the macho world.

Does the stock market world make too much of the right sides of our brains? Is suspension of concrete intelligence the only way to pick stock? How about a fact checker for stock investment?

Technical analysis has its limits. You cannot ignore discontinuities: Can We Ever be Certain of Day Trading Gains?

Stochastic analysis has its strengths, but what if you slept through statistics courses? Perhaps you are more in to gold than Markov Chains. We have a new balance. Call it a ratio: better still would be a whole batch of fractions. Ratio analysis can tell you how the future looks for a stock from its past. We do not mean to contradict earlier publications on this web site: Do Not Hang Stock Market Decisions on a PEG

It is a matter of picking the right ratios in order to look in to the crystal ball of past business performance of stock. The common clue to our choices below is that no stock can do better than its industry norm without a crack team at the business helm. You cannot acquire competent management teams overnight, so stock ratios which reflect business management skills are likely to take pole positions in any stock exchange race. Here goes:

  • Price to Earnings High and Low Over the Past Five Years
  • Price to Free Cash Flow
  • Five year average Dividend Yield
  • Five year Sales Growth Rate
  • Five Year Capital Spending Growth Rate
  • Quick Ratio
  • Total Debt to Equity
  • Interest Coverage
  • Five Year Average Gross Margin
  • Asset Turnover

Satisfied guys?

Tags:

analysis, ratios, investment, earnings

 



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