I have a secret formula for you that no one knows about. This secret formula is available just for you. This secret can be yours. Are you ready?
There is no Secret Formula for Picking Stocks but you Can Still Profit
Everybody that tries to sell you one is just profiting off of you. What did you think I was going to tell you? Did you think that all you need for better returns is to just subscribe to an investment newsletter that covers all of the daily patterns and charts of select stocks? Were you expecting expert buy and sell signals sent to your tablet or smartphone throughout the day?
Were you expecting me to suggest that all you have to do is watch CNBC all day or read articles on Seeking Alpha of a guru stock picker? These two suggestions are free right, so they have to be providing insight that will make me a better investor!
Wrong!
Becoming a better investor and looking at better overall returns has just about nothing to do with secret formulas, following chart patterns and listening to talking heads and their newsletters. Becoming a better investor and receiving better overall returns has everything to do with paying attention to your portfolio and learning more about what you own or would like to own.
Then it is all about action or doing nothing. Let me explain to you how you can do this.
Reading Quarterly Reports and Listening to Conference Calls
This strategy is old fashioned and boring for me. Before the dawn of the internet and the widespread availability of investment newsletters, conference calls and quarterly reports were the bread and butter of investors. This was how they judged the life of a company and its corresponding stock. The reality is that they are just as effective today as they were yesterday.
By definition, quarterly reports are meant to be just that, reports. They don’t seek to sell a product or service. They don’t seek to try to get you to trade more often or buy guru advice.
They are simply designed to present you with the facts. Of course the company will try to sugar coat problems and undesirable numbers. That’s life, but that’s part of the homework in reading and making an opinion of a quarterly report. If they were a walk in the park everybody would use them. Today it is so much easier to read an analysts rating or follow the crowd.
How to Read Conference Calls and Quarterly Reports
You will make more informed investments if you understand the reason a company received a rating in the first place. Reports and conference calls are very easy to use once you understand what you are looking for.
The first thing you want to look for are the basic numbers. You want to see sales versus income. Income should be positive in relation to sales. If sales are high but income is very low or even negative it should send off some red flags worthy of further research.
The other basic number to look at is debt. Debt is an important element to any company and often allows they company to borrow money for further expansion and research. It is not necessarily a bad thing. By using debt-to-equity ratio we can determine whether or not that debt is healthy and sustainable or if it will prove to be a roadblock to success.
Next, you will want to take a look at expectations and targets. Companies will often have targets and estimates for sales as will many analysts and researchers. It is important to see where the real numbers matched up against the targets. Targets can include sales, profits, earnings per share, debt reduction, etc. These are all fundamental numbers to look at when studying a stock and their corresponding company.
Finally, you will want to take a look at sentiment. How are things at the company? It might sound silly but it is often very simple to discover when a company is starting to take a nose-dive or has some ambitious plans for growth and earnings. Although companies are not allowed to use very promising adjectives to describe themselves in conference calls, sentiment will be clear.
If earnings are poor compared to expectations, how does the company react? Do they brush it off and make an excuse or do they have a viable reason to not be concerned as a result of some outside influence such as sector problems or macroeconomic conditions? If earnings are well above expectations, does management have a clear plan set in place for continued growth and profits?