LET’S PICK-UP SOME BARGAINS
July 7th 2008 06:18
We did say in this little speck of the world-wide web that those T-bills and government bonds could be a good alternative when the bourse is being a little too tight fisted and wouldn’t give us any income. We still subscribe to that. However, when the inflation goes really high and enters the double digit mark, my love affair with t-bills and bonds begins to fade.
No, I have nothing against those government papers. It is just that the securities markets have been steadily going down and I thought maybe it is about time to pick-up some of the really nice bargains.
Now, the pros and the experts will have to bear with me on this because I am not an expert and there are a lot of “newbies” like me out there who may be in need of some “how to’s” and that’s what I am trying to address right now.
In a real market (as in real wet and dry market), it is easier to spot a bargain as the only thing you need to do there is look to at the same merchandise beeing sold by different vendors and check their prices and you’ll immediately know which one is being sold at a bargain.
Not so in the capitals market since lower prices here do not necessarily equate to “good buys.” In many cases, it is even better to tell them goodbyes!
But for those who have the patience and a little bit of time to spare (plus additional funds that will not be immediately needed) there’s a way, not much different from what one does in a wet and dry market, in determining bargain prices in the stock market.
I am not saying that it is going to be easy because the word easy is relative (depending on the orientation of the people involved), but it is doable and some of our readers may find it not a Herculean task at all.
So, how do we determine bargain prices? First, let’s consider the companies that you have been coveting these past few days. Let’s line them all up. Then, one by one, take a peek at their most recent histories. Histories?
Well, yeah! But by that, I mean financial statements. Not their latest conquests (and neither the gossips about the latest escapades of its officers and employees), that’s for the other channels of communications to cover.
Our main concern is to find out which of the companies we have in our list became most profitable the year before and how the profits compare with the capital invested for that company. The higher the ratio between these two the better it will be for us investors.
Now, if the price of the shares of this company and those other companies of similar profitability dropped to what you may consider basement 2 level (given the present condition of the markets), well… we may just have found a real bargain.
But please be careful to study the other factors that may affect the future viability of the companies under your consideration.
A stock in bargain stands with a consistent record of good returns on capital is a nice indicator of a good buy, under the circumstances, but only if the company in question still has good future prospects.
No, I have nothing against those government papers. It is just that the securities markets have been steadily going down and I thought maybe it is about time to pick-up some of the really nice bargains.
Now, the pros and the experts will have to bear with me on this because I am not an expert and there are a lot of “newbies” like me out there who may be in need of some “how to’s” and that’s what I am trying to address right now.
In a real market (as in real wet and dry market), it is easier to spot a bargain as the only thing you need to do there is look to at the same merchandise beeing sold by different vendors and check their prices and you’ll immediately know which one is being sold at a bargain.
Hmmm... there are similarites, but I didn't really mean this market.
Not so in the capitals market since lower prices here do not necessarily equate to “good buys.” In many cases, it is even better to tell them goodbyes!
But for those who have the patience and a little bit of time to spare (plus additional funds that will not be immediately needed) there’s a way, not much different from what one does in a wet and dry market, in determining bargain prices in the stock market.
I am not saying that it is going to be easy because the word easy is relative (depending on the orientation of the people involved), but it is doable and some of our readers may find it not a Herculean task at all.
So, how do we determine bargain prices? First, let’s consider the companies that you have been coveting these past few days. Let’s line them all up. Then, one by one, take a peek at their most recent histories. Histories?
Well, yeah! But by that, I mean financial statements. Not their latest conquests (and neither the gossips about the latest escapades of its officers and employees), that’s for the other channels of communications to cover.
Our main concern is to find out which of the companies we have in our list became most profitable the year before and how the profits compare with the capital invested for that company. The higher the ratio between these two the better it will be for us investors.
Now, if the price of the shares of this company and those other companies of similar profitability dropped to what you may consider basement 2 level (given the present condition of the markets), well… we may just have found a real bargain.
But please be careful to study the other factors that may affect the future viability of the companies under your consideration.
A stock in bargain stands with a consistent record of good returns on capital is a nice indicator of a good buy, under the circumstances, but only if the company in question still has good future prospects.
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