Key takeaways from chapter 5 one up on wall street

If the stock is grossly overpriced, even if everything else goes right, you wonвЂ™t make any money.ДЇind a story line to follow as a way of monitoring a companyвЂ™s progress. Base your purchases on the companyвЂ™s prospects, not on the presidentвЂ™s resume or speaking ability.ДЄ lot of money can be made when a troubled company turns around.Д¬arefully consider the price-earnings ratio. Managerial ability may be important, but itвЂ™s quite difficult to assess. When purchasing depressed stocks in troubled companies, seek out the ones with the superior financial positions and avoid the ones with loads of bank debt.Д¬ompanies that have no debt canвЂ™t go bankrupt. Moderately fast growers (20 to 25 percent) in nongrowth industries are ideal investments. Invest in simple companies that appear dull, mundane, out of favor, and havenвЂ™t caught the fancy of Wall Street. However, people in the paper industry normally give out tips on drug stocks, and people in the health care field never run out of tips on the coming takeovers in the paper industry. Some stock tips, especially from an expert in the field, may turn out to be quite valuable. Separate all stock tips from the tipper, even if the tipper is very smart, very rich, and his or her last tip went up. People get incredibly valuable fundamental information from their jobs that may not reach the professionals for months or even years. ItвЂ™s better to miss the first move in a stock and wait to see if a companyвЂ™s plans are working out. Look for small companies that are already profitable and have proven that their concept can be replicated.Д«e suspicious of companies with growth rates of 50 to 100 percent a year.Дistrust diversifications, which usually turn out to be diworseifications. (вЂњIt is really going up!вЂќ doesnвЂ™t count.)Д«y putting your stocks into categories youвЂ™ll have a better idea of what to expect from them.Д«ig companies have small moves, small companies have big moves.Д¬onsider the size of a company if you expect it to profit from a specific product. Understand the nature of the companies you own and the specific reasons for holding the stock. With few exceptions, an extremely high p/e ratio is a handicap to a stock, in the same way that extra weight in the saddle is a handicap to a racehorse.ДЄ company with a high p/e must have incredible earnings growth to justify the high price thatвЂ™s been put on the stock. YouвЂ™ll save yourself a lot of grief and a lot of money if you do. If you remember nothing else about p/e ratios, remember to avoid socks with excessively high ones.

If you buy Coca-Cola, for instance, itвЂ™s useful to know whether what youвЂ™re paying for the earnings is in line with what others have paid for the earnings in the past. P/E level tend to be lowest for the slow growers and highest for the fast growersДЇirst step could be to look at P/E ratios of various stocks you own or looking to own are low, high, or average, relative to the industry norms.Д«efore you buy a stock, you might want to track itвЂ™s p/e ratio back through several years to get a sense of its normal levels.

A ratio of 10 means the original investment will be earned back in ten years.

Useful measure of whether any stock is overpriced, fairly priced, or underpriced relative to a company's money-making potential.Д¬alculated as Current Price / Earnings per share for the prior 12 months or fiscal yearД¬an be thought of the number of years it will take the company to earn back the amount of your initial investment. Relationship between the stock price and the earnings of the company.

Key takeaways from chapter 5 one up on wall street