24/07/2024

The CTO

The Best Chief Technology Officer

Stock Investing With Minimal Time And Reduced Risk

Stock Investing With Minimal Time And Reduced Risk

All financial advice leads you to believe you need to hire an advisor to invest with low risk. I found that the “low risk” part depends on the quality of the advisor. Advisors have their place in annuity investing, insurance products, and even stocks and bonds. But the technology from low cost brokers provides much of the necessary information to buy stocks, bonds, and mutual funds.

Many investors, however, need some other guidance in the beginning to assess and understand “the details” that are buried in an annual report. Newsletters that charge a small yearly fee should suffice. Find a good one and the anxiety level goes way down. I take the monthly recommendations and do my own due diligence. I have lost thousands buying stocks blindly or based on advice from an unproven source, so the following lesson comes from a great deal of experience.

Starting with the Price to Earnings ratio (PE) is the best start for evaluating a newsletter recommendation. A PE of 15, preferably less, is the first check on the value of a stock. But sometimes even this well known factor is misleading. I have had success with stocks sporting a PE of much greater than 15 and was very curious about the reason for a continued rise in the price. The PE to Growth ratio (PEG) is another good indicator. If a stock is growing faster than the PE ratio than the PEG will be less than 1. Look at AAPL, for instance, as an example. The projected growth is much greater than the PE, resulting in a PEG of less than 0.7. The stock continues to rise over the long term.

Less well known stocks can also show all the right characteristics with regard to the above metrics, but can fool the average investor by hiding signs of weakness in the bowels of their annual report. That’s why a recommendation from a trusted site is the best starting point. They can dig out glaring problems like “negative cash flow” or “poor quality earnings” which can mean several different things. I don’t know about you but I find other things to do that are much more enjoyable than reading annual reports. So I don’t mind paying around $100 per year to have someone else do it.

Oh, one more thing. It seems all the above is meaningless in a bear market, or during a 2008 style financial catastrophe. Most all stocks will decline during such a period of fear and anxiety. Having the discipline to sell and wait for a low entry point is easier said than done. If you don’t have this discipline, be prepared to wait as many as two or three years, or longer, just to get back to the break even point. Many older investors can lose sleep over this when they find a need to cash out at the wrong time. So a long investment horizon and a small portfolio of less than 10 quality stocks is recommended so you can sell out quickly.

Buy low, sell high. Good luck!