🔢 Selecting Stocks in 4 Simple Fundamental Steps

If you're investing in stocks, being able to asses real company value is essential. Below are four (4) key steps every investor should follow before buying any stock.

① Evaluating the Industry

Start by identifying the company’s core industry and analyzing key factors such as:

1. Level of competition (both local and global)

2. Current and projected growth rates

3. Expected changes in technology

4. Leading companies in the industry

5. Recent mergers or acquisitions

6. Future threats and industry risks

7. Broader economic and monetary conditions

Read more: Selecting Stocks in 4 Steps

TradingCenter’s Guide to Investing and Trading Stocks & Indices

Stock investing is a challenging task that involves gathering key information (macro, industry, etc.) and then selecting stocks through careful analysis. Equity traders can access thousands of stocks and indices worldwide through various trading platforms and hundreds of brokers.

This analysis begins with key areas of fundamental analysis, continues with major technical analysis tools for stock traders, and ends with advice from well-known investors.

Discovering the Potential of Stock Market Investments

Technical Analysis is always important, and TradingCenter offers hundreds of technical analysis resources, including its own unique TA tools and indicators. However, fundamentals matter most in equity trading. The main factors that drive the stock market higher are (i) overall liquidity conditions, and (ii) expected earnings reports.

TradingCenter's Outside-In Investing Model

Outside-in investing starts by analyzing the economy and the overall industry, then moves to individual company analysis. Our system can be applied in five steps:

1️⃣ Analyzing the Macroeconomic Landscape: Identifying the Stage of the Macro-Cycle 🔗 Money Supply, Liquidity, and the Course of Global Markets

2️⃣ Selecting Industries: Sector Analysis {technology, future growth rates, threats of substitutes}

3️⃣ Identifying Market Leaders: Strategies and Competitive Advantages

4️⃣ Evaluating Management: Never invest in companies led by poor managers

5️⃣ Analyzing Corporate Reports: Balance Sheets and Earnings Reports

🧮 Peter Lynch's Formula for Valuing a Stock's Growth

(Median Growth Rate + Median Dividend Yield) / (Median P/E)

S&P500 Calculation and Weighting

The Standard & Poor's 500 index includes 500 leading American companies listed on the NYSE or NASDAQ and covers 80% of the available market capitalization.

■ Ticker symbols: $SPX | ^GSPC | INX

The S&P 500 stock market index is based on the market capitalizations of 500 large American companies with common stock. The S&P 500 was introduced in 1923 as the “Composite Index.” On March 4, 1957, it expanded to its current basket of 500 stocks. Today, it is one of the most traded equity indices in the world. The S&P 500 differs from other U.S. stock market indices because of its weighting method.

Calculation and Weighting

The S&P 500 has traditionally been a capitalization-weighted index. Since 2005, the index has calculated the market capitalization of each company using only the float-adjusted shares (shares available for public trading).

Table: Top 10 Shares by Index Weight in the S&P 500

🔗 Find the full list at Wikipedia: https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

Read more: S&P500 and the Stock Market Formula

💹 The Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is the most important and influential stock market index in the world. The S&P 500 ranks second, followed by the Nasdaq 100.

• The 30 companies in the Dow are traded on either the New York Stock Exchange (NYSE) or the NASDAQ.
• The Dow Jones is so important that if an equity-trading strategy doesn’t work on the Dow, it likely won’t work on any other index.
• Dow Jones provides the ultimate framework for historical backtesting when trading equities.

🕰️ The Short History of Dow Jones

The Dow Jones Industrial Average tracks the price changes of 30 U.S. companies, which is why it’s often called Dow 30. It was introduced in 1896 by Charles Dow. Earlier, in 1884, Dow introduced the Dow Transportation Average, the oldest stock market index in the U.S. The Dow Jones Industrial originally measured the stock prices of industrial companies with the largest raw material reserves. Over time, its composition expanded to include companies from more industries. From 1928 to today, the Dow’s composition has changed 45 times. In 2009, General Motors and Citibank were replaced by Cisco and Travelers.

🧮 The Dow Divisor

The DJIA’s price is calculated by adding the prices of its 30 stocks and dividing by a special Dow Divisor. This divisor accounts for stock splits, reverse splits, and other structural changes.

🔗 Website: » The Dow Jones Index Page

🌐 Companies Participating in The Dow Jones Industrial

Here are the 30 companies included in the Dow 30, with direct links to their official websites, ticker symbols, original listing dates, and current weightings on the Dow Jones Industrial (last updated in 2011).

Table: The Dow-30 Companies

Read more: The Dow Jones Industrial Average

The first hedge fund was created in the US in 1949 by Alfred W. Jones. Since then, investing through hedge funds has become very popular worldwide, especially during and after the 1990s. Today, there are about 15,000 hedge funds globally, managing an estimated total of around 4.5 trillion USD in assets.

🌐 What are Hedge Funds?

Hedge funds are investment groups that collect money from investors to try to make high profits. They are run by professional managers who use different methods like borrowing money, trading contracts, and betting on falling prices to increase returns. Hedge funds usually accept only experienced or wealthy investors and have fewer rules than regular funds, giving them more freedom but also more risk. Before investing, it’s important to learn about the fund’s strategy, past results, and the team running it.

Lipper Hedge Funds Composite Index

Hedge fund investors have historically earned higher returns than average common stock investors. This can be seen by comparing the past 10 years of performance between the Lipper Hedge Funds Composite Index and the popular US S&P 500 Index. The Lipper Hedge Funds Composite tracks the performance changes of a group of hedge funds.

🔗 More: » What is Lipper at Wikipedia | » Thomson Reuters

ℹ️ Basic Information About How Hedge Funds Operate

Here is some basic information about hedge funds.

• Hedge Fund Managers & Management Fees

A hedge fund has two main roles: the manager (general partner) and the investors (limited partners). Sometimes, the manager is also a limited partner if they invest their own money in the fund. Typically, the manager is a well-known expert with special skills and many connections. Investors (limited partners) pay the management fee, which is usually 1% of the fund’s total assets. In addition, the fee may include a share of the fund’s annual profits

Read more: Investing in Hedge Funds