There many difference methods of buying stocks. Many use technical analysis, fundamental analysis, quantitative analysis, finger in the wind or astrology. I generally use several methods. I first start off with a quantitative screen to filter out the 1000's of stocks in the market. Fundamental analysis to check if free cash, revenues and earnings are growing. Also check the debt of the company and footnotes of the financial statements to make sure the company is sound. Finally technical analysis to find a entry point.
Before I place the trade, I usually check if the stock is trading near its 52 week high or low. The reason I check the 52 week high or low is to make sure i am not over paying or buying a sicking ship. Even though technical analysis is a more complex tool to find entry points, I generally buy stocks with they are trading 20% lower than their 52 week high. I found this 20% rule is a good general guide that helps one not to over pay for stocks. The 20% rule is not full proof, sometimes the train departs at full capacity leaving you at the train station scratching your head. However, my thinking is there is always another train to take.
Anyhow the 20% rule I think is a good one but remember this is not a full proof method. One should research a company extensively before buying. That means reading the financial statements, listening to conference calls and reading 10Qs. Good luck and happy hunting.
Comments