Stock trading can be a very risky investment for people that lack the knowledge on how to read public files or fail to understand the concepts these files provide. A lot of people get into a stock to late, when it has become an overvalued investment, from a bull run they bought into hype. A good example of over hype stocks is Lions Gate (LGF). Many people thought the release of “The Hunger Games” would of rallied the stock and made a lot of people money. Only if you where aware that since September, their 52 week low, if you read their financial statements at that time, you would understand why it would of been a really good investment to get into, however, many people that are looking at the stock from news station hype, fail to realize the company is on a 100%+ bull run or a 33% rally YTD. The P/E jumped to 77 and people lost money the week of the “block buster” film. The only reason you would buy into the stock is if the movie nets $150 million or more. When their public filings get released, your going to want to analyze their financial statements.
The 10-Q reports are the companies quarterly reports of consolidated financial statements. It explains the progress of their company developments and news, information on how sales and forecast look. The main thing you want to look at is the cashflow of the company. When a company has FREE CASHFLOW coming in, you can estimate your own forecast based on its growth in previous years by dividing the cashflow into the number of shares the company issues. You will come up with the price of the shares, and can determine the potential future of your investments. Paying attention to risk factors is something you need to understand, the economics of the company is vital role into the potential downfall of the investment. When your stock trading the public filing information has the cushion to keep you calm, knowing you know what you are doing. If you are new to investing, go to investopedia.com, this blog isn’t for you. Always understand the basics of the stock market before you get into stock trading. Assets to liabilities ratio should always have 3-4 times more assets than liabilities. Don’t look at stocks with bad financial statements, look for stocks with EPS of 20-30, PE of around 30 to find undervalued companies. Always find out the future developments, costs and potential profits of a companies action plan, your going to want to invest in something with growth, as warren buffet always says “invest in growth companies”.
Reading all 3 of the financial statements is something you need to do. Go to sec.gov website, when you screen your company, find the filings and start inheriting knowledge of the potential company you want to buy. It should take 2-4 hours to read everything, word for word, if the company isn’t a fit for you, walk away. You will always know the future of that company and can consistently have that on the watch list to observe for the future. Use its performance as a learning curve, knowing and understanding what you read and did to develope the call to not buy it or should of bought the company.
When you have 2-4 years of stock trading knowledge, you will most likely be ready to start trading stock. You will never want to invest in the stock market without knowledge, remember it is gambling if you are. Anyone that says trading stocks is gambling has NO KNOWLEDGE of trading stock.