An example of an investment strategy
Choosing the issuing company, you immediately draw attention to the size of the quarterly earnings growth. It reflects the growth in earnings per share of common stock, but we will not discuss specifics. For comparison, we must take the current figure and the figure of the same quarter last year (eg, III quarter of 2008 and the III quarter of 2009). To do so is because the activities of many companies fit into a certain economic cycle, reflecting the seasonal nature of income and expenses. For example, cars are sold in the spring and summer better than winter, and electricity costs, in turn, increase with the onset of cold weather.
Next you need to pay attention to the profits of the enterprise for the year, rather than on its variation with respect to earnings over the past year. The next step will be sorting out companies that are growing sales to the lack of speed. Indeed, sales growth, even without increasing profits can be very bad sign. It can be obtained by reducing costs, and this is a "beacon", which may indicate the breaking trends in the stock price in the negative plane.
When all is done, the remaining companies need to look at the dynamics of change in earnings. Naturally, you should be interested in the company with the highest growth. The refore, if after the previous filtering you have left a lot of candidates for investment, excess of which can filter out of this parameter.
Continuing the theme, it is advisable to pay attention to return on equity. This figure reflects the stability of the company. You can use it on a par with the previous one, for the decisive dropping of suspicious companies.
Among the most important indicators is the dynamics of profit growth, while the rest will simply help you select the best candidates for vacant positions in the investment portfolio.
Why is all this necessary? Elementary - we will use the growth stocks. The securities, which attract the maximum number of investors. Speaking of points of entry / exit, it must be said that the strategy can be built on the theory of Bill Williams Trading Chaos Theory and Elliott Wave Analysis.
