How to Choose Winning Stocks - Prasad

Prasad, G. (2010). How to choose winning stocks : rewriting formulas for

investment. Los Angeles: Response.

Whenever inflation rate is higher than interest rates, there will be pressure for
interest rates to rise.

One should invest only in companies that are growing at a rate equal to inflation +
interest rate.

Remember that high P/E companies will decline faster in a bear market.

Sell off low dividend yield company stocks in a bear market to avoid further
losses.

If a stock disappoints with results in a quarter, immediately sell it as it would

take a quarter to fix it.

It is difficult to predict at what price to sell the stock, as there are many
factors which affect a stock price of the particular company you have invested in.
Therefore, it is better to adopt the strategy of ‘a bird in hand is better than two
in the bush’ and keep periodically booking profits after you have invested,
depending on your actual needs. Keeping a target profit in mind and then selling
off or rotating your money may be a better option.

If you want to invest in small caps, invest only after they turn in the profits. Do
not invest in anticipation of profits.

None can predict the movement of interest rates, future of economy, or stock
market. Instead focus on your investments and their businesses and what is
happening to them. Keep reading a great deal about the businesses you have invested
in.

One should learn to study companies and their prospects from all the available
information one can gather. If one studies these parameters as described in the
book, one may master the science of investment; otherwise it will be like a game of
poker for the investor and his/her returns. In case one does not have the time to
do the homework suggested for companies, then one can turn into investing in mutual
funds.

One should learn to avoid the pitfall of buying a company with cheap valuation but
mediocre prospects. This is a sure way to lose money. Therefore, one should learn
to analyze the prospects of the business one is likely to invest in.

Periodical checkup and screening on a quarterly basis identifies which companies

have to be pruned and which companies have to be rotated for investments and this
definitely improves one’s results. One should be careful and not get attached to
stocks emotionally when prices are beyond the line of reality; one should sell it
and come out. Stock market is a place of immense potential for alternatives to
exist and this should be capitalized. One should be careful to learn from mistakes
and avoid repeating the same by keeping a cool head and good temperament.

Remember that in the stock market, the profit in hand is worth twice the profit in
the bush. This helps you to book profits at reasonable periods of time to stay
afloat in the market.
BULL MARKET

- Bull markets tend to last longer.

- High P/E ratio and low dividend yields.
- Generally, prices are going up.
- Volume of shares traded is high.
- Number of companies raising capital through public route is high.
- Generally, economy is on a recovery mood or in boom and all indices show positive
growth signs.
- Investor psychology is upbeat.
- In a bull market, there is less supply of securities and high demand for the
stocks. This results in a rising trend of the prices in the market due to imbalance
in supply–demand equation. As a result, share prices soar as investors compete to
buy the available equity.

BEAR MARKET

- Greater amount of losses in a short timeframe.

- Falling P/E ratio and high dividend yields are common.
- Generally, prices keep going down even after good news flows in.
- Volume of shares trades is low.
- Companies are afraid to raise capital in the public domain due to adverse market
sentiment.
- Generally, accompanied by slowdown of economy, rising unemployment, rising
inflation, and so on.