Stock market operators comprise a heterogenous group. These include:
Many alternative investment venues exist: banking products, insurance company products, real estate, commodity, currency and financial index trading, investing directly in a business, and investing in stocks or bonds not through direct stock trading. While some of the alternatives, e.g commodity trading, are somewhat similar to the stock market, none of them offers the range of advantages offered by the stock market. These advantages include:
A major principle of stock investment is diversification. Diversification means limiting investments in a single stock, or a group of highly related stocks, to a maximum percentage of personal assets, for the following reasons:
It is often mistakenly believed that buying foreign stocks automatically provides diversification. The fact is that many foreign stocks are more correlated with the DJI then many stocks in the DJI itself! Similarly, the correlation of stock and oil prices is not always what you may expect.
The tools available on Stock-comparator.com facilitate several stock investment tasks:
The most popular methods for selecting stocks are fundamental and technical analysis. Fundamental analysis looks into company financials and operations, trying to assess current and future business conditions, and then asks the question: does the current stock price reflect the underlying value of the company? Technical analysis looks mostly at the stock price movement and trading volume, as well as the price and volume behavior of the entire stock and various commodities markets, trying to assess investors' mood or detect patterns in price movements, based on myriad indicators and charts.
A basic fact of stock trading decision making in that nobody has enough information. The investor makes educated guesses about the missing information items. Sometimes, a speculative news item about a company is given more importance than basic financial data from SEC reports. Also, missing analysts' estimates is reason for a downgrade. Even when sound financial data is available, it is not reflected immediately in online databases. First, a company may announce unaudited quarterly results in a news conference and SEC submission (8-K). This data is captured by stock-comparator.com as preliminary data and is clearly marked as such. Then there is a delay of a few weeks until the company submits the official quarterly/annual results to the SEC (10-Q, 10-K, etc.). Then it takes a few more days until the data is reflected in the database. stock-comparator.com clearly marks companies whose fundamental data is older than SEC reporting requirements, and the latest month for which data exists. Also, the Checklist reminds you to look for these items.
Reduced number of items. In order to give the investor a good broad view of the stock market, it is essential to leave only important items for each company. This is similar to selecting which items are displayed in a geographical map. Too many screening criteria and items displayed on the same page, and the information becomes too detailed to be absorbed by the investor. Later, when you zoom in on a few specific stocks, the left-out items become important. But not during the initial selection. The items used for comparison. Merely sorting screening results or displaying items side-by-side for multiple stocks, is not conducive to making good investment decisions. You need a 'score', a single number that ranks the stock within the stock market universe. But comparing the financials and price movements of multiple stocks is not easy, because one stock may be superior to another based on one factor (e.g, P/E), but inferior in another (e.g, Yield). Here, too, adding more items into the formula only makes the picture less clear... Why were some items excluded? (Note: you can modify the default comparison formula). Some items, such as revenue and DJI Correlation Coefficient, have been left out of the comparison formula but are used as screening factors, because their contribution to successful investment decisions is not only unclear, but may change direction based on market conditions. For example, in a prolonged bear market, a low correlation to the market averages is desirable, while at the perceived start of a bull market, a high Correlation Coefficient may be more desirable. The remaining items also reflect a specific investment philosophy. Profit: The absolute size of a company's profit has an information value which is not captured by any other item, such as EPS. First, it's an unequivocal measure of the company's success in its industry sector. Second, it gives you a measure of the company's potential in the area of acquisitions, R&D and administrative expenses, exposure to legal payments, and likelihood of 'life threatening' financial troubles. Price/52-high: This is the essence of value investing. A stock that is near its 52-week high may have momentum, and it's good for certain investment decisions, but if you want to buy long a stock and be comfortable with holding it for months or years, without following its daily price movements, then you should give priority to 'beaten down' stocks, because this is where you can find 'mispriced' stocks (for the investor who doesn't do short selling). In particular, stocks with violent price swings in a short period of time, resulting in a substantial drop from 52-week high, may be good candidates for buying, because it's not very likely that the fortunes of a large-cap company can be so volatile in the short term, for the simple reason that nobody, including the company's management, has enough information to justify adding or substracting many millions of Dollars from a company's market value in a matter of a few days (and definitely not within a single trading day...).(Note: you should read the company's latest SEC filings and news items so your'e aware of the latest events). Price: Although not a component of the comparison formula, it is
one of the screening factors. Here too we believe that the absolute price
of a stock has a meaning. True, arbitrary splits and reverse splits can radically change
a stock's price without any inherent change in the company's business (except for
major spinoffs), but
even here, the importance of the absolute price is evident.
We believe that a price drop below $10 for many companies which are
dominant in their industry, or recognized as components of important market
indices, may be a buying opportunity. This applies also to ADRs and foreign
company stocks, but not to those previously high-flying NASDAQ stocks, but there is no danger
of picking those up because they will rank low in comparisons, due to
their poor financials.
The entire website is designed to help you find stocks that have solid financials but have been overlooked or unjustifiably beaten down by the market. Subscribers can quickly rank all the stocks in the database. Alternatively, you can enter the ticker symbols of the stocks that you consider buying, or find candidates using the various screening, indexes and sort options. If needed, modify the comparison formula to change the weight factors of the various scoring criteria. Submit the request, Then review the comparison results and 'company detail' pages, and do more research on the stocks that seem to match your needs, based on the Checklist. Be extra careful during the earnings seasons (mid January, April, July, October), because the data that you are basing your decisions is still based on the quarter that preceded the just ended quarter. The stock/oil price correlation coefficient r(oil) helps predicting stock price dynamics without having to know or assume the economic effects of crude oil price movements on specific companies or sectors. Using the system for short-term trading: Although this approach, especially the default comparison formula, is geared more towards the needs of the Value Investor, it is also useful for shorter-term trading. Suppose you are convinced that the market is oversold in the short term and will be going up for the next few days. You can quickly find some stocks that are highly positively correlated to the market indices (by screening the DJI 30, by sorting the database by the correlation coefficient ("r")). Or you can screen for high-revenue stocks yielding a high dividend, and select those highly ranked and having a high "r". After further research, you can buy these stocks as a proxy to trading the market indices, while having the extra security of comparatively strong financials or high yield. Similar considerations apply to predicting the effect of oil price movements using r(oil). Obviously, if the stock you bought for the long term jumped up right after you bought it then you can sell it for a short term gain. Using the system for selling (long) decisions: Since the database is continually updated, you need to screen your portfolio on a regular basis to see if the stock's rank has significantly deteriorated. In particular, during early February, May, August and October, many quarterly or annual reports are submitted to the SEC and the fundamental data for these companies is updated in the database. Also, most earnings announcements are in. If the stock's price went up significantly, its score will go down. You can enter your portfolio's ticker symbols and save the list (subscriber option). Look at the stocks that received a low score in the comparison results. If one of these stocks has significantly appreciated since you bought it, it may be a good candidate for selling. Also, if you consider selling a specific stock, enter its symbol and obtain the industry name in the 'Company details' screen. Then do a 'screen' using the industry name. If that stock receives a low ranking in the comparison results then you may consider selling it and buying a higher-ranked stock in the same industry.
This feature enables tracking stock-comparator.com results over time. It shows a stock's rank (based on the default formula) and price during up to 11 dates. This data is displayed on the 'Company details' for a single stock, and for up to 50 stocks on the 'Results' page.
"r" can take a value from 1 to -1. To calculate r(DJI), we use one year's worth of price data (from the end of last month going back one year) for each stock and the DJI. For r(oil), we use the daily closing spot price for West Texas Intermediate crude oil.
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