How do you know today's market is still healthy to buy?

After listening to Jim Crammer's Mad Money today, I still don't feel confident enough to buy more shares of stocks even though he is super bullish about current stock market or our national wide financial situation.

Here are the 10 tests from his show regarding how do you determine today's market is still healthy to buy.

1. Transportation industry is doing well, has big rally recently.  This means commence is picking up.

2. Bank index reared.  Specially financial ETFs going up a lot, almost reached its high since 2008 financial crisis.

3. Responsed to brokerage upgrades; when it's in a diseased market, nobody cares about brokerage's upgrades.

4. Technology leads the market again.  Almost all of the technology stocks increased more than 50%

5. Too much cash still on the sidelined or outstanding.  It's time for cash to come back rather than sitting in the bank earning nothing

6. Takeover announcement traded positively

7. Investors lap Equity offering.

8. IPO market finally got hot.  There was simply no appetite for new issues on Wall Street until now.  Financial Engines Inc. rising 44% after pricing above its expected range

9. Market got good breath

10. There are still well too many bears.

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最近股市不是很好, 希望大家 Diversify your Portfolio

My Stock Market Savvy (3)

If you want to stay in the game, you have to diversity your portfolio.
9 sectors for your Portfolio

1. Basic Material
industry leader, Aluminum, Oil & Gas, Gold, steel; the first group to react to economy

2. Conglomerates
Very diversified company, act like one stock mutual fund.
GE, 3M; it is hard to get all information at once

3. Consumer Goods – defense type
Drinks, Tooth Paste, Auto, Home Furnishings, Clothes, Cleaning Products
When it is bearish market, this sector holds very strong

4. Financial
Banks, Thrift, Insurance, Investment Broker, Trust; very sensitive to interest rate and economy; FED will more likely hold the key interest rate steady at this meeting.
Citigroup, American Express, Bank of America, AIG, Wachovia, JP Morgan, Wells Fargo, US bankcorp etc.

5. Health Care – defensive type
Biotech, Drug Related, Hospital, Drug stores/ Manufactory; in general, it takes 10 years and $100M to develop a
drug; so make sure to buy big drug company which has strong assets to support its R&D. Pfizer, Merk

6. Industrial Goods - defensive type
Air Space, building material
Good for beginning of good economy

7. Services – defensive or offensive
Advertisement, Freight, Auto Dealer, Broadcasting, Catalog, Education, Gaming Entertainment, Books, Retails
People are the assets of these companies; so research on management team would help

8. Technology – Offensive or defensive
High Tech, Green company stocks are tend to be popular when economy is good; more investment will move to these companies.
Energy efficient tech companies could move ahead of the market right now.

9. Utilities – very defensive

My Stock Market Savvy (2)

How to Pick a Stock?

Quantitative

I have heard many experts said this, especially in this economic down term (not recession yet):

B.S.W.E. –buy stock with earnings

B.P.N.P.—buy profit not promise

Here are some basic index or factors that will affect stock price

1. P/E

Trailing P/E – price / reported earnings

Forward P/E – price / Analyst estimated earnings

It is hard to tell from P/E ratio itself, different industry has different P/E ratio

Only in auto industry, buy high P/E, sell low P/E

2. PEG = P/E / Growth Rate (ideally, the longer the term you use, the more accurate)

If PEG = 1, stock price is fairly priced

If PEG > 1, stock price is under priced, a good sign to buy

If PEG < 1, stock price is over priced

3. β – stock price movement compare to S&P index (as of 1)

E.g. If β = 0.75, it means price moving 75% compare to 1, less volatile

Some people like to see their stocks move up and down, they feel excited about it; some don’t. It’s your preference to buy a more or less volatile stock.

4. Div’d Yld – dividend paid / stock price

The higher dividend, the riskier the stock

5. PSR = Price / Sales Ratio

If PSR <1, a good indicator that the stock has chance to do well

If PSR >1 Not a good sign

Grocery industry tend to be low

6. EPS – this is a company’s bottom line, looking for a solid growth trend

Using Value Line Coca-Cola (NYSE-KO) as example

1. PE ratio = 20.7

2. PEG = 1.76

3. β = 0.75, less volatile than average market

4. Dividend Yield = 2.5%

5. PSR = 53.66/13.45= 3.98

6. EPS = 2.95

7. ROE is 12%, normally, large cap average ROE is 8%

Historical High $88.9 in 1998 and Low $36.1 in 1996 in the past 20 years. Analyst expected price in 2010-2012 high is $85 and low is $70.

Lastly, my study combined with analyst recommendation shows RRC, ENOC, GFA, WIN are good catch.

My Stock Market Savvy (1)

这些年在血习中总结的How to Pick a Stock?

Qualitative

1. Management
Focus on CEO. Use ask.com to find out who CEO is

2. Positive Earnings Revision

Analysts follow and upgrade their position

3. Positive Earnings Surprises

Look at earning history, % of surprise, if you have a positive trend on percentage of surprise, good stock

4. Increase of Sales Growth

Look at Revenue Estimate, % of earnings increase > % of sale increase, this means the company is more efficient

5. Operating Margin

Less operating cost, more money flows to bottom line

6. Strong Cash Flow

Buy back stock is a positive way of spending money. A company like Microsoft would use its cash on hand and buy back their outstanding common stock

7. Quick Quarterly Earnings & Sales Growth

8. Positive Annual Earnings Momentum

Accelerating growth rate

9. High Return of Equity

Microsoft return on equity (TTM) 47%, this is very high because of monopoly

KO return on equity (TTM) 30%, pretty high too. Great company to buy to reserve capital

10. Management Ownership

Does management team own many shares of its stock?