http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks How to Pick Stocks The financial pages are commonly full of success stories, stocks that have done well. But, how to pick stocks is not to invest in expensive stocks that have already gone up in price but in inexpensive stocks that are likely to do well in the future. We are talking about intrinsic stock value and the Benjamin Graham formula for deciding if a stock is over price or under-priced. We look at the numbers used to calculate the Graham formula but first of all the basics of fundamental analysis of stocks. How Does a Company Make Its Money? It is said that the most famous investor in the world, Warren Buffett, likes easy to understand stocks with strong balance sheets. The point of investing is to make money and not lose it. People invest in the stock market because they do not want to settle for the interest rate on a CD at their local bank. However, their CD is insured by federal deposit insurance and the stocks that they buy can just as easily go down instead of up in price. How to pick stocks starts with picking a company that does something that you understand. You do not have to be an expert in computer programming or cellular biology to invest in computer companies or biotech stocks. But you need to have a clear idea of what these companies do to make money, what their costs are and who their competition is. And, you need to look for a margin of safety. This can simply be that the company has a product that totally dominates its field or that they have no debts and money in the bank. The point is that the company is protected in the event of a recession. Graham Formula Intrinsic Value (V) = (Earnings per share x (8.5 + 2g) x 4.4) / The current yield of AAA corporate bonds (Y) Earnings per share are for the last twelve months and g is your estimate of company growth in the next five years. Mr. Graham used 4.4 as a constant for the average yield of high grade bonds at the time he devised the formula. You can adjust this for current yield. This formula gives a stock price, what Graham believed should be the market value. Compare this to the current price. If the Graham price based on fundamental analysis is higher you may wish to buy the stock. If the current stock price is higher than the calculated value you want to sell or avoid the stock. Finding Stocks Profitable stocks are often those that are not currently being followed by lots of analysts. Thus they may be hard to find. Start with what you know. A sad but true tale is that in the late1970s Eli Lilly came out with Tagamet, the first effective medicine for ulcers. At that time the trendy investment for well-heeled physicians was to buy and lease railroad box cars. Lilly stock skyrocketed and many investors lost their shirts in box car leasing scams. If the doctors who were writing prescriptions for Tagamet had invested in what they knew they would have made money.

1. How to Pick Stocks
By: www.ProfitableInvestingTips.com

2. The financial pages are
commonly full of success
stories, stocks that have done
well.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

3. But, how to pick stocks is not
to invest in expensive stocks
that have already gone up in
price but in inexpensive stocks
that are likely to do well in the
future.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

4. Before We Continue…
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http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

5. We are talking about intrinsic
stock value and the Benjamin
Graham formula for deciding if
a stock is over price or under-priced.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

6. We look at the numbers used
to calculate the Graham
formula but first of all the
basics of fundamental
analysis of stocks.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

7. How Does a Company
Make Its Money?
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

8. It is said that the most famous
investor in the world, Warren
Buffett, likes easy to
understand stocks with strong
balance sheets.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

9. The point of investing is to
make money and not lose it.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

10. People invest in the stock
market because they do not
want to settle for the interest
rate on a CD at their local
bank.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

11. However, their CD is insured by
federal deposit insurance and
the stocks that they buy can
just as easily go down instead
of up in price.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

12. How to pick stocks starts with
picking a company that does
something that you
understand.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

13. You do not have to be an
expert in computer
programming or cellular
biology to invest in computer
companies or biotech stocks.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

14. But you need to have a clear
idea of what these companies
do to make money, what their
costs are and who their
competition is.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

15. And, you need to look for a
margin of safety.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

16. This can simply be that the
company has a product that
totally dominates its field or
that they have no debts and
money in the bank.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

17. The point is that the company
is protected in the event of a
recession.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

18. Graham Formula
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

19. Intrinsic Value (V) =
(Earnings per share x (8.5 +
2g) x 4.4) / The current yield
of AAA corporate bonds (Y)
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

20. Earnings per share are for the
last twelve months and g is
your estimate of company
growth in the next five years.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

21. Mr. Graham used 4.4 as a
constant for the average yield
of high grade bonds at the
time he devised the formula.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

22. You can adjust this for current
yield.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

23. This formula gives a stock
price, what Graham believed
should be the market value.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

24. Compare this to the current
price.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

25. If the Graham price based on
fundamental analysis is higher
you may wish to buy the stock.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

26. If the current stock price is
higher than the calculated
value you want to sell or avoid
the stock.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

27. Finding Stocks
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

28. Profitable stocks are often
those that are not currently
being followed by lots of
analysts.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

29. Thus they may be hard to find.
Start with what you know.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

30. A sad but true tale is that in
the late 1970s Eli Lilly came
out with Tagamet, the first
effective medicine for ulcers.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

31. At that time the trendy
investment for well-heeled
physicians was to buy and
lease railroad box cars.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

32. Lilly stock skyrocketed and
many investors lost their shirts
in box car leasing scams.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

33. If the doctors who were writing
prescriptions for Tagamet had
invested in what they knew
they would have made money.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

34. Not every stock is has great
possibilities but many are
profitable.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks

35. If you are
nearing retirement look to
stocks that have been paying
dividends for decades and,
shades of Buffett, are easy to
understand with strong balance
sheets.
http://www.profitableinvestingtips.com/stock-investing-tips/how-to-pick-stocks