Stock & Options Trading

How To Buy Stocks?

I learned two important lessons from stock investing in the last seven years:

1) Don't believe in charts or anything more sophisticated than that.
2) Good company does not necessarily make a good investment; good company and an attractive price do.

Here are two buying tips from the pros:

Compare a stock's price to its expected earnings-growth rate. The price-to-earnings-growth ratio, or "PEG," should be at or close to 1.0.

For example, a stock at 30 times earnings may seem overpriced if the average company in the industry commands a price-to-earnings ratio, or "P/E," of 20. But if analysts expect 30% earnings growth for the company over the next year, a PEG ratio of 1.0 is eye-catching.
"It's the biggest metric we look at," said Alec Young, an equity strategist at Standard & Poor's Inc. "A company may have a high P/E, but, until you know what the earnings growth is, it's hard to ascertain whether the stock is attractive or not."

Also, study the corporate balance sheet, a financial summary that -- along with the cash-flow and income statements -- reflects the quality of earnings. These documents tell you whether management makes, spends and invests shareholders' money wisely. Company Web sites should post 10-Q quarterly reports and 10-K annual reports, or the Securities and Exchange Commission Web site, at www.sec.gov, offers these and other informative disclosures.