Finding Underpriced Stocks

Read The Intelligent Investor by Benjamin Graham.

Price to sales
Tangible book value
Cash flows, particularly free cash flow and, by extension, operating cash flows

Others are less about numbers and more about thinking about the company. Good or great management should be considered as well as how idiot-proof the company is. Another is looking at companies that get priced lower than they should due to bad news. Finally, you'll need to make judgment calls to determine the future of a business. You don't want to end up buying something like Blockbuster because it looks cheap.

It's been well-documented that some of the best funds out there are index funds. They offer a better risk/reward ratio than almost every actively managed fund, which you as a nonpro probably can't beat anyway.

quote:

---

It's been well-documented that some of the best funds out there are index funds. They offer a better risk/reward ratio than almost every actively managed fund, which you as a nonpro probably can't beat anyway.

---

While undoubtedly helpful, OP didn't ask about funds (actively managed, index, or otherwise). OP is looking for valuation metrics to find value stocks. That said, reading about the methods of a value-based fund and comparing the results could give the OP ideas or even a methodology to follow.

Im going to be completely honest with you, although I've been trading just for a few years, I have learned a ton, but I am still far from expert, or even a "good" trader.

I've read books, watched videos, read forums galore, internet articles, etc. Find a tactic that works for you. I like blue chip stocks that crash for unexpected reasons. Volkswagon was a good one if you got in at the right time. And although I wouldn't consider it blue-chip, mens warehouse was also/will be a good trade for me IMO. It is now under "TLRD". Find big companies that frick up, and buy them if you are fairly certain they will be able to rebound, and if you buy too early, DONT shite your pants and sell, keep buying. Warren Buffet said one of the hardest things to do is watch yourself lose money, and throw more money at it. Learn to do this. Obviously, this doesn't work 100% of the time, especially not with cheap stocks.

What's your ultimate goal? Long term, slow, steady growth? To have fun? Risk prone or risk averse? Age and financial situation should play into your risk profile. For example, all of my retirement 401k and IRA are relatively safe plays, but my personal stock account (I use Interactive Brokers, 1$ trades) Im probably 50/50. I have some blue chip stocks that I'll hold, and I make some risky plays. My biggest loss, by far, has been with the national bank of Greece. Obviously, anyone could tell me this was a stupid play, but it could have went either way, and it still could hyperinflate or go bankrupt.

Learn about financial statements and rations, every book will hit on this. EVERY.SINGLE.ONE., but unless you are a analyst freak, you wont always make decisions on these principles alone, or these principles at all. Find random companies you are personally interested in (do you like flying? Boeing. Do you like hunting? Olin, which owns Winchester. Like tech? Microsoft, appl, etc. You get the gist). After you find some companies, or you can even pick random companies, go find and read their annual reports. I honestly think there will be more in the annual than anywhere else, but lots of people will disagree. I like to look at a companies goals, ambitions, strategies to reach said goals, etc. All of that will be in the annual. If the stock is down, they will normally address why. You can also find great information about possibly a huge, profit producing, plant being down for maintenance, like in the case of LXU, which was also a good play for me.

IMMEDIATELY learn how to set a stop/loss or stop/limit order on every buy you make, and which one you want to use. This is something that took me entirely too long to learn to do, but it is a must. If you dont know what those are, read up on it. This is how you protect yourself by losing 2-5 percent as opposed to losing more. Say you buy tlrd, like I did at 19, after the first drop. I buy at 19, set my stop at 18. Stock sells at, or around, 18, but continues dropping. I continue buying, adding more shares on each buy, as opposed to continued buying while holding those same expensive shares.

If you have time at work, or home, I dont know your current situation, look into one of the live trading screen shares. I had financial analysis and strategy review down, but I couldnt for the life of me learn graphs for shite. After signing up for a few of these, most had "free two weeks" or something similar, I was able to watch a live day trader literally explain everything he was doing, why he has making a trade here, executing a sell there, etc. You learn so much more about strategy by watching someone else, or atleast I did. If you'd like some recommendations for these, I'd be glad to throw a few your way. I used three and settled on one. They have some of these services that are literally over 2 or 3k a month, but I was using one that was around ~79/month, after trying 3 different ones in the same price range. The knowledge I gained from it was more than worth the two months I paid to use the service, but what works for me, may not work for you.

Lastly, you need to understand that you ARE going to lose money, unless you are extremely lucky, or extremely well prepared. I've only been doing this for a few years, and I maybe have broken even on the entirety of my trading, but with that being said, I have done MUCH better in the past 9 or so months. There is a learning curve, and even the best traders have slumps. Try out different strategies and see what works for you. Best of luck to you!

quote:

---

Finding Underpriced Stocks

---

Public stocks? Spending thousands and thousands of hours studying the public equity market may mean you can find some underpriced stocks. Key word may

If it were that easy everyone would do it.