Tuesday, February 24, 2015

Sorting out the winners


I'm overwhelmed with information.  I have to narrow the field of choice to invest. I say Invest because speculating is risky at this stage.  I start my research by sorting out the winners from the losers - I buy the newspaper AFN, and highlight all the shares on the ASX that have a high % price change increase. 

I create a spreadsheet sorting the companies into sectors. 
I proceed with a further cull, based on the dividend yield  i.e A $1.00 share paying a 5 cents - dividend has a yield of 5%. My benchmark is anything higher than the current interest rate available on fixed term deposits for 3 years or more 3.6% Rabobank.  I'm not really interested in high yielding shares that are at the highest they have been for the past 52 weeks.  I remind myself that I am investing not speculating.  I need to buy low and sell high.  My intention is to create an income for the future. 

I look at the P/E ratio of the companies that are left - in basic terms  how much money you are paying for $1 of the company's earnings.  For example if a company is reporting a profit of $2 per share and the stock is selling for $20 per share, the P/E  ratio is 10.  In other words you are paying ten-times the earnings.  PROFIT/EARNINGS=P/E RATIO.  I split my spreadsheet into 2 sheets - the first - Investment shares the 2nd sheet Speculative,  the resource companies in my spreadsheet that don't pay any dividends but have increased in value.