There has been a lot of people wondering about investing in the stock market and for a good reason — our local stock market has been outperforming many other markets and has seen tremendous growth in the last 3 years.

Assuming that you have identified your investment objectives and you are willing to accept the risks of investing in equities, you may want to do the next thing and start investing.

Here’s a guest post by my good friend and ‘inaanak’ who is popularly known as Mr. Stock Smarts. I’ve asked Marvin to list the 5 things he considers before buying a stock.

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5 Basic things I consider before buying a Stock by Marvin Germo, RFP

What’s amazing about the stock market is that it is not about how deep your knowledge is in the economy or how awesome you are in using graphs that will make you earn. It’s also not about how much you know but how you implement that knowledge and balance it with your emotions. I always tell my clients that there is no right or wrong in terms of strategy in investing or trading in the stock market. What I always tell them is that when you find a strategy that earns for you, stick to it like the glue and don’t change your technique in the middle of the game.

In a nutshell here’s a basic process that I follow whenever I buy stocks. It’s my desire to see more and more Filipinos walk in their God given destinies of abundance.

1. Fundamentals — Increasing earnings and increasing market.
The very first thing that I consider before buying a stock is looking at the company’s finances. For me it doesn’t make sense to put my money into a company that is not earning. I look at the track record of the company if it’s sales, net earnings, along with its earnings per share are increasing every year, for the past 5 years. This gives me a sense of comfort as I would know what the company has done in the past to earn further. At the end of the day, it’s all about earnings, earnings, and more earnings that would take the stock price higher.

2. Valuations – Intrinsic Value is higher than the market price.

This entails computing what the company is really worth based on what it currently has and what its supposed to receive in the future. Upon computing and I see that the intrinsic value is HIGHER than the market price it furthers my stance in buying the stock. If the company is overvalued and IT’S MARKET PRICE IS HIGHER THAN IT’S INTRINSIC VALUE I avoid the stock at all cost.

3. Momentum – I buy when there is increased volume.
The stock market is all about liquidity, the more interest there is in a certain stock the easier it would be to buy and sell it. For me, no matter how good a stock is fundamentally if no one pays attention to it, the stock would go nowhere for weeks, months, and even years. The bigger the volume for a certain stock gives me a stronger conviction to buy it.

4. Technical analysis – I buy when the stock is about to reverse into an uptrend
Technical analysis is the study of market sentiment represented in graphs and charts. With the premise that an investor would be able to get indicators whether it would be a good time to come in or out of a certain stock. I only buy stocks in an uptrend, meaning the general direction of the market is in a buying frenzy for the stock. I never go against the flow or the trend as this is a very very good way to lose a lot of money. If I find a stock that is undervalued, good earnings, and has volume, I check if it’s in an uptrend then I’d buy it.

5. Emotions — I don’t listen to forums and I ignore the crowd.

Once I have confirmed everything using fundamental analysis and technical analysis and have made my decision to buy the stock. I ignore everything else. I see to it that buying is based on my analysis and not what I hear in forums, the net, or even my closest friends. At the end of the day buying of a certain stock is a personal decision that each investor should make.

To learn about Marvin, visit his site www.marvingermo.com

Even if you are not an Accountant, you would most likely encounter an income statement or other simply refer it to a profit and loss statement. An income statement is very useful to determine the viability of any business and any person. It is used both from a business perspective and should also likewise be used in a personal way. I often say that the principles of corporate finance is the same as personal finance, just varying in application and terminologies.

Income statements are very important to determine the profitability of company and is likewise a good way to determine your personal profitability.

So what is an income statement? A typical definition  is that it is a financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.

Ivestopedia.com has a better way of explaining what an income statement is —

The income statement is the one of the three major financial statements. The other two are the balance sheet and the statement of cash flows. The income statement  is divided into two parts: the operating and non-operating sections.

The portion of the income statement that deals with operating items is interesting to investors and analysts alike because this section discloses information about revenues and expenses that are a direct result of the regular business operations. For example, if a business creates sports equipment, then the operating items section would talk about the revenues and expenses involved with the production of sports equipment.

The non-operating items section discloses revenue and expense information about activities that are not tied directly to a company’s regular operations. For example, if the sport equipment company sold a factory and some old plant equipment, then this information would be in the non-operating items section.

Still confused? Here’s a video that might help…

Whew! It’s a good thing I decided study Economics instead of Accounting 😉

Have you noticed that the older generation was not as comfortable with debt as the newer generation? I remember how my late Grandmother would always frown upon any kind of debt. My late mother who was the finance manager of my Dad’s business would always be so deliberate in reducing the company obligations and would never get into any consumer type loans.

Why does it seem that the older generation seems wiser when it comes to handling of debts? I’d like to share something I read from Youversion.com on debt and generations.

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Have you ever heard of the generational theory? The concept is that there are very different cultures, including money cultures, depending on how old you are. People from the Depression/World War II generation (the “Builders”) hate debt, whereas people from the iPod generation (the “Millennials”) tend not to worry about borrowing. Builders pay cash; Millennials just get another credit card.

When it comes to borrowing, the Builders are wiser. Every financial planner worth a dime will tell you to pay down debt as rapidly as possible. Interest payments just eat cash. Out-of-control debt also destroys your credit rating and makes it harder to get a decent loan on really important things like a home.

Paying down debt ASAP also applies to personal loans from relatives or friends: “Do not say to your neighbor, ‘Come back later; I’ll give it tomorrow’ when you now have it with you” (Proverbs 3:28). That’s not only good financial advice. It may also save a friendship.

– youversion.com