What Does a Gallon of Milk Have to do With Investing in The Stock Market?

By: Tom Vilord

Image result for gallon of milk and stock market

My wife asked me to go the the store earlier this week to buy a gallon of milk, so Sammie and JJ can have their cereal in the morning. As I roam the aisles of Shop Rite, as most clueless husbands do, I am trying to find where the milk aisle is located. Ahh, there it is…it’s at the complete opposite side of the store from where I am. So, after walking 50 aisles and half a mile later I finally get to the refrigerated section that holds the milk. I get there and what do you know. There are about 10 different types of milk, 1%, 2%, Skim, Whole, Almond, and whatever else was there. I didnt know which one to get, so I just picked one and hoped for the best. What I did notice was that they were all pretty much the same price.

And that got me thinking about…the stock market. Let’s pretend for a minute that there were a few different prices for that gallon of milk. Brand A was $25/gallon, Brand B was $4/gallon, and Brand C was $1/gallon.

How many of you would buy Brand A? None of you would, right? Why? No matter how clueless some husbands are, I think it is pretty safe to say that all of us know that a gallon of milk does not cost $25. It is too expensive…it’s not worth that much. It’s safe to say that Brand B is priced pretty fairly. What about Brand C. Why is it only $1? There could be two reasons for that: First, it is past the expiration date, it’s sour, and gross. OR it could be on Sale. Maybe Shop Rite is putting it on sale for 1 day only.

So, what does that gallon of milk have to do with the stock market? When investing hard earned money, often times people buy investments without doing just a little bit of research on what it is that they are investing in. Maybe you are taking a leap of faith and giving it to an advisor and hoping they know what they are doing. Maybe you are investing in a stock because you heard it is the “hot tip” that you can’t miss out on. Or maybe you are a bit smarter and you are investing in it because you are familiar with the company and you use their products and services.

When Warren Buffett invests, do you think he buys a stock just because he likes the product? When he bought Coca Cola, do you think he bought billions of dollars of stock because he likes the taste of the drink, or do you think he did some homework to figure out how good the business is AND how much the business of Coca Cola is worth?

When you invest in anything, you need to know the value of what it is that you are buying. Just like when we go grocery shopping and buy a gallon of milk. I would never buy a gallon of milk for $25 because that is equivalent to buying a stock that is overvalued. As investors, we NEVER buy anything if it is overvalued. If I bought the $4 gallon of milk that is like buying a stock that is fairly priced. You may do well with that stock or you might not. You definitely won’t have any exciting returns. If you bought that gallon of milk that was only $1, that is like buying a stock at a discount. Why is it at a discount? Is it sour milk or is it at a very nice bargain price that may only last for a short period of time?

We, as investors, need to figure that out. If we can do that, we will be very successful.

Warren Buffett has a great quote when it come knowing stock prices: Price is what you pay, Value is what you get.

What does he mean by that? The current price of any stock just represents the price investors are willing to pay for it at the current moment. That doesn’t mean that is what the stock is actually worth. Let’s assume that I buy shares of XYZ for $50 a share today (and we are going to assume it is going to go up to $60 in the next few months). For some reason the stock takes a beating and it is now trading at $40. You go and buy a bunch of shares at that price. I paid $50 and you paid $40. That is the PRICE we paid. We bought the same company, who sells the same products and services, but which investor got more VALUE?

There are many ways to determine where a stock should be priced. I use 13 different calculations. And, unlike what most people believe, most of these calculations require just a basic 3rd grade level of understanding.

Once you are able to understand how to value a stock and know what a stock is worth before you invest, you will never overpay for a stock again. You will know when you are buying a great company at a great price. You will be buying a fairly priced $4 gallon of milk for just $1 or $2.

Another thing that will happen when you understand this concept is that you won’t freak out the next time the market has a major decline. Instead of thinking that the world is collapsing, you will see that decline as a huge buying opportunity. When the market crashes, everything goes on sale. That is when we load up the truck. Charlie Munger once said “Money is made when you buy, not when you sell”.

If you want to know some ways that I value stocks, let me know and I will share that with you in my upcoming posts. This is the first post I have made in quite a while. I have spent the last year creating a few courses on investing. Now that I am wrapping that up, I have much more time to get back to posting blogs.

Also, let me know what other topics that you want to learn about when it comes to investing in the stock market or options trading. I want to hear from you and I will be happy to answer any questions you may have.

FREE OFFER:SEND ME YOUR TOP 10 QUESTIONS ABOUT INVESTING IN STOCKS AND OPTIONS AND I WILL SEND YOU A COPY OF “HOW TO VALUE A STOCK — METHOD #1” AND I WILL GIVE YOU FREE ACCESS TO OUR “STOCK MARKET BASICS” COURSE.

SEND THOSE QUESTIONS TO:

Tom@WallStreetValue.com.

If you want to hear more from me, follow me on social media: Facebook @WallStreetValueOfficial, Twitter @WallStreetValue, YouTube @Wall Street Value and Instagram @TomVilord.

Trading Indicators-Too Much Is Not a Good Thing

By: Tom Vilord

Image result for technical analysis indicators

There are literally hundreds of technical indicators out there and thousands of technical indicators combinations that can be used. But the problem lies on the premise. Since there are lots of technical indicators available at your disposal, you risk yourself of having too much of everything which can lead you with mastering nothing. This begs the question: “can you use too many technical indicators?”

Probably, you have asked the same question too and are trying to find the Holy Grail of combinations that will catapult you to immortality, at least in the trading world. You may test several technical indicators or technical indicators combinations that are suggested by some writings on the internet. But the thing is, there is no single technical indicator combination that is 100% successful. Because if there is, everyone will be using it and everyone will be rich right now. Right?

I am not saying, however, that the internet cannot give you something you can use or the internet is just a virtual world full of crap in terms of information about trading indicators. We cannot deny that the internet has given us the ease of access on several technical indicators and charts, which have made some investors knowledgeable in the field and have actually make others real fortune. What I am saying is that investors should not rely on suggested technical indicator combinations and expect to become successful. What you should do is to learn as much as you can and identify which indicators are suited to your trading style, which in turn, can yield to higher profit or positive curve in the long run.

With that said, you don’t have to use several indicators at once. Experts agree on this. Using several indicators at a time will only create confusion. It will only create conflicting information, which is not good if you want to have certainty in your decision.

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A good example is using 7 indicators when deciding on your entry and exit positions. Four of them are telling you to enter a long position but 3 are indicating a future downward movement. While majority of your indicators are giving a green light, the other 3 can become a factor. Statistics may be on your side to pursue the trade but you are more likely to abandon it because you still see the risks.

It does not end there. Using multiple time frames can give you different conflicting information which can become a major factor in your decision. More likely, you end up not trading at all because you are afraid to take a position.

To become successful, you really do not have to have several indicators. This is quite ironic but the most effective indicators are those that have been around the longest. Experts suggest that you stay away from complex set-ups and stick on the basic like MACD (Moving Average Convergence/Divergence), Rate of Change (ROC), Relative Strength Index (RSI), Price and Volume Oscillator, and stochastics.

Even with these examples, you have to identify which indicators are suited to your trading style. Do not overcomplicate things. To become successful, you don’t have to constantly tryout new indicators in order to find the best combination. All you need to do is to use and master few and simple ones.

Image result for keep it simple

Tom Vilord

Option Trading-Tips for Beginners By: Tom Vilord

Trading, in general, is a highly technical field that does not only require would-be participants to have some understanding on what a particular trade is or how it works but also in-depth knowledge of what goes within a particular trade. In short, basic knowledge is not as helpful as most think it is. Specialized trading types, such as that of options trading, may force its participants to gain more knowledge.

Here are some tips that could help power you up when starting with options trading:

Know the lingo. Option trading has its own jargon that may seem gibberish to people who do not know a thing about the trade. To them, the terminologies commonly used in trading, regardless of the form, seem so complicated that they would lose interest on the trade even before they get started. Well the lingo of options trading is downright complicated, probably contributing to why too few people involve themselves to it. However, once a trader manages to pick up some basic terms and has learned quite a bit about the trade, it would be much easier to understand how the whole thing works. Probably not all the ins and outs of the trade but the general idea would be well-understood. So do yourself a favor, study the terminologies commonly used in options trading and maybe after that, read a few stuffs about it.

Attend options trading seminars, online or offline. If you want the shortcut to learning the trade, you might want to consider attending seminars or subscribing to online seminars and tutorials. In most cases, seminars cover all levels of knowledge regarding the trade. So for beginners, it would be best to start with the basics of the trade and continuously improve your knowledge by completing a series of seminars.

Subscribe to online tutorials. There are several websites and companies that offer online tutorials which may consist of interactive modules, probably among the best learning tool there is. Interactive modules allow you to learn by practice.

Indulge yourself to some options trading books. Internet could provide the basic things you need to get started with options trading but you must realize that internet can only give you so much. If you have started researching online about this trade, you will find out that the websites dedicated on options trading and other kinds of trades only cover the same things- basics of the trade, common terminologies, some risks involved and others. If you want thorough discussions on the trade, you have to rely on books written by well-recognized authors. Remember the operating word- well recognized. There may be a number of books written on this subject but you must try to pick the best book available so you don’t have to waste your time on repetitive information that you would commonly find online and rubbish talk that may not help you at all.

Once you have read a comprehensive book that discusses on various areas of options trading, it would be much easier to understand technical analysis. At this point, you will have to analyze what the charts suggest, know the types of options that you may want to trade (there are lots of them so be sure to pick out the one that suits you best), use the options strategies that work well with you, and demonstrate knowledge on various market analysis tools.

Lastly, if you want to drastically reduce the learning curve, learn from someone who has done for years and is willing to hold your hand throughout the process.  We offer a hands on course and live trading for those who want to learn the art of trading options and technical analysis.

If you would like to know more about our Options Trading Bootcamp course, Technical Analysis Bootcamp and our Weekly Live Trade Room, where we do live Options Trading together, give is a call today at 856-441-6500 or reach out to me directly at tom@wallstreetvalue.com.

Tom Vilord

VIDEO: Investment Checklist Tip #12 – Can the Business Pay their Obligations

 

 

When we invest in a business, we need to make sure they can pay their bills…both short term and long-term obligations.

 

Every business has a slump at some point and if when they do, we need to make sure they are financially healthy enough to weather the storm.

 

In this video we talk explain 3 ratio’s that help us determine if the business we are considering investing in will be financially able to meet their obligations.

 

REGISTER NOW for our 16-Week Stock Investing and Options Trading Class. For more info, please email me at tom@wallstreetvalue.com

 

Follow me at: https://go.wallstreetvalue.com/case-s… Online Investment Courses | Sock Trading Education | Wall Street Value Wall Street Value Wall Street Value https://twitter.com/WallStreetValue

Live 16-Week Stock Investing and Options Trading Course Agenda

Session One: 

  • Intro to Value Investing

 

Session Two:

  • Developing your Investment Niche
  • Finding Investment Ideas
  • Copying the Pros
  • Tracking the Insiders
  • Free Resources to find ideas
  • Exercise – Find 2 A Rated Companies with Current Insider Buying

 

Session Three:

  • Analyzing a Business
  • Management Compensation
  • What to read in an Annual Report
  • Warren Buffett’s Moat
  • Important Growth Rates
  • Joel Greenblatt’s Formula
  • Putting All the Odds in Your Favor
  • The F-Score
  • Exercise – Find one business that fits the above criteria AND has a Shareholder Friendly CEO

 

 Session Four:

  • Share Buybacks
  • Earnings
  • Return on Equity, Assets, and Capital
  • Historical Valuations
  • Trading Volume
  • Market Cap
  • Financial Ratio’s
  • Warren Buffett’s Secret to Success
  • Exercise – Find one company that fits 5 of the criteria taught in this session.

 

 Session Five:

  • Financial Ratio’s continued
  • Cash is King
  • Free Cash Flow
  • Enterprise Value
  • EBITDA
  • The Best Valuation Metric
  • Intro to Valuations
  • Exercise – Use the financial ratio’s learned in this section and find a company that has at least 4 financial ratio’s that are currently lower than historical valuations.

 

Session Six:

  • Valuation Methods 1 through 4
  • Exercise – Find a company using the criteria you have learned in the previous sessions and apply all Four Valuation Methods to determine a potential target stock price.

 

Session Seven:

  • Valuation Methods 5 through 8
  • Exercise – Find a company using the criteria you have learned in the previous sessions and apply Valuation Methods 5-8 to determine a potential target stock price.

 

Session Eight:

  • Valuation Methods 9 through 13
  • Exercise – Find a company using the criteria you have learned in the previous sessions and apply Valuation Methods 9-13 to determine a potential target stock price.

 

Session Nine:

  • Putting More Odds in Your Favor
  • Buying Opportunity vs Falling Knife
  • Follow the Big Money
  • Four Short Term Indicators
  • Using the Signals
  • Exercise – Find a company that had a recent drop in stock price and use the arrows to see when you got a buy signal.

 

Session Ten:

  • Get Paid to Wait
  • Options Basics
  • Buying Options
  • Selling Options
  • Terminology
  • Get on the Right Side of the Trade
  • Long Call
  • Short Call
  • Long Put
  • Short Put
  • Creating Margin of Safety (My Favorite Trade)
  • Generate Monthly Income on Existing Positions
  • Increase Your IRA Contributions without Depositing any Money
  • Long Term vs Short Term
  • Volatility:  Implied vs Historical
  • In the Money, At the Money, or Out of the Money
  • Exercise – Identify a company that you want to own and select and a strike price that creates a discount, or Margin of Safety.  Then select the length until expiration.

 

Session Eleven:

  • Make Money in 3 Directions
  • Trade for Monthly Income
  • Market Index
  • Credit Spreads
  • Bull Market Trade
  • Bear Market Trade
  • Neutral Market Trade
  • Condors
  • Delta
  • Probability of Success
  • Minimum Monthly Return
  • Length of Trade
  • Rules for Exiting a Trade
  • Track record since January 2008
  • Exercise – Back Test a credit spread for one full year using the rules of the trade and record the results.

 

 Session Twelve:

  • Buy Write Combo
  • Profit if a Stock Doesn’t Move
  • Double Your Returns
  • Double Digit Returns with Zero Stock Movement
  • Lower Your Cost Basis
  • Single Digit Returns on a LOSING Trade
  • Selecting Strike Prices and Expiration
  • Exercise – Find a company that fits our criteria.  Back Test the returns using this strategy for 6 months.  Compare the returns to the stock return if you did not place this trade.

 

Session Thirteen:

  • Fixing a Loser
  • Correcting a Losing Stock Trade
  • Correcting a Losing Options Trade
  • Profit from a Loser
  • Exercise – Back Test an options trade that did not work out.  Find a strike price and expiration date that will correct the losing trade and turn it into a winner.

 

Section Fourteen:

  • Lower Your Cost Basis
  • A Few Ways to Make Money
  • DCA to Lower Cost Basis
  • Dividends to Lower Cost Basis
  • Options to Lower Cost Basis
  • Short Term vs Long Term Options Expiration Dates
  • Buying the Dips (if it makes sense)
  • Exercise – Find a company that you have already used in your homework assignments.  Lower your Cost Basis using the strategy taught in this session.  Compare the results using multiple short term trades to selecting one longer term trade.

 

 Session Fifteen:

  • Using an Investment Checklist
  • Scoring System for Our Analysis
  • Buy, Sell, Trade, or Add to Watch List
  • Exercise – Find a company and do a complete analysis using every item on this checklist.  Once complete, determine if the company should be bought, traded, or put on a watch list.

 

Session Sixteen:

  • Types of Investment Risk
  • Risk Management
  • Asset Allocation
  • Diversification
  • Position Sizing
  • Stock Allocation, Options Allocation, and Cash Allocation
  • Exercise – Determine how much you want to allocate to buying individual stocks, how much in options trades, and how much you want to leave in cash for future opportunities.  Now find at least 10 potential stocks that interest you and put them on your watch list.  Each of the 10 companies MUST be in different industries for diversification purposes.

 

Bonus Session:

  • Managing an Existing Position
  • Quarterly Reports
  • When to Sell
  • The Story Changed
  • A Breached Moat
  • OverValued
  • Velocity of Money
  • Exercise – Select a company that you have already used in these exercises.  Look at the previous 8 quarters using the Back Testing tool and see if the story has changed, the Moat has been breached, or the valuation has changed based on what you learned in this session.

VIDEO: The Investment Checklist Tip #11 – Return on Capital

Return on Capital aka Return on Invested Capital (ROC or ROIC) is the Rate of Return a business earns on investor (stockholders or bondholders) money that they are investing.

 

This is a good indication of how good the management team is at turning capital into profits.

 

A higher ROC means there is something special about the business, otherwise it’s competitors would have driven down the ROC to lower levels.

 

A high ROC is a very good indicator that the company has a competitive advantage, AKA a wide Moat.

 

If a business doesn’t have any new or innovative products/services, or anything that stands out from the competition, then they are going to have a lower ROC because a competitor can come in and do the same thing and take its customers away from them.

 

REGISTER NOW for our 16-Week Stock Investing and Options Trading Class. For more info, please email me at tom@wallstreetvalue.com

VIDEO: Investment Checklist Tip #10 – Earnings Yield

Investment Checklist Tip #10 – The Earnings Yield

 

In today’s video, we talk about one of the two metrics that Joel Greenblatt uses to find stocks for his hedge funds at Goliath Capital.  He explains these in his book, The Little Book that Beats the Market.  The first of the two metrics are Earnings Yield.

We want companies that have a higher Earnings Yield, preferably over 10%.  This means that the company is earning more than the price we are paying to by the stock.

 

 

REGISTER NOW for our 16-Week Stock Investing and Options Trading Class.

For more info, please email me at tom@wallstreetvalue.com or see our case study at:

https://go.wallstreetvalue.com/case-study

 

 

 

VIDEO: Investment Checklist Tip #9 – The PEG Ratio

Investment Checklist Tip # 9 – The PEG Ratio

 

The PEG Ratio is a a great tool to quickly see where a stock may be valued at any point in time. 

 

It looks at a company’s current PE compared to its Earnings Growth Rate.  We want to invest in companies who have earnings that are growing at a higher rate that the current PE.  If so, you have potentially identified an undervalued company. 

 

The PEG Ratio is also useful because this takes growth into account whereas the PE Ratio does not.  It’s another tool to have in your toolbox.

 

 

REGISTER NOW for our 16-Week Stock Investing and Options Trading Class beginning in January. For more info, please email me at tom@wallstreetvalue.com

 

Follow me at:

https://go.wallstreetvalue.com/case-study

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VIDEO: Investment Checklist Tip #8 – Market Cap

In the last video we showed you how investing in a stock that has low daily trading volume could bite you in the butt by giving you an unfavorable entry price IF you are able to buy it and you could also get a terrible sell price IF you are able to sell it.

In this video we talk about Market Cap and how investing in a company that has too small of a market capitalization could have the same consequences. We stay away from the Nano and Micro Cap stocks because they are often times, very illiquid.

This brief video shows why we want to invest in a company that has a MINIMUM Market Cap of $300,000,000.