Trading Basics & Fundamentals

What is the Most Important Thing to Watch with Fundamentals? #HungryForReturns 26

February 19th, 2019

Today we're going to take a look at some fundamentals because Carl has submitted one question about that topic. You can also submit a question by writing one, or you can send it by voice.

Here is Carl's question:

What is the most important thing to watch when it comes to fundamentals? Do I need to dig deep into the financials and the reports or what should I do with all these company financials?

Well, we focus a lot on technicals. And we do that because stocks typically move based on technicals.

There are fundamentals out there but typically when stocks have great charts they will have great fundamentals, and when you have great fundamentals you usually have great stock charts.

They work that way. However, when there's panic when you have stocks moving in a euphoria fashion, it's because of the technicals not so much of the fundamentals.

Usually, fundamentals are slow to move, because these companies are enormous. And it's a significant investment for them to make a change and it will take serious time to do that.

By the time they implement new change, it takes a couple of years for that process. Because of that, you need to look at fundamentals.

Crucial Things You Should Focus On

What you are looking for is a long term projection. If you're a long-term investor (5+ years), the number one thing to watch is earnings. That is the key because there are only two scenarios:

  1. They are making money
  2. They ARE NOT making money

Quite often companies can fudge their earnings a little bit.

Here's what they can do:

  • They can pre-ship products in advance
  • They can cut employees

Firing people is generally a good thing for stocks because the company saves money. It's not good for the regular person but for stocks is - they love it.

The thought process of those companies is the following:

The fact that we can do the same amount of work, and we can make the same amount of money, and have fewer expenses is excellent. We can fire 10% of our workforce, great!

People that are getting fired don't like that, but this is the way as it is. Be aware of that fact. You're looking for 20+ % - that's a real growth company. If you're looking for stability; 5% or 10% earnings growth is good enough.

You could pull this information up on NASDAQ, and you go to the company growth, analysts, research, forecast, growth. For me, Yahoo Finance is better and does an outstanding job with a lot of fundamentals.

Yahoo Finance Is Going to Help You Big Time

If you go to Yahoo Finance and type in McDonald's you can look at it here is what you can find overall stock and financials. If you want to go deeper into financial reports (annual and quarterly), you can hear what the earnings are.

But the reality is that it's tough to understand these things at a regular consumer level. That's because they bury things also in different accounts and everything is in so many separate compartments, especially with these big companies.

To simplify things you have to focus on these things:

  • What's the income
  • What's the continued operating expenses
  • What're the recurring events
  • What's recurring income
  • What's net income

That's the bottom line. And one more thing.

As I mentioned before if you're looking at earnings that are making a 5% on earnings - that's not a huge growth company. Now, that doesn't mean you always want mega growth companies, but typically 10%-15 % earnings growth year after year is the real deal.

Quick note: You have to compare January to January of the previous year. Not of this January to April because if you compare that you're in different seasons.

If you want to dig deep into the balance sheets and income statements you could do that by looking at revenue and the loss (operating income). You have to analyze all the data, and it can be overwhelming.

After a while, you'll ask yourself:

How do you can handle this as a regular human being? Honestly, unless you're an accountant, it makes it extremely tough.

Something like this can help you more than any statistics: If you hear a guy from a big company that is saying that the sales of the iPhones are slipping - that's not a good thing.

And what you want to do is start looking at these things at a bigger picture. If you have the urge to dig deeper into it, but also want to keep it simple, all you got to do is look at earnings and earnings growth.

That's what you're looking at - are they beating their earnings or not. We're looking at what's expected and what's achieved. As long as they keep moving up, that's a good thing.

Otherwise far as fundamentals go, I wouldn't stress too much on revenue research development.

Find a Breakdown of Product Sales In Apple Using statista.com

Let's take a look at the product category. This is what you want to look.

Look they're making the majority of their income (50%) from iPhone. Well, imagine if that iPhone starts having problems. Then there might be a lot of issues.

In 2019 from iPhone is coming 61% and only 8% from the iPad. Amazing. You can assume that if they launch a new iPad that it's not that exciting, right? Unless it's a huge revolutionary thing but in this case look at their core product lineup. Only pay attention to that.

Anyways that's what you want to do when it comes to fundamental analysis. You don't have to make it that complicated.

Follow These Main Principles

I don't dig deep into these reports. That requires lots of time, and you have to go through lots of data that most of the time doesn't make sense.

If earnings continue to beat over the last year or two chances are that they'll continue to beat over the next few years as well. When you're looking at choosing a company or stock to invest in, and you're looking for it based on fundamentals you're usually doing it because of the long term.

Don't do it for a short quickie. If you're doing it for a quickie, you want to look at technicals because those move more on a rapid basis, but for the long-term look at earnings, you don't have to dig that deep into the financials.

That's because you'll probably get confused anyway. Even accountants don't understand all of that.

Conclusion

For conclusion, I would say look at those earning reports and make sure that they're beating quarter after quarter and from a quarter of the previous year.

And when you do that and if everything looks okay then it should be a good company. What's almost certain is that if it was a good company over the last ten years and it continues to grow then probably, it will be still good for the next ten years.

Make logical and healthy decision stock based on general knowledge and looking at the charts for the longer term - seeing how these stocks have been performing over the last five or ten years. And if they've been doing fine, then they should continue to do well.

3 Different Ways to Scale Into a Stock to Manage & Reduce Your Risk #201

September 13th, 2018

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Today, what we're going to do is take a look at three different ways to scale into stocks. There are many more ways than just these three ways, but I want to show you three different ways to think about scaling into stocks or scaling out of stocks.

What scaling do?

The whole point behind this is to reduce your risk because you don't know if that stock is going to continue heading higher or continue heading lower. So, you break these things apart from your entry positions that way you hopefully have a better average.

The disadvantage is while if the stock continues heading higher into higher prices and it works in your favor, it would have been better to buy all your shares at the beginning because then you could get out sooner with a much larger profit.

But of course, in the other approaches, if the stock headed lower, it's good you didn't buy that many shares.

Linear Approach

Linear approach is stacking things on a linear level.

Let's say stock increases. I'm going to go ahead and do this 500, 500, and 500.

What you could think about, as you start looking at things in this way, is you could almost break these apart in different trades. This first trade, you don't have to think about saying this is where my out position is. Instead, you could think of your early exit, your second exit, and your third exit.

So, you tie these together to your exits. You're staggering your exit positions as well. So, you could break it apart that way as you start thinking about scaling.

One of the advantages to this is you have a linear amount at every single entry point, and everything's balanced. It's a right approach in one way because everything is working out okay to the upside and it's working out the same way to the downside.

Increasing Approach

This is the approach where you're testing the stock. When you're doing the increase method, you're checking to see that's not going to go higher. If it does well, you'll go ahead and add a little more. That's where you add in 500, and then you could go ahead and add in 800 if it continues and the stock proves to you that it's working out.

The advantage to this is you're looking at stock to prove itself to you.

The problem with this is all give and take. Not one is better than the other. It's just a give and take.

The problem with this one with an increasing method is that you're already at way higher prices and you have a much more significant share amount at higher prices.

The advantage, of course, if you didn't have a lot of risk at the beginning. You didn't have to put up a lot of capital because if that thing actually started to go down, your loss would have been much smaller.

Decreasing Approach

I could go really big at the beginning. Let's say 800 shares, then I might go 500 shares next, and then a little bit less 200 at the end.

This is another different approach. You're decreasing your share amount, and this is good when you're relatively strong about the stock. You have a reasonably stable break out, but you don't want to put all your capital in at once.

The advantage of this, of course, is that I'm getting in on a stable position at the beginning. I can peel off and take shares off much sooner and so I have an excellent position at a lower level.

The disadvantage, of course, is if this thing started actually to roll over it would create much more significant losses than it would if you did the 200 shares at the beginning.

If you're brand new to scaling and you're just trying things out, then I would say a good starting point does this balanced approach.

This is more of a balance where you're even, that's our linear way. Where you're going in 500 shares, 500 shares, 500 shares, and staggering things. It allows you to peel off those things as you move up in strengths or downward.

The increase approach is excellent if you're testing a stock and the decreasing approach is really when you feel right about the stock, and it's got a pretty strong breakout, but then you want to slowly get into it still through this different way of scaling.

If you're wondering how many times should you scale, the number of times I'd say for most people three to four times.

Once you start going into ten or twenty times, it starts to become irrelevant or not necessary or just more work than it's worth.

Ep 103: Your Trading Plan for When You Start

September 22nd, 2016

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Hey, this is Sasha Evdakov and welcome to another episode of Let's Talk Stocks. So number 103, your trading plan as you're getting started.

Today, we're focusing on your trading plan. It's just going to be a basic overview for those of you that are getting started but if you still struggling to move forward in the stock market then potentially you have the wrong plan, and you're focusing on the wrong thing.

If you're still trying to get to profitability, I know that's usually the hardest part. Then you're probably planning those incorrect things within your trading.

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Ep 92: Support and Resistance & the Energy of Stocks

July 7th, 2016

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Hey, this is Sasha Evdakov, and welcome to another episode of let’s talk stocks, episode number 92, and in this episode, we’re going to go into the basics, or the fundamentals, or the foundation of technical analysis, support, and resistance.
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Position Sizing & Share Quantity: How Many Shares to Buy in a Stock?

April 12th, 2016

Hey this is Sasha Evdakov and thanks for joining me here at Tradersfly.com, where I share with you insights about trading, investing and the stock market. In this week’s episode what I’d really like to do is share with you some insight about Share Quantities, Share Size and Position Sizing.

I’m not going to detail in as much detail as I do in my create your stock trading system course about this trade size but I want to share with you some insight just about position sizing, how I go about it, how I approach it and just some things to think about.

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Ep 79: Strategy to Find Strong Stocks in a Down (Bearish) Market Day

April 7th, 2016

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Hey this is Sasha Evdakov, welcome to episode number 79 of let’s talk stocks, and in this episode I’d like to share with you a method to find which stocks are strong during a down market.

You can use this method in the inverse, meaning you can see which stocks are weak in an up market, you can also use it to find which stocks are strong during a down market.
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I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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