Masterful Trading Stock Market Professional
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Risk Disclaimer This risk disclaimer is meant to inform the user of the potential financial risks of engaging in share trading. The transaction of such financial instruments can carry a degree of risk. Before deciding to undertake such transactions the user should carefully evaluate whether his/her financial situation is appropriate. Trading shares may result in loss of funds and therefore should only be undertaken with risk capital. The definition of risk capital is funds that are not necessary to the survival or well being of the user. The information contained within the Masterful Trading stock market course is for general informational purposes only and does not constitute financial advice. Please consider your own financial position or seek professional guidance prior to investing in the share market or other financial markets. Copyright Masterful Trading 2008 All Rights Reserved
Download all 10 lessons FREE – www.masterfultrading.com
Introduction Hello and congratulations on your decision to complete the Masterful Trading Stock Market Professional! This is the first and most important step in you becoming a proficient and successful trader. This is not another ‘get rich quick’ product that never works, this is an education and a life skill that when mastered, can be the key to your financial future. What would it mean to you if you were able to make money; a lot of money, from trading the stock market? It can mean the freedom to live anywhere in the world that you choose, or having more time to spend with loved ones. Whatever it means to you, just know that it is possible provided you put the work in and attain the skills and mental attitude required to succeed. What I will endeavor to teach you in this course are trading strategies and theories which have been proven to work in the stock market over the last century. As most people are aware, the stock market moves in cycles and patterns, short, medium and long term. Using probability we are able to predict with reasonable accuracy where the likely future direction of the market will be. Combined with a strong trading plan and strict money management rules, it is easy to achieve consistent profits from the markets. The Masterful Trading stock market course is made up of ten lessons, each with self assessment questions. I recommend that after completing each lesson you seek examples in what ever stock market you intend to trade until you are completely comfortable with the theories and strategies contained in the course. Good luck and happy trading!
Roy Masters www.masterfultrading.com
Fundamental Analysis Fundamental analysis or value investing is an investment method used to determine the value of a stock by analyzing financial data that is fundamental to the company. That means fundamental analysis takes into consideration those variables that are directly related to the company, like its earnings, dividends, etc. It primarily focuses on the company's business in order to determine whether or not the stock is overbought or over-sold. When it comes to fundamental analysis, it is easy to spend large amounts of time sifting through company data in the search for good investments. However I strongly recommend you focus on the three things that you need to know when it comes to the fundamentals of a company, which are: 1. Dividend Yield of the company 2. Price Earnings Ratio (PE ratio) 3. Earnings Per Share (EPS)
1. Dividend Yield The dividend yield measures what percentage return a company pays out to its shareholders in the form of dividends. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing it by the stock's price. The dividend yield is calculated by: Annual dividends per share Current share price X100
To illustrate: if a share price was $5.00 and the dividend was $0.50, its dividend yield would be: $0.50 $5.00 x100 = 10%
When a share is purchased, you secure the price at which the dividend yield is calculated. This is because it is based on the price you pay for the share. If you pay $2.00 per share and the dividend paid is 20 cents per share, your yield would be 10%. If the price of the stock rises to $4.00 and it still pays 20 cents per share the dividend yield advertised would represent 5%, but your dividend yield would continue to be 10% because you purchased the shares at $2.00. If the stock price was to fall, its dividend yield would rise and become more attractive to investors seeking dividends for income. It also becomes more attractive to large institutions because higher dividends enable managed funds to achieve better returns overall. This means, stocks that have a history of paying good dividends can be profitable.
So that eventually the price of the stock in this case will stop falling and start to rise. Looking for stocks that pay good dividends may alert you to stocks that are about turn around from a long term downtrend. A good dividend yield is one that produces a return higher than the market average or the interest you would earn on a bank deposits. For example the market average for dividends are around 4% to 4.5%. 2. PE Ratio (Price Earnings Ratio) The potential for a company’s share price to rise and fall often depends on how quickly its earnings are expected to increase. The PE Ratio provides investors with an insight into the financial prospects of a company. The PE Ratio is calculated as: Market Value of Share Earnings Per Share
For example, if a company is currently trading at $52 a share and earnings over the last 12 months were $2.30 per share, the P/E ratio for the stock would be 22.6 ($52/$2.30). Sometimes, a high P/E Ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E Ratio The P/E Ratio is sometimes referred to as the multiple, as it shows how much investors are willing to pay per dollar of earnings. For example if a company were currently trading at a multiple (P/E) of 20, the interpretation is that investors are willing to pay $20 for $1 of earnings. A low PE ratio (E.g. 10) compared to other stocks in the sector or index can also suggest that the stock is undervalued and a good buy. A high PE Ratio (E.g. 50) can indicate that stock is overvalued and should be sold.
But this method has its limitations because the published PE is based on the previous year’s earnings, which is historical, rather than a projected measure of the performance of the company. Therefore if we had to make a judgement on this fundamental data alone, it would indicate either to buy or sell the stock. However, because we also take other factors into account, such as the dividend yield and the EPS, we may decide to buy a stock with a high PE or continue to own a stock with a PE below the market average. 3. EPS (Earnings Per Share) Now let’s look at the EPS which indicates the overall profitability of a company listed on the stock exchange. Ideally you would like to see a company deliver results, because this leads to the stock’s price rising. Therefore, when examining the earnings of a company you need to look over the last three to five years of earnings to identify whether the forecasted growth is in line or above the average growth for that period. If the EPS is consistently increasing, this suggests that the company is being well managed but you should also look at the projected EPS. This is so that you can see whether the growth and therefore the growth of the share price, is expected to continue into the future. Often you will find the EPS forecast expressed as: 1. 2. 3. 4.
Previous year(s): what the EPS was in the past year(s) Current: what the EPS is this year 1 year: what analysts estimate it will be in one year 2 year: what analysts estimate it will be in two years
The figures used in supporting your analysis are dependant on the intended time frame upon which you would like to trade. E.g. if you are trading short term; the current EPS compared to last years, combined with the outlook for the next year is more relevant to you. If, however you are trading over the medium to long term, then the two year forecast compared to the current year is much more important.
Keep in mind that a forecast is not a guarantee, and these figures can change. Therefore it is important you always trade on what you know (and can verify) at the time. The EPS is calculated by dividing the net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. For example ABC Corp. reported net income available to shareholders of $5 million. Over the same time frame, the company had a total of 8 million shares outstanding. The company's quarterly earnings per share (or EPS) would amount to $0.40, calculated as follows: $5 million in earnings divided by 8 million shares = EPS of $0.62 Analysing the current EPS and then comparing it to the forecasted growth will not always mean that the share price will grow by this amount. And just because one company has a higher earnings growth over set period over another doesn’t mean that their growth will be better. This is why you should always consider all the data available on a company prior to making a decision on whether to purchase shares or not. Download all 10 lessons FREE – www.masterfultrading.com
Top Down Analysis Top Down analysis is essentially a fast way of finding promising stocks to analyze without going through the entire index one at a time. First we have to have decide which market or index we would like to invest in. Now, your location will probably have something to do with this choice but not necessarily. The internet has made the world a lot smaller so you may want to compare the performance of the NYSE (U.S), NASDAQ (U.S), FTSE (U.K), CAC (France), SSE (China), HKE (Hong Kong), or ASX (Australia) There are many others, so the choice is great. What you want to know is what indexes and exchanges are performing the best. Once you have established the market you want to trade in, it is then best to look at the individual sectors to find the best performers there. For example, the financial sector may be booming while the rest of the market is just average, or energy, materials etc. Once you have narrowed it down to sector, you can then further refined your search to the top performing stocks of that sector, like maybe the top 10 etc. Usually the stock exchange website will have basic filtering options that you can use for this. Alternatively you may want to use a software program which scans the market for you. Becoming familiar with using top down analysis like this, can lead to the best stocks very quickly, even in an unfamiliar market.
Self Assessment Questions Fundamental Analysis 1. In regards to fundamental analysis; what are the three most important figures we need to know about a company?
2. Name two reasons why a company that has a high dividend yield, may be a good investment?
3. What could it mean when a company has a high P/E Ratio?
4. If I am trading short term; what EPS data should I be looking for?
5. In regards to top down analysis, what are the three key stages that we look at?
Click Here for Answers
Self Assessment Questions Fundamental Analysis 1. In regards to fundamental analysis; what are the three most important figures we need to know about a company? 1. dividend yield of the company 2. price earnings ratio (PE ratio) 3. earnings per share (EPS) 2. Name two reasons why a company that has a high dividend yield, may be a good investment? 1. A higher dividend can man an overall higher return in the form of income. 2. Companies that pay higher dividends are often popular with long term investors and are more likely to rise in price. 3. What could it mean when a company has a high P/E Ratio? That the company maybe over-valued. 4. If I am trading short term; what EPS data should I be looking for? The last two years, combined with the next year 5. In regards to top down analysis, what are the three key stages that we look at? 1. Market 2. Sector 3. Top stocks in sector
Download all 10 lessons FREE – www.masterfultrading.com
Download all 10 lessons FREE – www.masterfultrading.com
Introduction Hello and congratulations on your decision to complete the Masterful Trading Stock Market Professional! This is the first and most important step in you becoming a proficient and successful trader. This is not another ‘get rich quick’ product that never works, this is an education and a life skill that when mastered, can be the key to your financial future. What would it mean to you if you were able to make money; a lot of money, from trading the stock market? It can mean the freedom to live anywhere in the world that you choose, or having more time to spend with loved ones. Whatever it means to you, just know that it is possible provided you put the work in and attain the skills and mental attitude required to succeed. What I will endeavor to teach you in this course are trading strategies and theories which have been proven to work in the stock market over the last century. As most people are aware, the stock market moves in cycles and patterns, short, medium and long term. Using probability we are able to predict with reasonable accuracy where the likely future direction of the market will be. Combined with a strong trading plan and strict money management rules, it is easy to achieve consistent profits from the markets. The Masterful Trading stock market course is made up of ten lessons, each with self assessment questions. I recommend that after completing each lesson you seek examples in what ever stock market you intend to trade until you are completely comfortable with the theories and strategies contained in the course. Good luck and happy trading!
Roy Masters www.masterfultrading.com
Fundamental Analysis Fundamental analysis or value investing is an investment method used to determine the value of a stock by analyzing financial data that is fundamental to the company. That means fundamental analysis takes into consideration those variables that are directly related to the company, like its earnings, dividends, etc. It primarily focuses on the company's business in order to determine whether or not the stock is overbought or over-sold. When it comes to fundamental analysis, it is easy to spend large amounts of time sifting through company data in the search for good investments. However I strongly recommend you focus on the three things that you need to know when it comes to the fundamentals of a company, which are: 1. Dividend Yield of the company 2. Price Earnings Ratio (PE ratio) 3. Earnings Per Share (EPS)
1. Dividend Yield The dividend yield measures what percentage return a company pays out to its shareholders in the form of dividends. It is calculated by taking the amount of dividends paid per share over the course of a year and dividing it by the stock's price. The dividend yield is calculated by: Annual dividends per share Current share price X100
To illustrate: if a share price was $5.00 and the dividend was $0.50, its dividend yield would be: $0.50 $5.00 x100 = 10%
When a share is purchased, you secure the price at which the dividend yield is calculated. This is because it is based on the price you pay for the share. If you pay $2.00 per share and the dividend paid is 20 cents per share, your yield would be 10%. If the price of the stock rises to $4.00 and it still pays 20 cents per share the dividend yield advertised would represent 5%, but your dividend yield would continue to be 10% because you purchased the shares at $2.00. If the stock price was to fall, its dividend yield would rise and become more attractive to investors seeking dividends for income. It also becomes more attractive to large institutions because higher dividends enable managed funds to achieve better returns overall. This means, stocks that have a history of paying good dividends can be profitable.
So that eventually the price of the stock in this case will stop falling and start to rise. Looking for stocks that pay good dividends may alert you to stocks that are about turn around from a long term downtrend. A good dividend yield is one that produces a return higher than the market average or the interest you would earn on a bank deposits. For example the market average for dividends are around 4% to 4.5%. 2. PE Ratio (Price Earnings Ratio) The potential for a company’s share price to rise and fall often depends on how quickly its earnings are expected to increase. The PE Ratio provides investors with an insight into the financial prospects of a company. The PE Ratio is calculated as: Market Value of Share Earnings Per Share
For example, if a company is currently trading at $52 a share and earnings over the last 12 months were $2.30 per share, the P/E ratio for the stock would be 22.6 ($52/$2.30). Sometimes, a high P/E Ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E Ratio The P/E Ratio is sometimes referred to as the multiple, as it shows how much investors are willing to pay per dollar of earnings. For example if a company were currently trading at a multiple (P/E) of 20, the interpretation is that investors are willing to pay $20 for $1 of earnings. A low PE ratio (E.g. 10) compared to other stocks in the sector or index can also suggest that the stock is undervalued and a good buy. A high PE Ratio (E.g. 50) can indicate that stock is overvalued and should be sold.
But this method has its limitations because the published PE is based on the previous year’s earnings, which is historical, rather than a projected measure of the performance of the company. Therefore if we had to make a judgement on this fundamental data alone, it would indicate either to buy or sell the stock. However, because we also take other factors into account, such as the dividend yield and the EPS, we may decide to buy a stock with a high PE or continue to own a stock with a PE below the market average. 3. EPS (Earnings Per Share) Now let’s look at the EPS which indicates the overall profitability of a company listed on the stock exchange. Ideally you would like to see a company deliver results, because this leads to the stock’s price rising. Therefore, when examining the earnings of a company you need to look over the last three to five years of earnings to identify whether the forecasted growth is in line or above the average growth for that period. If the EPS is consistently increasing, this suggests that the company is being well managed but you should also look at the projected EPS. This is so that you can see whether the growth and therefore the growth of the share price, is expected to continue into the future. Often you will find the EPS forecast expressed as: 1. 2. 3. 4.
Previous year(s): what the EPS was in the past year(s) Current: what the EPS is this year 1 year: what analysts estimate it will be in one year 2 year: what analysts estimate it will be in two years
The figures used in supporting your analysis are dependant on the intended time frame upon which you would like to trade. E.g. if you are trading short term; the current EPS compared to last years, combined with the outlook for the next year is more relevant to you. If, however you are trading over the medium to long term, then the two year forecast compared to the current year is much more important.
Keep in mind that a forecast is not a guarantee, and these figures can change. Therefore it is important you always trade on what you know (and can verify) at the time. The EPS is calculated by dividing the net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used. For example ABC Corp. reported net income available to shareholders of $5 million. Over the same time frame, the company had a total of 8 million shares outstanding. The company's quarterly earnings per share (or EPS) would amount to $0.40, calculated as follows: $5 million in earnings divided by 8 million shares = EPS of $0.62 Analysing the current EPS and then comparing it to the forecasted growth will not always mean that the share price will grow by this amount. And just because one company has a higher earnings growth over set period over another doesn’t mean that their growth will be better. This is why you should always consider all the data available on a company prior to making a decision on whether to purchase shares or not. Download all 10 lessons FREE – www.masterfultrading.com
Top Down Analysis Top Down analysis is essentially a fast way of finding promising stocks to analyze without going through the entire index one at a time. First we have to have decide which market or index we would like to invest in. Now, your location will probably have something to do with this choice but not necessarily. The internet has made the world a lot smaller so you may want to compare the performance of the NYSE (U.S), NASDAQ (U.S), FTSE (U.K), CAC (France), SSE (China), HKE (Hong Kong), or ASX (Australia) There are many others, so the choice is great. What you want to know is what indexes and exchanges are performing the best. Once you have established the market you want to trade in, it is then best to look at the individual sectors to find the best performers there. For example, the financial sector may be booming while the rest of the market is just average, or energy, materials etc. Once you have narrowed it down to sector, you can then further refined your search to the top performing stocks of that sector, like maybe the top 10 etc. Usually the stock exchange website will have basic filtering options that you can use for this. Alternatively you may want to use a software program which scans the market for you. Becoming familiar with using top down analysis like this, can lead to the best stocks very quickly, even in an unfamiliar market.
Self Assessment Questions Fundamental Analysis 1. In regards to fundamental analysis; what are the three most important figures we need to know about a company?
2. Name two reasons why a company that has a high dividend yield, may be a good investment?
3. What could it mean when a company has a high P/E Ratio?
4. If I am trading short term; what EPS data should I be looking for?
5. In regards to top down analysis, what are the three key stages that we look at?
Click Here for Answers
Self Assessment Questions Fundamental Analysis 1. In regards to fundamental analysis; what are the three most important figures we need to know about a company? 1. dividend yield of the company 2. price earnings ratio (PE ratio) 3. earnings per share (EPS) 2. Name two reasons why a company that has a high dividend yield, may be a good investment? 1. A higher dividend can man an overall higher return in the form of income. 2. Companies that pay higher dividends are often popular with long term investors and are more likely to rise in price. 3. What could it mean when a company has a high P/E Ratio? That the company maybe over-valued. 4. If I am trading short term; what EPS data should I be looking for? The last two years, combined with the next year 5. In regards to top down analysis, what are the three key stages that we look at? 1. Market 2. Sector 3. Top stocks in sector
Download all 10 lessons FREE – www.masterfultrading.com
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