I conducted a short interview with my financial adviser (Frugal Son) via chat.
Me: What are your favorite finance books?
Son: So far my favorite has probably been Bogleheads. I'm also reading a book right now called Warren Buffet and the Interpretation of Financial Statements, which is shaping up to be pretty good. And the way I choose my stocks is, so far, very simple, but will hopefully get a little more involved once I'm finished reading this book.
Right now, I look for a P/E ratio that is not too much higher than 15 an consistent, positive EPS. I like dividend paying stocks, so I look for companies that have a history of paying dividends even in down economies. I also like stocks that have a price-to-book ratio of near or below 1 (ideally).
Me: So it's not brain surgery.
Son: Nope. That's about it. This latest book is teaching me how to look at underlying financials to get a better idea of the financial state of the company like about debt ratios etc., but the price-to-book ratio below 1 is nice because theoretically (emphasis on theoretically) that means that even if the company goes bankrupt you won't lose money theoretically.
I am amazed.
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4 comments:
I've sometimes thought choosing stocks that have added benefits, ie let you upgrade or give you advance notice, free tickets, etc. would be fun. I gather these used to exist, but no idea if they still do. I have a small pot of money in 401/457K stocks. Otherwise the last few years I've put money into funds. One has done poorly (chosen by my crook of a financial advisor), one has done reasonably well (Bill's recommendation). The one that has done best? (20% income?) The index fund: no fees.
The hard thing I gather (no expert here at all) with buying your own individually selected stocks is diversification. Unless you've loads of cash, it would take a fair bit of time to spread the risk.
Those books are on my list to read, but until I'm convinced otherwise, I'm likely to stick with my index linked stocks.
@Shelley--Even my son has mostly funds. Believe me, I'm sticking to 95% index fund. too.
My level is still Eric Tyson's Personal Finance for Dummies. I also enjoyed reading some of Suze Orman's for a while and more recently Dave Ramsey. I don't mess with individual stocks though at one time I was interested and did sharebuilder.All my investements are inside my 401k and roth IRA; other savings so far are in credit unions/savings accounts
I think that's cute and kind of fun. I own all of seventeen stocks for the interesting factor of owning stocks and watching them bobble up and down. For the most part, I bought low enough that they've always stayed above purchase price so theoretically I should be able to sell for a handful of change in profit (all I'd ever be able to do with only SEVENTEEN shares!)
Of course everything else I own in investments are funds.
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