The Strategy of Investment
The most common question come into minds for just a moment or a part of your daily time : How may I turn my saving into a fortune. Is there a mystery formula that will give me victory and lead to movement for the target. I like to hear your says "long term investment and diversification are the keys of success in the money market that economists agreed". I can explicitly say you that It is the biggest and most harmful lie in the finance. If you have the finance background to analyze the market and financials of a company, most importantly can take the initiative, stand back of it and believe your decision, the inevitable result come into live: you will make the money, lots of money:)
In the capacity of a individual investor, there are a few points you must take into consider in the process of investment decision.
> Never forget Financial Instruments do never move independently from each other and most importantly from general economic milieu.
> Do not determine a deep value for an instruments and than buy. Because Decline Trend can't terminate. Most of times you think a stock has its minimum value that it can be, this can be seen a buy chance. Many cases shows that hope is harmful feeling for an instruments for which in the decline trend.
> Most regretful experiences for an investor result from impatience. If you have certain idea about an instrument based on financial reports and prediction of future. Wait for it come to alive. If you believe an instrument will rise in a soon time and if you sell it early stage from lower price after that regret will be an excruciating memory when this instrument rise the level you have been already predicted.
> Do not look for tips and never again never believe it. If a tips have been publicy, The only reaction you must take to use the controversial wisdom means making the adverse of the tip. Don' t forget the saying Bulls make money, bears make money, pigs get slaughtered.
> It is the one reality that market has foreknowledge about the performance of company. If a financial instrument has an unreasonable movement, think it first. insiders are in charge and they make transaction with the light of information nobody else hasn' t just know.
The Question: How to analyze the financial statements of the company ?
The most common way to monitor financial situation of a company is dissecting balance sheet and income statement together.
The mission come from the birth of this land, I will give the example from XU30 Company of Turkey.
XU30: describes the biggest 30 company traded at İstanbul Stock Exchange
Basic approach to analyze Balance Sheet
First thing we must look that the annual profit of a company over the paid in capital. It means how much money main shareholder put the capital to company. Which amount of profit does it produce ?
>We put the XU30 companies' main indicators above table. Although we are
now on 26.07.2012, we have only data of first quarter balance sheet and
income statement. Expected Profit of 2012 is produced by using trend
analysis on the sectors and macros over the data first quarter of 2012.
> "V" stands for the possible grow rate of stock. If a company is mediocre with its business, this ratio is parallel with the inflation rate in this country. Inflation expectations for 2012 is 6,5%. (We know that each stock has been 1 Turkish Lira nominal value.). "V" indicates annual profit per paid in capital as taking account each stock price.
> "A" stands for the potential increase coefficient of a stock with respect to earned surplus, paid in capital, price and annual profit .
> Brand image factor and sector future expectations had been taken into consideration on the expected annual profit of 2012.
Two stock has been stand out in this table. Kardemir D and Vakiflar Bankasi. When we look at the performance of this two stock from the first days of 2012 until today. It is not surprising for us.
This two major XU30 stock,
KRDMD has been moved from 0,72 to 0,97 with paying dividend 0,05 TL (rise up 41,67 %)
VAKB has been moved from 2.43 to 3.56 (rise up 46,50 %)
It will be unfairness if we do not notice that XU 30 stocks has risen up 24,00% from the first days of the year. But we explicitly prove that the balance sheet and data taken from there helps us to determine the stock we may invest our money. On the other hand, this data may be a big dump if we do not have the right expectations about the macroeconomic situations and are not acquainted with the Stock Market. For example, If you expect that XU30 will rise up in next months, the reasonable attitude is giving a major share in portfolio to a banking sector stock. Because 55% market value of XU30 has been consisted of banking sector. So, An incline without banking stocks is impossible. Under the light of this macroeconomic view and data from table, Vakiflar Bankasi is a perfect investment has been already proved with its performance.
From the window of Iron-Steel Industry, The beginning of the 2012, Turkish Government has been planning a huge investment to intercity fast railroad transportation and declared it many times. There is only one railway supplier in the Middle East and Turkey to contribute this project come into live. Yes,it is lucky guess. Kardemir has made a huge investment to railway production from the year 2006 and has an important export volume in that. If Government will make this project, Kardemir has a great potential to rise up its profit. Under this general circumstances and data from above table. It was stupidity not to invest Kardemir.
This was the first article in this blog, I wish it will be helpful to make better investment decision.
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