Navigating the Stock Market: A Practical Guide to Successful Buying, Selling, and AI Risk Management

Cover
Half Title
Title
Copyright
Contents
Preface
Chapter 1: Planning, Research, and Screening
	Basic Requirements for Stock Market Investing
		Understand the Difference Between Saving and Investing
		Being Too Conservative Can Be Risky
		The Need to Believe in the Stock Market
		Should You Invest in Stocks or Stay Away From Them?
		Appreciate the Power of Compounding
		Use the Rule of 72 Tool
	Objective and Method
		Determine Your Objectives
		Follow a Simple Investing Approach
		Define Your Method and Follow It
		Follow Your Method With Discipline
		Have a Long-Term Horizon
	Strategy and Approach for Stock Market Investing
		Do Not Invest Without a Strategy
		Select an Investment Strategy Before You Start Investing
		Create Your Own Strategy for Better Alignment
		Do Not Use Unproven Strategies
		Growth Investing Approach
		Value Investing Approach
		Momentum Investing Approach
		How to Combine Investment Strategies
	Research Sources and Techniques
		Research Using Multiple Sources
		Make the Internet Your Friend
		Use the Investor’s Business Daily
		Do Not Use Unreliable Research Sources and Data
		Use Reliable Sources for Earnings Data
		Study Research Reports
		Sources for Research Reports
		Study the 10K Report
		Reach Out to the Company
		Listen in on Conference Calls
		What to Focus on During Conference Calls
		Attend Shareholders’ Meetings
	Screening
		Use a Proven Method for Picking Winners
		Search for Growth Companies
		Recognize and Pick Winning Indicators
		Indicator Values to Use
		Use Indicators That Highlight Different Perspectives
		Earnings Indicators Favored for Screening and Selecting Stocks
		Additional Indicators Used for Screening and Selecting Stocks
		Combining Indicators From Different Investment Approaches is Risky
		Never Use a Single Indicator
		Limit the Number of Indicators to Track
		Use Online Screening Tools
Chapter 2: Buying
	Where to Invest
		Invest in What You Know the Best
		Buy Into a Theme
		What Are The Current Themes
		Invest in Growth Companies
		Buy Leading Companies in an Industry or Niche
		Invest in a Company—Not the Market
		Invest in Small Companies
		Favor Small-Cap Companies
		Favor Stocks With Market Cap Below $1 Billion
		Do Not Be Misled By Large Price Moves
		Laggards Can Occasionally Become Winners
	When to Buy
		Buy Low, Sell High
		Remain Invested at All Times
		Buy on Weakness—Sell on Strength
		Buy High, Sell Higher
		Buy Stocks Six Months After a Recession Starts
		Dollar Cost Average to Avoid Mistiming
		Average Up—Not Down
	Seasonal Considerations
		Take Advantage of Seasonal Factors
		Take Advantage of the January Effect
		Beware of September
		Take Advantage of Window Dressing
	What to Do Before You Buy
		Select the Broker
		Who Are the Leading Brokers
		Get Information Before, Not After, Buying a Stock
		Analyze Fundamentals Before Investing
		Determine Risk Associated With a Stock
		Analyze Business Conditions and Prospects
		Check the Market Health
		Analyze Economic Conditions and Cycle
Chapter 3: Picking Winning Characteristics
	Fast and Consistent Growth
		What Are Growth Stock Characteristics?
		High Growth Rate Should Be Sustainable
		Stock Should Have Small Capitalization
		Growth Must Be Accompanied By Profits
		Revenue Should Be Increasing at a Healthy Pace
		Learn How to Analyze Revenue
		Growth Rate Should Be Greater Than the P/E Ratio
	Profitability
		The Company Must Be Profitable
		Earnings Growth Rate Should Be High
		Annual and Quarterly Earnings Should Be Increasing
		Earnings Should Be Accelerating
		Earnings Estimates Are Being Raised
		EPS Rank Is High
		EPS Rank Is Rising
		Margins Are High and Rising
	Momentum
		RS Rank Is High
		Stock Is Hitting New Price Highs
		Accumulation Is Taking Place
		Stock Is in an Uptrend
	Leadership
		Stock Is a Leader
		Stock Is a Leader Emerging From a Correction
		Company Has Superior Leadership
		Stock Market Leader Need Not Be a Household Name
		Use Industry Groups to Identify Leadership
		Sources to Scan for Industry Group Leadership
	Other Characteristics
		High Demand for Products
		Strategic Market Position
		Institutional Ownership Is High
		Insiders Should Have a High Stake
		Insider Buying Is Taking Place
		Stock With a Small Float Should Be Avoided
Chapter 4: Company, Industry, and Sector Analysis
	Thoroughly Evaluate the Company
		Perform Fundamental Analysis
		Study the Company’s Business
		Evaluate the Company’s Products
		Study the Product Cycle
		Evaluate Management Strengths and Weaknesses
		Evaluate Management Characteristics
	Study Environment, Competition, and Ownership
		Determine Market Growth Expectations and Expansion Plans
		Determine the Company’s Market Control Status
		Analyze Existing Competitors as Well as Potential Competition
		Check If Insiders Have Been Buying
		Check If Institutions Have Invested in the Stock
	Confirm Company’s Financial Health
		Company Must Have Financial Strength
		Analyze Financial Statements
		Determine Financial Performance Trends
		Important Items to Review in Financial Statements
		Cash Flow Should Be Healthy
		Debt-to-Equity Ratio Should Be Low
		ROE Should Be High
		Return on Sales and Margins Should Be High
	Analyze the Industry Group and Sector
		Determine Stock’s Industry Group/Sector
		Study the Associated Industry Group and Sector
		Analyze Sector and Industry Group Health and Trend
		Analyze Industry-Specific Indicators
	Verify Technical and Trading Indicators Are Positive
		Confirm Buy Decision by Using the Moving Average Line
		Check the Stock Price Relative to Its 50-Day Moving Average
		Confirm That the Stock Is Being Accumulated
		Confirm That the Stock Has Liquidity
		Evaluate Trading Risks
Chapter 5: Selling
	Why Selling Is a Common Problem
		Selling Strategy Is Lacking
		Inability to Acknowledge Mistakes
		Loss Definition Is Vague
		Not Knowing When to Exit
	Plan and Be Ready to Sell
		Avoid Forced Selling
		Select a Selling Strategy
		Establish and Adhere to a Price Target
		List Specific Reasons for Buying a Stock
		Manage Your Losers
		Recognize When Avoiding Selling Is Not a Mistake
	Primary Reasons for Selling
		Fundamentals Are Deteriorating
		Interest Rate Trend Changes
		Financials Are Deteriorating
		Earnings Growth Is Disappointing
		Loss Exceeds a Predetermined Percentage
		Price Action Is Negative
		Profit Taking
		Stock Buying Reasons No Longer Exist
		Market Is Giving a Strong Sell Signal
	Secondary Reasons for Selling
		Better Prospect Is Identified
		Stock Is a Laggard
		Sector Leaders Crumble
		Company Is Relying on Laurels and Historical Performance
		Institutions Are Dumping
		Company Overpaid for an Acquisition
		Portfolio Needs to Be Pruned
		Tax Reasons
	Technical Reasons for Selling
		Moving Average Uptrend Turns Into a Downtrend
		Volume Indicator Is Negative
		Distribution Is Recognized
		Price Performance Is Negative
		Stock Is Overextended
	Sell Signals for Small Companies With Few or Niche Products
		Earnings Growth Rate Decreases Significantly
		Business Conditions Change
		Financial Position Deteriorates
		Critical Product Is Delayed
		Litigation Poses a Significant Risk
		Company Starts Wasting Money
Chapter 6: Stock Prices and Valuation
	Factors Causing Stock Prices to Rise or Fall
		Key Performance Drivers
		Demand for Stock Increases
		Key Factors That Attract Buyers
		Additional Factors That Influence Stock Performance
		Why Stocks Are Volatile in the Short-Term
		What Moves Stock Prices in the Short-Term
		What Moves Stock Prices in the Long Term
		Investor Perceptions Impact Stock Prices
	Additional Factors Influencing Stock Prices
		Traders
		Analyst Recommendations
		Impact of Analyst Recommendations
		Share Buyback Announcements
		Manipulation and Hype
		Stock Splits
		Mergers and Acquisitions
	External Factors Influencing Stock Prices
		Inflation
		Monetary Policy
		Factors Causing Interest Rates to Rise and Fall
		Relationship Between the Stock and Bond Markets
	Methods for Valuing Stocks
		How Stock Prices Are Determined
		Commonly Used Valuation Methods
		Valuing Through Comparison With Investment Alternatives
		Valuing By Comparing Relative Value
		Valuing By Comparing Performance Expectation
		Valuing By Intrinsic Value Determination
Chapter 7: Profitability and Price Performance
	General
		Importance of Earnings
		How Earnings Are Reported
		Learn How to Interpret Earnings
		Analyze Earnings In-Depth
		Earnings Can Be Related to the Economic Cycle
		Why Dividends Have Lost Their Importance
		What Return on Equity Indicates
		ROE Can Be Related to a Stock’s Price Performance
	How to Analyze Earnings
		What the Quarterly EPS Indicates
		Analyzing Quarterly EPS
		Use Annual EPS to Determine Profitability Consistency
		Current Quarterly EPS Growth Rate Should Be Rising
		Projected EPS Should Be in an Uptrend
		Use Projected Annual Earnings to Estimate Future Price Performance
		Projected Long-Term Earnings Growth Rate Must Be High
		Obtain Projected Earnings Growth Rates From Reliable Sources
		Favor Companies With Consistent Earnings Growth
	Earnings Estimates and Revisions
		Why Earnings Estimates Are Revised
		Drill Down and Check Range of Earnings Estimates
		Earnings Estimates Should Be Based on at Least Four Estimates
		Earnings Estimate Revisions Should Be Positive
	Earnings per Share (EPS) Rank
		What EPS Rank Indicates
		EPS Rank Is Related to a Stock’s Performance
		Sources Providing the EPS Rank
		EPS Rank Limitations
	Relative Strength (RS) Rank
		What RS Rank Indicates
		Favor Stocks With High RS Rank
		Using RS Rank With Other Criteria
		RS Rank Can Be Used to Find Winners
		Sources Providing the RS Rank
		Risk With High RS Rank Stocks
		Monitor Your Stock’s RS Rank
		Use Relative Strength (RS) Line for Comparison
Chapter 8: Price/Earnings (P/E) Ratio
	Understanding the P/E Ratio Indicator
		Learn Valuation Techniques
		How P/E Ratio Is Calculated
		Importance of the P/E Indicator
		P/E Ratios for Individual Stocks, Overall Market, and Sectors
		Trailing P/E Ratio Is Backward Looking
		Use Projected P/E Ratio to Determine Future Prospects
		Relative P/E Indicates Historical Range
	Understanding P/E Ratio Variations
		Factors Causing the P/E Ratio to Fluctuate
		Factors Causing the P/E Ratio to Expand
		P/E Ratios Vary in a Wide Range Across Industries
		Avoid Extreme P/E Ratios
		Economic Cycle Impacts the P/E Ratio
		Inflation and Interest Rates Impact the P/E Ratio
	Using the P/E Indicator
		P/E Ratio Usage Is Determined by Investment Approach
		Use P/E Ratio as a Comparison Tool
		Favor Stocks at the Low End of Their Historical P/E Range
		What a Consistently High P/E Ratio Means
		Use P/E-to-Projected Growth Rate Indicator to Check Valuation
	P/E Ratio Risks
		Be Aware of Distortions
		High P/E Stocks Can Be Risky
		Low P/E Stocks Can Be Risky
Chapter 9: Market Behavior
	General
		Learn How to Interpret Market Behavior
		The Stock Market Has a Discounting Mechanism
		Learn How to Determine Market Trend
		Learn How to Identify Market Tops and Bottoms
		Use Market Declines as Buying Opportunities
		Be Aware of Limitations in Forecasting Market Levels Accurately
	Bull and Bear Market Characteristics
		What Is a Bull Market?
		What Is a Bear Market?
		How a Bull Market Starts
		How a Bear Market Start
		Why Many Bull Markets Start During Recessions
		Why Bear Markets Are Feared
		How to Recognize Bullish Signs
		Bullish Technical Indicators
		How to Recognize Bearish Signs
		Bearish Technical Signs
	Corrections
		What Is a Correction?
		Corrections: Cause and Effect
		Rolling Correction Phenomenon
		Learn How to Recognize Rolling Corrections
		Why Sector Rotation Takes Place
		Take Advantage of Corrections
		Learn How to Pick Leaders During Corrections
		Avoid Market Timing to Avoid Corrections
Chapter 10: Technical Analysis
	Basis and Limitations of Technical Analysis
		Learn Basic Technical Analysis Concepts
		What Technical Analysis Is Based On
		What Technical Analysis Indicates
		Use Technical Analysis for Entry Point Determination
		Limitations of Technical Analysis
	Understanding Moving Averages
		What Is a Moving Average
		Most Popular Moving Averages
		Significance of Moving Averages
		Moving Averages Can Give Mixed Signals
		Moving Averages Can Be Related to Investor Sentiment
		Influence on Momentum Investors
		Which Moving Average to Use
		Understand the Concept of Trend Lines
		Analyze Charts With Moving Averages and Trend Lines
		Limitation of Moving Averages
		How to Monitor Moving Averages
	200-Day Moving Average Characteristics
		200-Day Moving Average as a Trend Indicator
		200-Day Moving Average as a Market Direction Change Indicator
		200-Day Moving Average Can Give a False Signal Tips for Individual Stocks
		Tips for the Market
		Relating the 200-Day Moving Average to the Market Health
		Relating Stocks Trading Over Their 200-Day Moving Average to Market Health
	Support, Resistance, and Basing
		Be Familiar With the Stock Price Cycle and Its Current Phase
		What Is a Support Line?
		Moving Average as a Support Line
		How Solid Is a Support Line?
		What Is a Resistance Line?
		How Solid Is a Resistance Line?
		Effect of Overhead Supply on Rebounding Stocks
		What Is Basing?
		What Is a Breakout
		Understanding the Breakout Strategy
	Trading Volume and Price Performance
		Volume Can Be Related to Trend Changes or Turning Points
		Analyze Trading Volume
		Focus on Percentage Change in Volume
Chapter 11: Monitoring the Economy
	General
		Why the Economy Should Be Monitored
		Key Indicators Used to Monitor the Economy’s Performance
		Interest Rates and Fiscal Policy
	Primary Indicators
		Inflation
		Producer Price Index
		Consumer Price Index
		Commodity Research Bureau Index
		Employment
		Jobs Growth
	Secondary Indicators
		Gross Domestic Product
		Institute for Supply Management Purchasing Managers’ Index
		Housing
		Housing Starts and Building Permits
		Sales of New and Existing Homes
		Construction Spending
		Retail Sales
		Factory Orders
		Durable Goods
		Inventories
		Personal Income and Consumption Expenditures
		Industrial Production Index
		Capacity Utilization
		Index of Leading Economic Indicators
		Money Supply
Chapter 12: Monitoring Stocks, Groups, and Sectors
	General
		Monitor Everything That Can Impact Your Stock
		Monitor Factors That Reduce Stock Supply
		Monitor Factors That Increase Demand
		Learn to Recognize if Good or Bad News Has Been Discounted
		Observe How Stocks and the Market Respond to News
	Monitoring Individual Stocks
		Key Indicators That Are Widely Monitored
		Determine Reasons for Price Moves
		Monitor Earnings Releases
		Sources for Earnings Releases
		Investigate Earnings Surprises
		Monitor Volume Signals
		Observe Changes in Trading Volume
		Monitor What Institutions Are Doing
		Monitor Stock Buybacks Announcements
		Monitor Revenue (Sales) Growth Trend
		Monitor How Margins Are Trending
	Monitor the Insiders
		Monitor Insider Trading
		Monitor Insider Selling
		Monitor Insider Buying
	Monitoring Industry Groups and Sectors
		Monitor Stock’s Sector and Industry Group Performance
		Identify Group Leaders
		Monitor Industry Group’s Rank and Trend
		Monitor Industry Specific Index and/or Report
		Monitor Other Groups and Sectors
Chapter 13: Monitoring Market and Psychological Indicators
	How to Monitor the Market
		Monitor the Market Trend
		Monitor Market Behavior
		Monitor Market Averages and Indexes
		Monitor Market Sector Indexes
	Using Market Indicators
		Select the Appropriate Average/Index
		Use Market Averages and Indexes for Comparing Performance
		Do Not Be Misled by the DJIA
		Divergence Is a Warning Sign
		Monitor Market Averages and Indexes but Retain Perspective
		Be Aware of Factors Causing Volatility
		Monitor New Daily Lows to Determine Market Health
		Monitor Indicators Spanning a Broad Spectrum
	Monitoring Psychological Indicators
		Analyze Psychological Indicators
		Learn to Recognize Sentiment Extremes
		Be a Contrarian
		Buy on the Rumor—Sell on the News
		Do Not Get Overexcited by News Stories About a Company
		Stock Price Relative to Its Moving Averages Influences Sentiment
	Using Psychological Indicators
		Monitor Sentiment Indicators
		Consumer Confidence Index
		Consumer Sentiment Index
		Bullish Readings Are Bearish and Vice Versa
		Sentiment Is a Leading Indicator
		Monitor the Put/Call Ratio
		Loss Through Short Selling Can Be Devastating
		Analyze Short Interest
		Mutual Funds’ Cash Levels Provide Valuable Insight
		Monitor Mutual Funds’ Cash Levels
		Know What the Insiders Know
		Understand Limitations of Psychological Indicators
Chapter 14: Buying and Selling Mistakes to Avoid
	Buying
		Do Not Buy a Stock Without a Profitable Track Record
		Do Not Ignore Leaders
		Do Not Favor Low-Growth Companies
		Do Not Buy Mediocre Companies
		Avoid Leaders Nearing the End of Their Run
		Avoid Companies Embroiled in Serious Litigation
		Do Not Buy a Stock Just Because It Has a Low Price
		Do Not Buy Immediately After a Big Price Drop
		Do Not Focus Only on the Buy Price
		Do Not Buy a Company Just Because It Has a Low P/E Ratio
		Do Not Buy Low Liquidity Stocks
		Do Not Buy Defensive Stocks Near the End of a Recession
		Do Not Give Importance to Tips and Rumors
	Selling
		Do Not Focus Too Much on the Buy Price
		Do Not Fail to Cut Your Losses and Let the Profits Run
		Do Not Hold on to Mediocre Performers
		Do Not Delay Selling for Minor Gains
		Do Not Delay Selling Due to a Rebound Expectation
		Do Not Buy Just Because Stock’s Price Declined to a Lower Level
		Do Not Avoid Buying Because the Stock Price Is at a New High
		Do Not Sell Too Early
		Do Not Sell Your Slightly Overpriced Fast Growers
		Do Not Make Taxes an Important Factor
Chapter 15: Miscellaneous Tips
	General
		Be an Informed Investor
		Learn to Filter Out the Noise
		Never Stop Monitoring
		Avoid Excessive Monitoring
		Follow a Few Stocks but Monitor Them Closely
		Learn How to Interpret Recommendations
		Ensure That Stock Being Considered Is Adequately Covered
		Understand Stock Classifications
		Monitor Brokerage Asset Allocation Announcements
	Monitoring External Factors
		Do Not Ignore Either Internal or External Factors
		Monitor Economic Indicators
		Monitor Political Events
		Learn How to Navigate Markets in Times of Uncertainty
		Check If Money Inflow Is Rising
		Analyze Risk Due to Currency Fluctuations
	Monitoring Interest Rates and the Federal Reserve
		Monitor Interest Rate Trends
		Learn How to Forecast Interest Rates
		Monitor the Federal Reserve’s Policies and Decisions
		Monitor Federal Reserve Meetings
		Monitor Federal Reserve Actions and Hints
		Monitor How the Federal Reserve’s Tools Are Being Deployed
		Monitor Real Interest Rates
		Monitor Bond Yields
	Monitoring Your Performance and Portfolio
		Analyze Your Strategy
		Test and Evaluate Your Own Decisions
		Analyze Your Trades
		Evaluate Each Stock’s Performance
		Periodically Evaluate Your Portfolio
		Select an Appropriate Benchmark
Chapter 16: Common Mistakes to Avoid
	Approach and Strategy
		Do Not Delay Investing in the Market
		Do Not Be a Follower
		Do Not Invest Without Discipline
		Do Not Be a Casual Investor
		Do Not Invest Without a Strategy
		Do Not Invest Without Rules
		Do Not Invest Without a Selection Criterion
		Do Not Buy Before Performing Fundamental Analysis
		Do Not Ignore a Stock’s Sector or Industry Group
	Timing
		Do Not Wait for the Perfect Scenario
		Do Not Try to Time the Market
		Do Not Avoid Averaging Up
		Do Not Ignore the Market’s Seasonal Factors
		Take Advantage of Cyclical Stocks’ Movements
	Psychology
		Do Not Be Overawed by Wall Street Professionals
		Do Not Confuse the Company With the Stock
		Never Get Attached to a Stock
		Do Not Be Impatient
		Do Not Get Carried Away By Stock Splits
	Speculation
		Do Not Speculate
		Do Not Buy Penny Stocks
		Do Not Believe Message Boards
	Miscellaneous
		Do Not Fight the Trend
		Never Fight the Fed
		Do Not Focus on the Number of Shares
		Do Not Use Flawed Logic
		Do Not Make Dividends the Primary Objective
		Do Not Favor Timing Over Selection
		Do Not Let the Spread Eat Into Your Profits
		Do Not Be Over Leveraged
Chapter 17: Risk Management
	Risks
		Be Aware of Risks Facing Stocks
		Determine Your Risk Tolerance
		Market Risk
		Risk Due to Inflation
		Risk Due to Unfavorable Interest Rates
		Risk From the Business
		Risk From Company Performance
		Risk of Growth Stocks
		Other Risks
		Managing Risk
	Volatility and Risk
		Understanding Price Fluctuations
		Do Not Confuse Volatility With Risk
		Assess Risk Tolerance
		Measuring Volatility
		Which Beta to Use
		Do Not Use Beta for Timing
		Favor Volatility Over Margin
	Minimizing Trading Risks
		Limit Your Losses
		Make Use of Stops
		Keep Cash Reserves
		Limit Exposure to Thinly Traded Stocks
		Avoid Short Selling
		Investigate Before Acting on Any Hot Tip
		Learn How to Identify a Weakening Stock
		Handle Red-Hot Stocks With the Greatest Care
		Protect Yourself During a Blow-Off Move
	Use Options
		Sell Call Options to Decrease the Cost Basis
		Risks and Rewards of Call Options
		Risks and Rewards of Put Options
Chapter 18: AI in Stock Investing
	AI Evolution in the Stock Market
		History
		Recent Developments
	Trading and Analysis
		Algorithmic Trading
		Predictive Analytics
		Quantitative Analysis
		Pattern Recognition
		Market Forecasting
		Alternative Data Sources
	Operations and Market Oversight
		Market Surveillance
		Dynamic Pricing
		Portfolio Management
		Risk Management
		Fraud Detection
	Interactive AI Applications
		Natural Language Processing
		Customer Service and Chatbots
Chapter 19: AI Risks and How to Mitigate Them
	Risks
		Algorithmic Bias and Opacity
		Overreliance on Historical Data
		Transparency
		Lack of Interpretability
		Data Bias
		Cybersecurity Threats
		Market Manipulation
		Systematic Risks
		Ethical Concerns
		Lack of Human Oversight
		Legal and Regulatory Challenges
	How to Mitigate Risks
		Algorithmic Bias
		Overreliance on Historical Data
		Transparency
		Lack of Interpretability
		Data Bias
		Cybersecurity Threats
		Market Manipulation
		Systematic Risks
		Ethical Concerns
		Lack of Human Oversight
		Legal and Regulatory Challenges
		AI Risk Mitigation in the Stock Market
Index