As the year comes to an end, you will see plenty of websites offering stock guidance for 2006 and what you should expect for years to come. This guide can be had for free if you buy this or subscribe on that or sign up for newsletters. This is just marketing gimmick. Sure, they have their use. But they want to get you back by offering you a set of stock guide every year. You only need one stock guide for your entire lifetime and I will give it to you for free. Well, your time is not free so that is what you need to read this guide.
2006 will be similar to any other years. In fact, it doesn't matter what year you are in. You can be in 1921, or 2105 and it will bring the same thing to investor. Therefore, stop reading 'Stock Guide from 2007' one year from now. You just have to read this once.
2006 will bring out the best to undervalued investment and companies having stellar balance sheet. It doesn't matter what economic condition we are in, these stocks will give you outstanding return. Now, these stocks will not give you the best return ala Taser ( up 2040 % in 2003) or Travelzoo ( up 1070% in 2004), but it also will not give you Taser-like loss ( down 80.6 % in 2005) or Travelzoo ( down 75.3 % in 2005)
After all, Warren Buffet becomes rich by getting a return in excess of 20 % annually for a long time. His stock holding does not move up 1000% in one year and move down 80 % in another. Yet, he is doing fine, more than fine. Slow and steady wins the race and apparently it has been time-tested by some of the best investors in the world.
Yep, so your 2006 guide is to find undervalued investments and invest in them. You think oil price will go up in 2006? Then, whip out your calculator, determine the fair value of any Chevrons or Exxons of the world and compare it with the current stock price. Be sure to look at the balance sheet too. Having a positive net cash will ensure that the company you picked will survive one year from now at the very least.
How do you determine the fair value of a stock? Quite simply, you compare it with the prevailing interest rate and add a risk premium to arrive at fair value. For example, if current interest rate is yielding 4.5 %, the fair value of a common stock is when it yields around 7.5 %. This implies a Price Earning Ratio of 13.3
Anything else you need to know? Nope. Your only guide for year 2006 and beyond is to find undervalued investment. It has stood the test of time.
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