In my previous post I explained a method of how to beat the market. And it was not market timing! Forget the dream to guess when you should be in or out of the market.
Ask anybody, if he knows “who is the best market timer of all time”? I doubt, you will get an answer. In seems there is nobody around who has timed the market successfully and consistently. A lot of people claim so but no-one really does.
Analysing businesses is partly about evaluating products, processes and quality of management but it’s mostly about numbers. Companies with rising sales, growth in market share, strong earnings growth and high returns on equity usually experience rising share prices.
Three successful methods for selecting stocks are:
1. Momentum Investing: Momentum stocks lead the market in sales and earnings growth, product innovation, and price action. They usually rise faster in bull markets and fall harder in bear markets.
2. Value Investing: Value stocks are cheaper than others considering price-to-sales, price-to-earnings and price-to-book value. They often pay higher dividends. These stocks generally rise less in bull markets but fall less in value in a bear market.
3. Insider Buys & Sales: Look at the information when officers, directors and beneficial owners of companies are buying with their own money at current market prices a substantial amounts of their own companies’ shares. These insiders have access to all sorts of material, nonpublic information about their companies’ future business prospects. These stocks tend to outperform in good times and bad. By the way, start selling when these individuals start to cash in. Look at their overall holdings and the amount they buy or sell and you will find out how strong they believe their company will out- or underperform in the future.
3 different approaches using completely different metrics. But they should work over the long-term. Not one tries to guess what the market will do next. Of course, successful investing also means knowing when to sell and to get out.
Sven Franssen