How to trade-Part 4 Complete guide for fundamental analysis for intermediate traders
PTS provides simple examples on how to clearly identify favourable growth stocks. Internalize these methods if you want to win
This training page contains the Zulu principle rules from Jim Slater's book
Contents: Shows several methods of
market selection, explanations of the how and why trending markets are
good for you.
Still here? Good choice. After this page there will be a fun trading
game to enjoy before moving to a basic trading strategy
Take some inspiration from this video of two methods in a combination. Note how both need to be in position for a trade. Winners are allowed to run.
The lower indicator is the Precision Index
Oscillator and PLA Dynamical Moving average.
The Precision Index Oscillator known as
Pi-Osc detects bottoms and these are bought when PLA Dyanmical
signals a trend change to up.
This is something you can use once you raise
your trading education to a good level.
Begin part four of the beginners guide.
I have sufferred great pains to learn all these points, you
get them free.
Lets get started.
Jim Slater wrote a nice book called "The Zulu Principle"
It was nothing to do with Zulu's whatsoever.
He was
making the point that if you read a book about Zulu's then you
will likely know more about this subject than anyone in your
town.
From this you can gather than if you study the
finances of a stock at a deep level, then you will know more
about it than most others.
He identified a set of
check box rules detailed below to sort out the super star
performing companies from the many lousy companies.
For
this part 4 section we are moving away from technical analysis
( which is the study of chart ) to the study of fundamentals
which is the study of
company finances, earning, PE
ratios etc.
"Fundamentals" OR humoursly termed
as "Funnymentals"
1.
Positive 5 yr EPS growth weighted towards recent data
2. PEG Below 0.8
3. PE less than 30 or below the
average for sector
4. Bullish chairman's statement
5. Gearing less than 50%, high gearing can be forgiven in
times of economic revival, but deadly in in recession.
6. Cash flow per share > EPS over 5 yr period ( the cover
should be at least 1.0 and 2.0 is excellent.
7. Strong
liquidity (The quick ratio should be > 1 and 2 is excellent)
8. Dividend to be rising in line with EPS over a 5 yr
period.
9. Interest cover greater than 1.0, if 5 or
more then better
10. ROCE to be more than the cost of
borrowing (Good growth stocks should have a ROCE of 30%+
11. The current ratio should be higher than the quick
ratio (2 or more)
12. High net tangible asset value per
share
13. Margins to be rising over 5 yrs
14.
Low price to research ratio PRE, this is calculated by
dividing the market cap by the R+D expenditure.
15. The
capital expenditure per share should be a good deal less than
cash flow per share, therefore we take the cash flow per share
and deduct the capital expenditure per share. This is called
owners earnings. Which when divided into the share price gives
the POER and the resultant figure is best when low.
General bonuses....
16. A Competition
advantage
17. A new idea or unusually good
circumstances
18. Small market capitalisation
preferably < 100 million
19. High relative strength in
relation to the market
20. Directors holding and
preferably buying large blocks of shares
21. A powerful
story that is easily understood by the public
Recession
proof business
Lesson 1. The rules above if
employed to find good growth stocks can lead to owning a piece
of a company in the same style as Warren Buffet, for the long
term. Incredible returns are possible over a period of 2 to 10
years if you choose your stocks well.
Add to these
rules, the theme of "buying good stocks on bad days"
Then add to these rules the theme of "buying stocks when
others are fearful, and selling when others are greedy" (As
the Warren Buffet method suggests )
The prices
fluctuate wildly, and picking up cheap stock when the market
is crashing ( or just finished crashing ) is a way to boost
gains.
PENNYWISE IS OFTEN POUND
FOOLISH IN FUNDAMENTALS ALSO.
A stock with a PE of 10
versus a stock with a PE of 40 is not always a good deal, the
market values it LOW because the company is RUBBISH.
If you have a questions then please send me an email
I hope you got the points above.
EVERYTHING THAT GOES WRONG
IN YOUR TRADING IS YOUR FAULT - LEARN TO BE ACCOUNTABLE-
ACCEPT
RESPONSIBILITY FOR YOUR OWN MISTAKES - OR YOU WILL FAIL.
Congratulations If you understood all the points above. Hold on...Before you head off
to look at the beginners strategy.
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About
Precision Trading Systems was founded in 2006
providing high quality indicators and trading systems for a wide range of
markets and levels of experience.
Supporting NinjaTrader, Tradestation and
MultiCharts.
Admin notes
PPage updated July 8th 2023 from
original creation in 2010 - New responsive page GA4 added canonical this. 5/5 html baloon
