Taming the Money Sharks: 8 Super-Easy Stock Investment Maxims

Chapter 4

Decide on Company Values and Buy–Sell Prices

Should You Trust a Company with Your Money?

Learn the basic facts about a company’s history. In other words, “trust but verify.”

A. Relevant Company Historical Facts

Invest in proportion to how much you can trust a company with only minimal verification.

One of the key messages of this chapter is to avoid impulse investment. With your hard-earned money, it is crazy to just buy a stock and then hope and pray that the stock will make money for you. The often-practiced buy, hold, and pray (BHP) method, done without any homework, just does not work well, at least for most investment targets.

I am sure you have heard big win stories at dinners and cocktail parties. Your friends would boast of the huge profits they made in recent days (e.g., doubled their money in 10 days). However, I am sure you have not heard any of them letting you know about the huge losses they took using the BHP method without any verification.

1. Stock Prices versus Events

Following the logic of Chapter 2, after you have selected one industry and several stocks to track, go on to learn the history of these companies well, or as well as your time allows. This includes stock price changes for at least three years, with a recommended time frame of five years or more.

During that period of time, evaluate the stock price and respective trading volume changes with respect to the significant events in that period. You can get company information from many sources—prospectuses, ...