Series finale: The show goes on — Part 3
[Welcome back to my series. It is a 3-part series and this is the last part. [Read Part 1 here: Seed, Part 2 here: The Ride]
Recap
(Skip this section if you have read Part 1 & Part 2 already.)
In Part-1, I mentioned about the Seed — The company where you invest in and I recommended that you to pick it wisely. In part-2, we discuss how to hold tight and enjoy the ride. There will be new lows and you just have to believe in the company! Of course, make some cash :)
In this part, we will discuss a different analogy to convey our message. We used farming in Part 1, Theme park in Part 2, now it’s all about music. I believe in patterns, so I am using analogies to relate.
Picture an auditorium you are heading tonight, you bought 2 tickets for a 100+ membered orchestra. Musicians, instruments, the stage and the audience is ready. Everyone knows their part and they all will perform with their heart and soul. There is an orchestrator, who orchestrates all musicians and we all know the music is beautiful. Right!
Stock market is a live Orchestra, Each musician or an instrument is like a stock/company. They all are playing their respective parts, everyday.
Each listed company tries their best to improve their revenue (sales), improve earning, contracts, mergers, acquisitions, taxes etc. to improve three golden formulae — P/E (Price to earning ratio), EPS(Earning per share) and revenue growth %. It all boils down to these three numbers.
P/E Ratio — P/E ratio shows what the market is willing to pay today for a stock based on its past or future earnings. A high P/E could mean that a stock’s price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate that the current stock price is low relative to earnings.
Revenue growth — The rate at which revenues are growing YoY.
EPS — It is the ratio of total earnings to number of shares. Trap: If this is super low (eg. $0.05) and total profit is high. This means the company has issued too many stocks, is the price justified? Yellow flag!
Few examples,
- Hyper growth company — 30%+revenue growth%, 1.00+ EPS, 20+ P/E. “Buy it.” Eg. Enphase Energy.
- Another one, Failure company — 10% revenue growth %, -1.34 EPS, -5 P/E.
One last tip, stock trading is a marathon not a sprint. Don’t try to buy, sell, buy, sell so on. Try to find Golden Goose, feed them and collect golden eggs(returns). I am sure you all have heard the story of Golden Goose and golden eggs.
“A stock can be called as a golden goose if it has good returns and consistent growth.”
Look around you, there are plenty of companies which are Golden goose? There are a lot.
MSFT AAPL AMD TDOC FB NFLX TSLA NVDA PYPL etc.
Once you start trading with these stocks, you can have a peaceful sleep. We all know the worth of a good sleep? Priceless right!
Depending upon your risk appetite, you can balance Goose vs Risky stocks ratio in your portfolio.
Now you are all set with Trading 101, I will just wrap up with a quote —
“A trader in a stock market is ready to gamble, experiment, stays up to date with news, understands traps, envisions businesses years down the line, updates their position, take losses and identifies a goose and keeps learning.”
If you wish to join this stock market Orchestra performance, log into your brokerage account and attend the show else stay home. Irrespective of the choice you make, the show goes on…
Check out “The Show Goes On [Explicit]” by Lupe Fiasco on Amazon Music
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