Analyzing Stocks: How I Do It

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Stock analysis is basically a loser’s game. No one, and I mean NO ONE, knows what’s going to happen to a stock regardless of fundamentals.

How do I know this? Well, the Wall St.Journal used to run a report of monkeys literally throwing darts at a stock chart vs. the best and brightest analysts in the world and more often than not the monkey’s did better.

Why is that? Anyone’s guess. Some stocks, money managers, investors, get lucky. Others…not so much.

However, when it comes to YOUR portfolio, one thing any good financial planner is going to recommend is NOT having more than 10% of your assets in any one security.

So, today I received a call from a client who has a large position, relative to his/her asset base in GPC stock. My client wanted to know what I thought of it.

My first inclination is that the client holds TOO much of it, regarldess of the stock because GPC represents nearly 40% of the total liquid net worth. That’s a problem.

But how about fundamentals? I do need to have a look at fundamentals too and that’s what we do in this episode. I go over the things I look at when analyzing individual stocks.

A couple things to understand here. I own NO individual stocks. I got burned too much in the early aught’s that I simply refuse to go down that road again.

Two, I know NOTHING about the business of GPC. The only think I know is that it has a three letter ticker symbol meaning it trades on the NYSE, thus it’s a blue chip stock of some sort.

Three, this is NOT a recommendation for buying or selling. I literally don’t ANY opinion on what YOU should do. I am only looking at this stock on the basis of the person I am dealing with.

So, do not take this as any advice whatsoever. Do your OWN research to make your own investment decisions.

A few things to consider:

  • dividend yield
  • dividend payout ratio
  • price to earnings ratio
  • current ratio
  • debt to equity
  • cash flow
  • debt levels
  • ebitda

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