-
Step 1
Buy stocks that are cheap on the basis of book value, market fears and historical trading ranges. Cheap stocks are not low-priced stocks. In fact, stocks above $10 per share tend to be better performers in both up and down markets, according to "Investor's Business Daily."
-
Step 2
Buy stocks where the liquidation value per share (assets minus liabilities divided by the number of shares) is greater than the current stock price. Bargain stocks may also be found where cash per share is equal to the current stock price. Then, you are getting the company for free. "Value Line Investment Survey" (see Resources) lists these stocks each week.
-
Step 3
Choose to buy stocks when panics hit the marketplace. At least once a year, an international incident, a rumor or a period of stock underperformance occurs, creating buying opportunities for certain stocks or certain industries. Tax loss trading begins after Thanksgiving and is a very good time for certain stocks to be dumped by institutions. Bargains abound, as the stocks usually turn around by January.
-
Step 4
Buy stocks during recessions. Stocks trade at lower price-earnings ratios and often can be purchased while earnings suffer. Quality S&P 500 companies can often be bought and held, while earnings and price-earnings ratios recover, resulting in twofold gains.
-
Step 5
Buy stocks that have not moved much for months or even years and that now are above their 200-day moving average. Look at other stocks in the same industry for confirmation that the entire industry is experiencing demand for the stock. Sell when the stock declines below the 200-day moving average.
