How to Decide Which Stocks to Invest In
To decide which stocks to invest in, consider the companies that remain successful, even through times of economic stress, such as cable companies, electricity companies, phone companies and soap companies. Determine the best stocks for investments with information from a portfolio manager in this free video on investing.
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Hello, I'm Roger Groh. How do you determine the right time to buy stock or what that really means in terms of value? Well, if you listen to the masters in the business Warren Buffett for instance. It's not so much the price of that stock today but it's the value that is going to be present in that company five years from now and ten years from now. What does value mean? Well, it means the value of the projected cash flow looking at over that time period. How do you figure that out? Well, we're a chicken investor. We tend to buy companies that sell more every year whatever it is that they sell even during bad times. What are those types of products? Well, we all know them. You're probably going to continue to buy soap for example. You're probably going to continue to pay your electric bill. You're probably going to continue to have your phone or your cell phone available for you to use. You're probably going to continue have to pay your cable bill and for most of us, we're probably going to continue to pay our mortgages. So, those are examples of businesses which are likely to grow continually even when things get tough. What doesn't do well? Well, when things get tough we don't buy new cars. Most of us don't buy new houses and so those businesses tend to be very vulnerable. We've chosen not to bet in those areas but to buy companies that sell more continually of whatever it is they make. Now, how can you increase the likely hood that you're going to make money? Well, there is going to be more growth in countries outside the United States over the next twenty years and in the US. The reason is we're getting old. We have too much debt and as we get older, we're going to be looking to repair our debt. That means it's not going to be a whole lot of growth here but as you look in China as you look in India as examples with countries between them with two and a half billion people, where people don't have the basics yet. Well, that represents a tremendous growth opportunity. Examples might be you can go and you can buy a franchise at Wendy's or Burger King or McDonalds, you probably pay one time gross, revenue or maybe 6 to 10 times cash flow for that franchise. Why that's interesting because those prices are not likely to fluctuate as much as public companies will. On the other hand you can also just go buy the stock at McDonalds or Wendy's for that matter. If you do that, you don't have to run it. You can be a lot lazier and just own the common and therefore in my mind that should sell at a premium to owning the entire franchise where you really have to work. Now, the issue is how much of a premium. If you're lucky, you can buy the common stock at the same price as buying the franchise. It's rare but it does happen. That will be a great time to be a buyer and all likely hood, now is a great time to begin to slowly average in to that sector slowly. Our business has been pretty good especially with case of McDonalds over the last year despite the recession and they've shown in past recessions the ability to drive demand even when in general people are spending less. You can bank on it. I'm Roger Groh and I hope that helps a little bit.