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Okay, let's get straight into today's analysis. Hearing the words stock market or Wall Street creates a kind of fear in the mind. Isn't that right? It seems like it's only made for professionals with big degrees and suits. But to be honest, if you break down the strategies of famous investors, the whole mystery becomes crystal clear.
In today's event, we will mainly focus on analyzing the six types of shares. This is a great idea that proves that even ordinary people are capable of creating a very strong and profitable position in the stock market. One Upon a World Street, written by famous investor Peter Lynch, is a masterpiece or classic book in the world of finance.
This holds great promise. And that is, by using our simple observations of everyday life, it is possible to find successful companies long before the scheming professionals of Wall Street. Just think about it, if you pay attention to the products we use every day or the new store in the shopping mall that is suddenly crowded with people, it is possible to predict great business opportunities before the experts do.
Just by looking at the world around you, you can find amazing investment opportunities. The most powerful and empowering mantra is that the greatest asset of a common man is his daily life experience. The surrounding environment provides information that a professional analyst can only see on his computer screen much later.
And you know what the funniest thing is? You do n't need a big degree in finance to identify a good company. It's enough to just keep your eyes and ears open and be a little aware of the quality of the product or service you choose. These small, simple things can become a great tool to compete with professionals.
Well, here is a brief outline of today's analysis. Benefits for a common investor. Six types of two shares. Three income and assets and four final checklists. Let's move on to the first part, the benefits for the average investor. Let's see how it builds a solid foundation to stay one step ahead of the experts.
The huge success that comes from finding a promising company before the professionals is called a ten-bagger in stock market parlance. This means that it is a stock whose price increases 10 times or more compared to the initial investment. Believe me, if a typical portfolio has one or two such ten-baggers, it can easily offset the losses of eight or ten other bad investments.
The ultimate goal of identifying such ten-bags is to anticipate new business developments or changes in people's livelihoods. Now let's come to our second part. There are six types of shares, that is, the correct classification. Evaluating any company is a lot like putting together a great intellectual puzzle.
There are six specific categories. Slow growth stocks, stagnant stocks, fast growth stocks, cyclical stocks, asset plays, and turnaround stocks. The most important thing is that these six categories neatly highlight all the differences that an investor needs. They can be put into any one of these boxes depending on how big the company is or what type of business it does.
And once you understand this classification, making investment decisions becomes very easy. There is a clear distinction here between fast- growing stocks and slow- growing stocks. Fast- growing companies can show explosive growth of 20 to 30 percent per year. It means a lot like a rocket. Whereas slow-moving companies are moving like turtles at a rate of only two to three percent, in line with the country's overall economy.
Why is this so important? Because the company is like a rocket or a turtle? If you don't recognize that, the whole strategy can go awry. A share with 3 percent growth cannot be treated like a share with 30 percent growth. Isn't that right? There are some common sayings in the market. For example, if the price doubles, sell the shares.
But to be honest, applying a general formula to these different types of shares is literally stupid. It may take decades for a slow-moving stock to double in price. But selling a fast- growing stock after its price has doubled can be extremely unwise. Because maybe it has just started to grow and could grow 10 times more in the future.
Obeying those stupid rules could definitely cost you a ten-bagger. This is precisely why classification is so important. Let's go a little deeper now. Part number three is income and assets. It is very important to distinguish between the two concepts of income and profit. Many people confuse these two.
A company's income or profits can be extraordinary. But they may not be giving any dividends to shareholders. Tell me why? Because young and fast-growing companies reinvest all of their earnings into growing the business. But this is a very positive aspect. On the other hand, older or slower companies have less opportunity to grow, so they give away a portion of their profits as dividends.
Therefore, the true value of a company cannot be judged by looking at dividends alone. You have to look at the overall income. Here are five very basic ways that a company can really increase their revenue. One, reducing costs. Second, increasing the price of products. Three, entering a completely new market.
Four, increase sales in the old market or five, simply close down businesses that are making losses. Before buying shares of a company, you need to see exactly what path they are taking for future growth. This is a great framework for thoroughly vetting a company before making any investment. Now we are coming to the end.
Part four is the final checklist. In general, it is absolutely essential to check any stock against certain criteria. First, you need to see if the P ratio is lower than other companies in the industry. Then institutional ownership. The lower it is, the better for ordinary investors. Do you know why?
Because when large institutional investors learn about the company's potential, they will buy a lot of shares and the price will skyrocket. And the best thing is insider buying. If people inside the company buy shares with money from their own pockets, it must be understood that they know for sure that the company's future is good.
The biggest trick, especially for cyclical stocks, is to keep a close eye on the company's inventory. There is a very delicate matter here. A low P/E ratio is a good sign for common stocks. But in the case of cyclical stocks, when business is at its peak or extreme peak, the P- B multiple tends to shrink even though earnings increase.
This means that while a very low P/E ratio may seem attractive, in reality it may be a warning sign that the good times for the business are coming to an end. Understanding the cycle of this industry can provide great advantages in entering and exiting the market at the right time. The last question that comes to mind is that if you do n't know what category the stock actually belongs to, it's absolutely impossible to make realistic expectations from it.
Investing based on speculation is literally like gambling. This entire analysis reminds us again and again that paying just a little attention to the world around us in our daily lives can become the ultimate financial superpower for ordinary people. If you keep your eyes and ears open and know how to classify correctly, you can easily leave even the biggest experts on Wall Street behind.
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