Stocks: Reduce Risk Yet Maximize Profits

It is important to note that every smart investor wants to minimize the risk while maximizing the profit potential. Yet conventional investment theory tells us that in order to increase income, increase risk.
You will be surprised to find that this conventional wisdom is not always true. If I was a professional stock trader, I made most of my gains from appreciation in my portfolio, not short-term trading. In other words, I was a position trader. Any losses in my stock positions were taken out of my paycheck at the end of the month - in fact, I had to pay no loss.
If you are in this position, you absolutely want all the techniques to make large profits without risking a lot to learn. I became an expert out of necessity.
So while my trading account had virtually no losing months of my winnings were more than 300% per year. In my stock selection, I saw for the first time shares that could so cheap they could not go. If she did go, I was happy to buy more, because at these prices, you could buy the whole company and sell the assets for a profit.
From this group of "safe" stocks, you choose the ones most likely to have great appreciation. A stock is cheap in my book when it is sold at the liquidation value of its assets, and the most cheap if it sells anywhere near the net amount of cash that they are on hand. So the first two measures of value were I wanted book value per share and cash per share. Book value is performed on the company's books, the value of equity.
Generally, as you buy a stock, you will want to know the book value per share. The only restriction, looking at book value is that companies often intangible assets on the books, Goodwill and the like. You need to take these intangible assets with a grain of salt.
The safest thing is to make "tangible book value." The book value per share is often calculated for you financial stocks in the various Internet search programs.
The next screen is to seek cash per share or operating capital per share. Working capital is current assets minus current liabilities. These assets are close to cash or will be rotated usually over in a year: receivables, inventory and the like. To measure the health of working capital, divide current assets by current liabilities, which are "current money." A current ratio of two to one or better usually on a solid company. As long as the company is no long-term debt, or at least none that is in the near future by the company solvent and should be around for a while - little or no risk of insolvency.
Next, we look for low price-earnings (P / E) ratios. In my opinion, the purchase of high P / E stocks chasing growth company invites real danger. If the company is disappointed in the result not only of the inventory drops from the lower income, the P / E ratio is also empty, giving you a double whammy.
OK, so you have a company that is selling at or below book value with a current ratio less than 2:1, and a low, low P / E. It can be found that the stock is not down, but that stock up? Picking growing industries and high-growth companies is more than I can say here, but there are two simple things you can for the first glance: (1) Is the company buying its own shares, or bought it, own shares at about this price, and (2) are the insiders make final purchases of its shares?
Next, you can look at a ratio of revenue or sales at market value or the dollar amount of sales per share. Generally, the company will have a relatively high proportion of sales per market value or sales have more action on the top. The company has more sales, make profits from.
Once you have the field decreases with the above techniques, there is no substitute for intensive homework about company prospects to which these cheap stocks that really give you superior returns what I have to find my "home-run stocks."
John Lux is a former OTC trader and author of the book "How to Find a Home Run Stock." To read and find your own Home Run Stocks the book,