PDSnet Articles

Feel the Risk

It has been well said that if you don’t “feel the risk” when making an investment in the share market, you are probably not going to make too much money out of it.

The point of this observation is that, typically, at the bottom of a share’s cycle everyone is talking the share down. The press comment is all negative and it takes great courage to buy at that point. But that is precisely what you must do if you want to be a “contrarian”. As Warren Buffett has famously said, “you must be greedy when others are fearful”.

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Curro Vs Advtech

In the last article we looked at the Price:Earnings Growth ratio as a method which you could use to determine whether a quality blue chip share is cheap or expensive at its current market price.
In this article we want to examine the extraordinary case of Curro Holdings – which is currently sitting on a PE ratio of 108,77 – which makes it one of the most “expensive” shares on the JSE and one of the most highly-rated.

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Price:Earnings Growth

Investors buy shares because they anticipate good profits emanating from the company which will, sooner or later, translate into dividends or a rising share price. So the relationship between a company’s share price and its past and expected earnings is of great interest to investors.

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Upside Target

A general feature of the capitalist system is that economies grow. Consumers and businesses are always striving to improve their financial situation by whatever legal (and sometimes illegal) means that they can. It is also true that, in the end, the stock market must always follow the growth of the economy because it constantly discounts the profits of the largest listed companies. Thus the stock market also always trends upwards over the long-term.

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Your Stop Loss Strategy

The idea is very simple. Once you have decided to buy a certain share, you should mark off a price, say, 10% below your purchase price, which will be your stop-loss level (for example, if you intend to buy a share at 1000 cents, set your stop-loss at 900 cents). If instead of going up as you expected, the share goes down, then, when it reaches the stop-loss price, you must sell it, because clearly your original decision to buy was wrong – at least in its timing, if not in both timing and selection. You must acknowledge your mistake by selling the share. In this way you limit the amount you can lose from any particular investment decision. Consider this well-known share market saying,

“If what you expect to happen does not happen, then you are always better off selling sooner rather than later”.

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