The Use Of P/E Ratios To Select Stocks Suggests That How To Select Stocks In A Bear Market

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How To Select Stocks In A Bear Market

A lot of investors have lost a big chunk of their investments to the current situation in the stock market. In fact, some people that were having the ambition of investing in the stock market are now having a rethink due to the news flying around about the crisis in the stock market. But one thing is the fact that there are people that are making their daily living through stock trading, even in this bad market situation. These people trade and make profits daily in the stock market because they understand the rudiments of the game.

It is important that we understand here that there is a difference between investing in stocks, and trading in stocks. The build up of your wealth in the stock market depends on whether you are investing in stocks or trading in it. Trading in stocks means a short term investment, while investing in stocks means long term investment. Picking successful stocks involves being able to value stocks at their actual value. And before one can be able to know the actual value of a stock, he must have carried out a serious research about that particular stock.

Before picking the stock of any particular company, you must have a ratio that you use as a benchmark to evaluate the financial position and performance of that company. A single ratio does not show a good or bad condition. It should be compared with some standards. These standards of comparisons may consist of the following:

1) Past ratios

2) Competitors ratio

3) Industry ratio

4) Projected ratio

5) Ratios relevant to stock trading.

1) CURRENT PRICE: The highest factor that determines the profit that you will make with any stock that you have in your portfolio is the price that you bought it. Here, price determines everything. The ratio is provided by the market and not derived. Before buying any stock, ask yourself, why is the stock selling at that price, find out how long it will sell at that price, and also find out how much it was selling before.

Other factors that play important roles in the selection of stocks, especially in the bear market are earnings per share (EPS), and price/earnings ratio (P/E). This will be the subject of our discussion tomorrow, all things being equal. In the mean time, I will be happy if you can rate or comment on this article.

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