(adsbygoogle = window.adsbygoogle || []).push({}); So everyone pretty much swamped me yesterday with requests for a guide on how to know what to invest in. Basically today I'll be going through that with you and I'll hold your hand along the way and give you examples . Read this entire thread before asking me questions or groaning because you think it is too complicated.

Two terms you should know:
I. Bullish: Bullish means the stock appears to be on a positive trend.

II. Bearish: Bearish stocks are usually stocks that have fallen 25% or more off their all time highs and are in a reversed bullish trend on their way down to fair value.

Things you should consider:

1. Price to Earnings Ratio (P/E)
   
2. Trends (1 month, 3 month, 6 month, YTD, 1 year, 3 year, 10 year)
   
3. Volatility
   

Price to Earnings Ratio - P/E

The price to earnings ratio, also known as P/E, is a favorite among investors as a way to tell the fair value of a stock. Basically what a P/E ratio tells you is how many dollars you are paying for 1 dollar in return.

An example:
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The graph above depicts the average P/E ratio of the S&P 500 over the past 130 years. On the left you have P/E Ratio and on the right you have the long term interest rates. For now, don't pay any attention to the long term interest rates. It does not really concern you now. Just pay attention to the blue line.

So in 1929, P/E ratios on average in the S&P 500 stood at about 34. Meaning for every 34$ you pay, you will get 1$ in return.

But what does that mean? Oh wise Drackos?

It means that the stock you are paying for considered overvalued. So basically....

If a stock has a P/E ratio of anything between 0-10, then it is considered undervalue and very cheap. Sometimes these can make very good investments because they are cheap and may grow in the future.

If a stock has a P/E ratio of anything between 10-17, then it is considered fair value on the market.

If a stock has a P/E ratio of 17-25 then it is considered overvalued and possibly very bullish. However you should always look at the trends before investing in something with a high P/E ratio.

Anything with a P/E of over 25 is considered to be in a speculative bubble and subject to huge market corrections. A market correction is when a stock drops significantly in a short period of time. The trend then reverses from bullish, to bearish.

Trends

Trends are basically charts that depict either a positive trend (a graph that is moving upwards and predicted to continue moving up) or a negative trend (a graph that is moving downwards and predicted to continue moving down). Trends can also be flat. Meaning they have plateaued after a recent rally or have stayed flat after a recent bear market.

I'll give you some examples:

Below is the 6 months chart of Netflix (NFLX).
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By looking at this you will hopefully notice two things, that after reaching nearly 300$ per share, Netflix's stock value quickly dropped in value by more than 50%. This indicates that it is in deep bear market territory and that people are trying to sell the stock.

Now lets look at Netflix's maximum history.

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If you immediately thought stock market bubble, then you are correct! In fact Netflix at its peak had a P/E ratio of about 56. That means for every 56$ you invest, you expect 1$ in earnings. However you can see here that Netflix quickly declined to 130$ per share and wiped out many investors.

Now lets look at a bull market trend.

Below is the rally immediately after the market lows on March 9th, 2009 on the Dow Jones Industrial Average.

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What you should immediately see is an increase in Dow after it bottomed at about 6,500. This is considered a bull market. Some argue it is a bear market rally but we'll see in the coming weeks :p. Thats a different story though :p.

Now lets look at the Dow's all time history.

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You'll notice that it is extremely speculative toward the very end. The Dow appears to be in a bubble in 2007 when it peaked at 14,164. If you look at the bull market after March 9th, 2009, you will notice that it rose even faster than before, arguably putting it back into bubble territory.

This however, I feel best depicts a bubble.

Below is the NASDAQ Composite Index compared in percentages to the S&P 500, and Dow Jones Industrial average.

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The black line represents the NASDAQ Composite Index. As you can see, it is clearly a bubble. Some older and members may remember this as the early 2000s recession, also known as the Dot Com Bubble.

Now for what I consider flat markets. Below depicts a flat market in which the stock remains trapped in a price range.

The chart below represents the Dow over summer break.

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This is a flat market. Showing that in that 3 or 4 month period, the Dow ended where it started. Meaning no gains had been made.

Below is the Dow's past 10 years.

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As you can see, it is also stagnant. It has remained in the same area from the beginning of the 21st century.

Volatility

Volatility basically means large gains or losses. It is a very risky stock but can create huge gains or massive losses depending on when you move.

Volatility comes usually from fear.

Below is a chart of the 5 year period of the VIX S&P 500. The VIX is considered the best fear gauge of markets.

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Basically, the higher the VIX, the more volatility and fear is in the market.

The amazing the about the VIX is that if you flip it over, you get a picture that sort of looks like the S&P 500 chart. Basically when the VIX is extremely low (10-11 range), the S&P is usually very high. If the VIX is very high, then the opposite happens and the S&P 500 is both low and volatile.

As you can see, in 2006, 2007, the VIX was very low. By September and October of 2008, the VIX was extremely high due to the collapse of Lehman Brothers, the bailout of AIG, TARP, and many other investment firms nearly failing.

Below is the Dow Jones Industrial Average around the collapse of Lehman, the bailout of AIG, and the controversy in the US Government over TARP.

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You can see here that the one day swings in the Dow become very large. Typically being as high as 7.5% and as low as 2%. This is very volatile and dangerous. This is also arguably the darkest time on Wall Street since 1933 and 1929.

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So my most important piece of advice to you is to follow the news. The news you read online isn't always accurate but with that, on top of P/E ratios and trends you can view, you can really get a sense of where something will be going.

Apple for example just reached an all time high of 413 a few days ago. Its P/E is only 16. It is still expected to continue growing. Thats just basic information you can find by just looking at a graph and a few numbers.

Thanks guys and good luck!

Lets say you buy 1 stock worth 100$. Lets call that stock, A. So stock A goes up 1% one day and reaches 101$. You now have a net worth of 101$ instead of 1$.

Basically a P/E just means how much you are willing to invest to earn money back. Getting lower back is just the return on the stock itself but you can always sell that stock as well to earn money off of selling it.

its very noob friendly, every thing that seems confusing is well explained, but, stock market investing isnt for noobs either. best tip, check last month of NYSE(stock market) and see how well it has done, then check into whatever stock you decide you might want to invest in, as an example...the above chart about netflix: DONT BUY IT, with netflix's recent price changes and dropping stock, its not wise to invest and take a potential entry loss and hope to recover. best places to invest are thigns that people need on a day to day basis, like oil (exxon mobil),food, (beef or chicken companies like TYSON), cellualr phone companies like verizon, and game companies on the verge of releasing a major title...when a company makes big profit, they tend to see increased stock prices. which means, you..the investor...see stacks of fat green 100$ bills on the horizon.

tl;dr. This can't really be called a mini guide considering it's long, but good for people who didn't understand your previous post. I'm not doing shit with my vbux though because last time I tried to do vBookie, or something, I lost about 300k vbux :wtf:

Can I just ask how is this a mini-guide? lol, thanks anyway bro :y:

Meh Didnt understand anything, Will get a jew to do it for me :dumb:

Thats like the most useful thread on this site

When I saw miniguide I thought maybe a few pictures and some explanation, this is a book for God's sake.

This actually helped me out some. Thanks. Now I hope my investment doesn't screw up with the bubble its in. :dumb:

I think'll have better luck with vbookie honestly :p