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These principles will increase your chances of successfully investing in stocks. These are the same principles we implement in our Focused Equity Portfolio at Freedom Financial Solutions.
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The KEY to Success in the Stock Market
Adam Zuercher, CPA, CFP®
Freedom Financial Solutions, LLC
419-425-2400
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Warren Buffett’s Rules
1. “The first rule of investing is don’t lose money.”
2. “The second rule is don’t forget rule number one.”
3. “Be fearful when others are greedy, and be greedy when others are fearful.”
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Remember this…
buy QUALITY businesses
@ ATTRACTIVE prices,
…
sell when quality DETERIORITES or when price is OVERVALUED
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Think like a BUSINESS owner, not like a STOCK trader “If you’re not willing to own a stock for 10 years, do
not even think about owning it for 10 minutes.” –Warren Buffett
“Analyzing a company’s stock on the basis of earnings and assets is no different from analyzing a local laundromat, drugstore, or apartment building that you might want to buy. Although it’s easy to forget sometimes, a share of stock is not a lottery ticket. It’s part ownership of a business.” –Peter Lynch
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Buy QUALITY businesses Strong financial condition Earnings stability (high predictability) A dividend payer Earnings growth High return on equity (ROE)
Prefer 15% + Long-term competitive advantage (wide
moat)
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@ ATTRACTIVE prices:Low price to earnings ratio (P/E) Price-Earnings (P/E) Ratio = a measure of the multiple of
earnings at which a stock sells. Determined by dividing a stock’s price by its earnings per share
The P/E ratio represents the “expensiveness” of a stock
Look for quality companies with low P/E ratios – your goal is to buy earnings as cheap as possible
The P/E Ratio can be thought of as the number of years it will take the company to earn back the amount of your initial investment (assuming that the company’s earnings stay constant)
Example: Buy 100 shares ABC for $3,500; current e.p.s. = $3.50; the original investment will be earned back over 10 years; P/E = 10
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@ ATTRACTIVE prices: … high earnings yield (E/P) Earnings Yield = earnings / price Earnings Yield = inverse of the PE Ratio
P/E Ratio E/P or Earnings Yield25 4.0%20 5.0%15 6.7%10 10.0%
Suggested Rule: Your earnings yield should be at least as high as the current high-grade bond rate. (10 Year Treasury Note Yield)
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@ ATTRACTIVE prices:An attractive investment ROE > PE
= quality business at a bargain price (most of the time)
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Sell when… QUALITY deteriorates
Declining… ROE Dividends EPS
Detrimental change in management or business focus Misinformation
PRICE is overvalued
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MISTAKES TO AVOID:1. Reacting to
emotion.2. Speculating.3. Failing to do
your own research.
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The Cycle of Market Emotions
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Advice from the media?
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Investment Temperament Stay within your CIRCLE OF
COMPETENCE1. invest only in what you understand
2. don’t speculate Be DISCIPLINED
1. …about doing your homework
2. ignore the noise from the crowd & the media
Be PATIENT 1. avoid emotional investing
2. think long-term
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The KEY to success in stocks…
buy QUALITY businesses
@ ATTRACTIVE prices,
…
sell when quality DETERIORITES or when price is OVERVALUED
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www.ffsllc.com
Our mission is to provide wealth creation and wealth management solutions that enable our clients to
achieve financial freedom.
INDEPENDENT | FEE-ONLY | PRUDENT INVESTING | PRIVATELY MANAGED ACCOUNTS | EXCELLENT SERVICE
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www.ffsllc.com
Freedom Financial Solutions is an independent, fee-only investment management firm.
We invite you to experience the peace of mind that comes from having your money professionally managed by people who take a genuine interest in you, your family, and your
goals.
Firm Co-founders:
Tony Hixon (left)
Adam Zuercher (right)
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The information presented is past performance. Investment return and principal value of debt and equity securities will fluctuate so that an investor’s shares on redemption may be worth more or less than the original cost.
There are risks involved with investing, including loss of principal.
In addition to the normal risks associated with equity investing, narrowly focused investments and investments in smaller companies typically exhibit higher volatility.
The indices illustrated herein are unmanaged indices. You cannot invest in an index. Index returns do not reflect the impact of any management fees, transaction costs or expenses. The index information seen here is for illustrative purposes only. For more information, please consult your financial advisors.
Past performance does not guarantee future results.
Specific stocks used in this presentation are used for illustration purposes only. Freedom Financial Solutions does not endorse an investment in these stocks.
The concepts presented here do not constitute an all inclusive investment strategy.
