| Strong Portfolio | | | | history of profitability led many investors |
| | | | and analysts to believe that this business |
| The idea of building a strong portfolio | | | | would always be a strong investment. The |
| should be the central focus for any investor | | | | past, however, is of little value in |
| looking for successful long term investing | | | | projecting future cash flows. One way to |
| results in the stock market. While it is true | | | | evaluate whether a company can sustain its |
| that a trader can find an occasional gem with | | | | cash flows is to look at its earnings |
| stock buying tips or a hunch, the majority of | | | | estimates. A company that is struggling to |
| good investments will be the result of doing | | | | make its numbers might not prove to be a |
| the dirty work. This work will help a | | | | successful investment and its purchase might |
| successful investor to discover the strengths | | | | not help to make a strong portfolio. |
| and weaknesses of a company, as well as | | | | |
| helping to understand the business economics | | | | How costly is a business to operate? |
| and market position of the company. Such | | | | |
| research of a company would fall in the | | | | For a strong portfolio, it is wise to |
| category of fundamental analysis and is | | | | consider that some companies need a lot of |
| important to making a good decision on the | | | | money to make their profits, while others can |
| purchase of a companys shares and to building | | | | operate successfully on very little revenue. |
| the strong portfolio that you need to succeed | | | | A utility company needs billions of dollars |
| in the stock market. | | | | each time it opens a new power plant, yet an |
| | | | Internet company can operate on a small |
| | | | amount of ad revenue while it develops its |
| | | | product. The less money it takes for a |
| A trader cant really add a company to a | | | | business to survive, the more appealing it |
| strong portfolio unless he or she knows how | | | | will be for someone investing in the stock |
| the company is generating its cash. This is | | | | market and the more desirable it is to give |
| critical and needs to be specific and void of | | | | investors the advice to add it to their |
| assumptions. Papa Johns Pizza is a perfect | | | | strong portfolio. |
| example of such a need for understanding cash | | | | |
| flow. Millions of people recognize the brand | | | | Is the company managed in a |
| for Papa Johns; its easy to assume that the | | | | shareholder-friendly manner? |
| company makes their money from selling | | | | |
| pizzas. While Papa Johns does make pizzas, | | | | The management team and its attitude towards |
| many of the actual stores are franchises, | | | | the shareholders are extremely important both |
| separately owned and making products | | | | in the companys success and in creating a |
| according to the ingredients and recipes of | | | | strong portfolio. A company that looks at its |
| the parent company. In other words, Papa | | | | own investment philosophy and investment |
| Johns creates the pizza and other products | | | | options, such as repurchasing shares when the |
| that its franchises make. After making this | | | | stock price has fallen rather than invest in |
| connection, it is easy to see how important | | | | another company is more likely to create |
| the relationship between Papa Johns and its | | | | wealth than a one only looking to build the |
| franchises is both to the companys value in | | | | company. Reading a companys actions before |
| the stock market and to a strong portfolio. | | | | you buy can help make a strong portfolio. |
| | | | |
| How much cash does the company make and how | | | | Is the price attractive? |
| quickly? | | | | |
| | | | Simply put, price is the single most |
| Because of the time value of money, a company | | | | important technical analysis tool. The most |
| that makes a million dollars today is worth | | | | common metrics for stock technical analysis |
| more than a company that makes two million | | | | are found because of the share price. A $20 |
| over the next twenty years. Making such | | | | per share company that earns $6 per share has |
| connections between cash flow and time is | | | | a yield of 30%, but a $100 per share stock |
| critical to implementing successful stock | | | | that returns the same $6 only turned a 6% |
| market strategies. | | | | yield, hardly anything that will excite |
| | | | investors or cause a company to be included |
| Can the company continue to maintain its cash | | | | in a strong portfolio. |
| flows? | | | | |
| | | | The best investment advice happens to also |
| At one time the American steel industry was | | | | help to make a strong portfolio; follow the |
| considered a blue chip stock in a strong | | | | money flow. If a company is successful at |
| portfolio and countless analysts advised | | | | making and sharing its money, it will be a |
| adding it to a stock portfolio. An extended | | | | company that has strong investment potential. |