Stocks and Exchange - Ladis Konecny - ebook

Stocks and Exchange ebook

Ladis Konecny

56,25 zł


The book "Stocks and Exchange - the only Book you need" is intended for the general public from 11 to 85 years. Although the book is easily understandable, it describes in detail the parameters, which are ideal for safe and profitable investments in stocks or companies - whether short term or long term. When to sell or buy? This is technical and fundamental analysis at its finest. Which stocks can finance your pension with dividend payments? This book is the result of many years of practice and study of relevant literature. The book describes the strategies of the most famous investors and also my own experiences with stocks. Investment funds and pension insurance are discussed. The book contains a little information on business economics for investors and a lot of important information about the business on the stock exchange. The courses of three economic crises and crashes are investigated. The small lexicon explains 195 technical terms. There are some case studies about investors, companies and their stocks. Also described is the investment in gold, commodities and derivatives. Because the state expects ever more personal responsibility for your retirement arrangements, this book is also a very meaningful gift for your younger family members. Unfortunately there are only very few profound and above all honest books on shares thereby making this one all the more valuable.

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Liczba stron: 663


1. Foreword

An investment in stocks is a very profitable and if done properly, less risky way to generate the necessary capital for your own home – far faster than with a building loan agreement. To supplement the retirement pension or even double it, it is sensible to invest in stocks than in various additional insurances. With the dividends you create a solid income and can possibly even at 50 or 55 years stop working. Also your descendants enjoy the dividends, since they will inherit the stocks. But of your statutory pension they will receive nothing more.

This book is dedicated to the beginning and the advanced investors of 11 to 85 years. At first it is published in four languages. This book will be the only one you need for the successful investing in stocks. It is written simply and formulated clearly with avoidance of foreign words. To have success with investments in stocks, it is sufficient to have reason, intelligence and the skills in mathematics of an 11-year-old child and to have this book. These many books on the investor Warren Buffett do not contain any information about the valuation multiples of those stocks, in which he invested. Therefore you cannot understand, why they had such an interesting potential to grow for him. The required ratios: P/E, P/B, P/S, ROE, earnings growth, the company's debt and the corresponding explanations will be found exclusively in the Mary Buffett book "Buffettology" and here in my book.

The book explains, which stocks to keep only a few years and sell at a profit and which stocks to keep a lifetime as the pension from dividends. Here are described the great stock crashes of 1930 and 2001, as well as the financial crisis of 2008. Stock funds, bonds, insurance, gold, commodities, Forex and derivatives are explained and how to invest in them. A little lesson in economics is included too. In the chapter "Experts" are described the strategies of Peter Lynch, John Templeton, Ken Fisher, Philip Fisher and Andre Kostolany. Warren Buffett and Benjamin Graham, they have each one a separate chapter. The chapter "Fundamental Analysis" is a description of the stock parameters and the characteristics of companies that have to be considered for a risk-free and profitable investment.

The chapter "Technical Analysis" deals with the short-term trading of stocks and explains the determination of the purchase-signals and sale-signals from the charts. Everything useful for trading is here. I turned the falsehoods into truths and incorporated my own experiences.

The chapter "Wisdoms" is a large collection of sayings, wisdoms, ideas and quotations of famous investors, politicians, philosophers and not least of mine, based on the topics: stocks, stock exchange, money and wealth.

In this book are merged the best ideas from Warren Buffett, Benjamin Graham, Ken Fisher, Philip Fischer, Peter Lynch, John Templeton and André Kostolany. At the end of this book is a lexicon of the 195 most important terms in stock market and economy. The texts for this book I was gathering since 2004. Everything was updated in 2016. This book contains all mine 20 years gained practical experiences in value-oriented equity investment.

Which stocks should you buy for only one year and which stocks are to be kept for their dividends? Check in the magazines and on websites the parameters of the stocks of DAX, MDAX, Dow Jones, EuroStoxx50 and Stoxx50, or simply look at my website! Since 2003 my website has the address On this page I show constantly the stocks with a growth potential for the current year.

Websites with fundamental dates of enterprises and stocks: , , ,

The picture on the cover is the chart of stock MAN SE of index DAX or MDAX at the stock exchange Xetra with indicator SMA 200 (Source:

If my book tells you nothing new, then it is suitable as a gift for your son, father or brother for Christmas or a birthday.

I wish you good entertainment and a successful hand for equity investment. This “know how” will help you to success with stocks your entire life long.

If you will find in the book a false statement or a typing error, please write me! Then it will be corrected in the next issue. Thank you!

E-mail: [email protected]

Ladis Konecny, 21st February 2018

2. Stocks and exchange

2.1 Why invest in stocks?

Imagine you invested beginning in 1990 with 10.000 dollars or euros in savings book, insurance or bonds, or at the lowest level of the year 1990 in a certificate to the index DAX, or you would buy at the lowest price of the year 1990 the American technology stocks EMC Corp., Dell Computer Inc., Cisco Systems Inc.. From 10,000 USD or EUR after 10 years in the year 2000 you would have 12.000 gross with the savings book, with insurance or bonds 15.000 gross, with a certificate on the index DAX 60.400 gross. On the highest price of 2000 14 million USD or EUR with the shares of EMC, 12 million with the shares of Dell and 11 million USD or EUR with the shares of Cisco. And in some countries your merit with the stocks would be tax free after a year.

Investment in stocks has two important reasons:

To obtain the necessary capital for to purchase your flat and to double the pension at 65 years or to enjoy your pension earlier. At the same time, you can watch both of these goals and hold some stocks for one year to four years and other stocks hold for ever only for dividends.

2.2 Stock

A share or stock is a security. The individual share of a company represents a fraction part of the value of that company. A stock is an equity paper, which certifies and confirms that you are a proportional co-owner of the company.

A shareholder has a right to a portion of the profits generated by the company in the form of dividends. In addition, he has a right to vote at the annual general meeting of the company and he has the right to a reduction on the issuance of new shares. If the company will be dissolved, the shareholder has the right to receive a part of the assets of the company. The dividend you can get in cash out or in new shares or in products of the company in the amount of the dividend. His shares the shareholder can not sell back to the company, but he can sell them on the stock exchange. An exception arises when a company is dissolved – then the shareholder gets back the money from the company for his shares. But for another price.

In recent years there are nearly no stocks more in paper form, but the stocks are only virtually listed in stock accounts. The statement of your bank account confirms you as the shareholder. An exception are the stocks of some few companies, they still in small quantities issue paper stocks, so can the shareholder frame themselves and hang them on the wall. Since there are almost no paper stocks more, the stocks are no more so easy counterfeited.

Stock exchange

The stocks are sold on the stock exchanges. The stock market is a space, where the stockbroker sit at computers and they negotiate from there electronically and worldwide with the shares from your account, if you order them to do so. The trading of stocks on the stock exchange is cheapest online, from your home computer. The order with telephone is slightly more expensive. The most expensive fee for order is, if you authorize bank employees personally at the bank counter. Shares are then either purchased from an other stockholder or acquired from the book of a stockbroker. Let you not from a stockbroker suggest, which stocks you should buy or sell! Generally these brokers have not the necessary knowledge to advise you on one or the other. They lack the knowledge of the fundamental analysis of stocks. They do only the processing of sales or purchases of stocks.

After the issue first are the new shares in a primary market outside the stock exchange sold only to some banks, insurance companies and funds. The primary market is the trading of shares of new issues without the stock market. Later then the shares change hands on the secondary market. The organized secondary market is the stock market, stock exchange. In addition there is also a not organized over-the-counter market OTC called.

The stock market exists since about 1420 before Christ and has its origins in old Egypt. Later, there was also a stock exchange in ancient Rome. As the initial establishment of the stock exchange we should note the year 1409 after Christ, as the stock exchange was founded in the Belgian Brugge. The stock exchange in the neighboring Antwerp was created in the year 1460. At that time the stock market took place under the open sky. Since the year of 1531, there was the first exchange in a building in Antwerp.

Stock company, Corporation (Corp.), Incorporated (Inc.)

A stock company has two birthdays, when it was founded and when it issued shares. Profit from the stocks has the company only once, when it sold its stocks at the issue. In the later stock trading only the shareholders have their profit from the stocks. About half of the newly founded companies go bankrupt within five years. Only half of the new stocks grow in the first year. Often it may be worthwhile, if investor buys only stocks, which were for at least five years on the stock exchange.

The foreign names of a company are: Aktiengesellschaft (AG), Sociedad Anonima (S.A.), Societas Europaea (SE).

Companies work for a single reason: profit making. The profit is the money, which remains as profit from sales, if all bills were paid. Companies with poor management don't achieve a satisfactory profit. The stock price of such a company is going down, when the company profit goes down. Shareholders are not happy about it and if they have common shares and no preferential shares, they can at the annual general meeting tell the management force to make the company more profitable, or they can force the old management to resign and choose a new management.

Where the stocks are stored or deposited?

There is a central depository or a collecting bank for securities. The stocks are listed today exclusively electronically. The central depository for stocks in Europe is the Clearstream International S.A., with headquarters in Frankfurt and Luxembourg. In the event of insolvency (bankruptcy) of your bank or of your broker, you will not lose your stocks, because these are not owned by your bank or broker. Your stocks are listed in the central depository. You will lose your stocks only, if your company is bankrupt like Enron and you didn't sell your stocks soon enough and prices fell to zero.

2.3 How is it with the books?

Before your first stock purchase in your life, it would be good, if you read four books about stocks:

"Stocks and Exchange" by Ladis Konecny

"Buffettology" by Mary Buffett and David Clark

"Value Investing made easy – Benjamin Graham's classic Investment Strategy explained for everyone" by Janet Lowe

"The five Rules for successful Stock Investing" by Pat Dorsey

It is also sufficient, if you read my book only. So you can already alone assess, which stocks would like today the reasonable investors: Warren Buffett, Benjamin Graham, Peter Lynch, John Templeton or Phil Fisher. You will select and buy six to ten of these stocks from Europe and the United States. But don't buy the same stocks that Warren Buffett bought right now, because he has often other reasons than to buy cheap and sell expensive. Also an investor from Europe about 66% of his money should invest in stocks from Europe and only the remaining 33% in stocks from the United States.

To invest money can be a risky enterprise. But the more you know about it, the risk of loss will be lower and you will more enjoy the investing. If you own your stocks at least one year and they grow slowly but surely, you will have more pleasure, than if you sell early with a small profit.

With books on trading don't lose any time! And avoid also stupid books about investing! Who is influenced with stupid books for long-term investment, can hold 30 years stocks in red or sell them after a few years at a loss. Who depends on books on trading, can expect to complete half of his investments at a loss.

In the year 2000 were published many stupid books on stocks. There was for example to read: "If you like Mercedes, Coca Cola or Hamburger, buy the stocks of Daimler, Coca Cola or McDonald's! If a stock has ratio P/E 50, it probably earned this valuation. A popular stock can be valuated with P/E 50. If is the P/E ratio too complicated for you, you ignore it. Buy stocks, which Warren Buffett buys!" Such nonsensical advices brought great losses to investors 2000–2002. On the basis of such stupid books will buy people in the year 2000 stocks of Nokia and Ericsson with P/E 50 and American computer stocks with P/E 100 and they would be then 30 years in red or sell after a few years the stocks at a loss. Authors of such stupid books in 2000 thought that a fair assessment with P/E 15 is no more important.

You can save time without having to read books about the short-term holding of stocks – trading. Short-term oriented speculators and traders don't tell the truth. They lie to 90%. They want to say to people that they themselves are clever investors, however the billionaires holding stocks some years are the idiots. They want to say to people that they lose 7% maximum with a falling stocks and then they sell them, however the value investors with falling stocks will lose 100%. They believe nothing on fundamental analysis. They claim that fundamental analysis does not work. Their opinion is that the holding of stocks several years is no longer meaningful today and in the coming years and that only short term trading based on technical analysis promises profit. All investments they want to hedge with order stop-loss orders. This is a gross mischief! The trader earns enough money in stocks, only if he writes books or hold lectures and expensive seminars for people.

Value investors buy cheap stocks to keep them a few years, never sell at a loss, but later sell with profit hundred or several hundred percent. So they deserve after 50 years patiently and calmly millions, must write no books and sell no seminars.

There are also such individuals, who already write their own books after two years of practice in trading. They copy only the lies from foreign books, without having tried it. To write a reasonable and true book, you need practice and experience in investing at least ten years. Also you should read all wise books about stocks in these ten years.

2.4 Save money and invest!

If you save and invest money in stocks, so that your capital will grow with stock prices growth and dividends, then you get the grade 1, because you profit on your money and your money works for you.

If you spend your entire salary for things, then you get the grade 3, because the money brought nothing to you, but also not damaged.

If you buy an apartment, car and other things on credit and your bank takes you the interest on the loan, then you get the worst assessment with grade 5, because borrowed capital costs you interest and the money works against you.

Invest in stocks only the money of savings, what you don't need quickly to have in the next days or years! So you will not need to sell your stocks, when they are down because of a correction. Don't lose interest on your stocks, if you are for example three years long in red with them! After two to three years of falling prices will follow usually four to six years with rising prices, if you bought undervalued stocks and the company increases its profit, because the competition doesn't harm him. Therefore the purchases of stocks like General Motors, Nokia, Deutsche Telekom, airlines, manufacturers of microchips and electronics are out of question, because of the competition these companies can not reach good earnings growth. Also the earnings reports for the quarters are often disappointing and affect on the prices often catastrophically. With a savings account you will be never in the red, but your capital growth of 2 % in the year entirely eats up the inflation.

Who works in a factory or as a taxi driver and invests a good part of his wages in cheap and good stocks, will see that his capital reliably grows and in the course of time is comparable with the capital of a chief of company or minister, which can not save and spends his money on expensive cars, expensive pictures, expensive holidays and eat in expensive restaurants.

Investment in stocks is the only way to become rich without worries and rivalries. Who buys fundamentally undervalued stocks of companies without competition from the indices DAX, MDAX, EuroStoxx50, Stoxx50 and Dow Jones and hold them for one to seven years, doesn't need to have fear, when during a correction fall the prices 30 %. That makes no sense to control daily the stock charts and sell quickly at declining price without any gain. There is no point to respond to messages in the media. The stocks intended for sale at a profit you sell only, if they become fundamentally expensive. Stocks for long time only because of dividends are held you never need to sell, although these can fall in average decades on half or a third of their value. They are namely after about 4 years back on their highs, then continue to grow, about 160% in 10 years and they are the most profitable pension insurance, which you can only think.

My suggestion is to keep the German stocks from DAX and MDAX for some years and then sell them at a profit. Some stocks from Western Europe and the United States from the indices EuroStoxx50, Stoxx50 and Dow Jones should never be sold and be kept until deep in the retirement age due to the dividends.

2.5 How to start with the stocks?

The best is to find a large bank, offering a free account, where the online orders of stocks on the NYSE New York and XETRA Frankfurt cost up to 10 USD or 10 EUR per order. It can be for the British and Americans the Interactive Brokers – For the Europeans it can be the bank Targobank – Interactive Brokers charge an annual base fee 120 USD and the order on the NYSE costs only 1 USD. The order for XETRA costs 5 USD record. But the first orders up to 120 USD in the year are free. The Targobank offers the accounts free of charge, the order for XETRA costs 10 EUR and order for NYSE costs 17 EUR.

An account is opened with the bank personally with a passport or identity card, or you you must send a copy of the documents to the bank. If the account is set up, you first put there some thousand dollars or euros.

You should order each stock for at least 1.000 USD or EUR, so that the purchase fee 10 USD or EUR does not exceed 1 % of the purchase price.

In the first year on the stock exchange some beginners buy the stocks or fund units, which achieved the highest price gains last year, preferably those, who grew over 100 %. These stocks or fund units have the highest relative strength (RS). Also silly books and magazines recommend to buy stocks with the highest relative strength, the stocks with the best growths in recent months, regardless of how expensive the stocks are actually. Editors at the investor magazines are often young people, who didn't learn anything from the great crash of 2000. Also there are writers, who studied theology and because they earned little with books on the all saints in heaven, they write books about investing. So they come easily to the nonsense that you should buy stocks with the best relative strength. Beginners let easily lure of funds with the beautiful charts of last year. Experienced investors ignore completely the relative strength of stocks, they also invest in stocks with negative relative strength. The indicator "relative strength" expresses just something about the past. The same nonsense is the "momentum", which will be subject later in the chapter "Technical analysis". It is only important that a stock is fundamentally undervalued and the company expects an increase of earnings and sales. Then has the stock growth potential for the next 12 months.

If you are looking for a good stock fund, you should select only the fund based on the strategy of value investing.

An investment portfolio can easily consist of 100 % stocks. The portfolio doesn't need be secured with government bonds and gold. The negative development of the stocks will not be moderated with bonds and in good times, when the stocks rise, the growth of the portfolio value will not be slowed with bonds. The best hedge against price decline and loss of value of your portfolio is, if each individual share at an overpricing will be sold. The second protection is that the stock is sold, if the company expects no more profit growth. This of course we can not not apply for the stocks, from which we want to obtain dividends for our pension; we will never sell them, if no bankruptcy threatens the company.

We also don't need to worry about beta, correlation and volatility. We can forget the diversification of portfolio after Mr. Markowitz. Only the financial advisors and fund managers come with such proposals. In reality the mind and mathematics of an eleven year old child is sufficient for success with stocks. It may be that we invest 30 % of our capital in American stocks, about 20 % in British stocks and 50 % in stocks from Germany, Spain, France and the Netherlands.

2.6 Stock picking

We avoid the risk with falling prices, if the stock have potential or reasons to grow. Stocks with prices under one dollar are not necessarily cheap. You must look for the low valuation ratios P/E, P/B, P/S and P/C. It is equally important that the company expects a profit of increase of more than 20 % in the coming 12 months. Without the chances of profit growth the stocks can remain also 60 years at the same level as for example the stock of General Motors. The GM stock had 2008 the price like 60 years ago, although the stock price was never split. The General Motors company had a strong competition from Germany and Japan and could not increase the sales and earnings. Finally General Motors had to be rescued in 2009 with state intervention before the bankruptcy.

The English ratios P/E, P/B, P/S and P/C are in German KGV, KBV, KUV and KCV. The optimal values for these ratios are described in the chapters "Stocks short term", "Stocks long term" and "Fundamental analysis".

In the long term, that is approximately in 50 years, stock indices can grow on average per year 8 %. If we receive also the dividends of 3 % of the stock prices, we achieve a capital growth of 11 % with a certificate on the stock index with attributed dividends. If we purchase only the stocks with growth potential of 50 % in two years, all overvalued stocks sell and hold no stocks while the great crash, we can achieve a twofold increase of the capital, on average of 22 % in the year.

The traders watch the charts, formations and indicators and draw support and resistance lines. However they should worry whether a stock is undervalued and whether the company expect a profit growth. So they don't need to respond with sales of stocks to falling prices. If the company expect no profit growth, its stock can fall in a single day by 18 % with the bad message about profit the last quarter, as it was the case several times at Nokia and it is a large company. The trader would quickly sell the stocks on stop-loss order in this case. But a sensible value investor buys only undervalued stocks of companies that the next 12 months expect profit growth more than 20 %. He uses no stop-loss order and him suffice to control the growth of its portfolio once annually on the first of January. The reasonable value investor buys only stocks, which have the profit potential of 50 % in two years.

It would be good, if one stock costs at least 5,00 USD. You should not buy stocks with a price under 1,00 USD, they are very risky. These penny stocks can grow 30 % in one day or also 30 % fall. These stocks are not cheap, even if we can purchase some thousand pieces for 1.000 USD. Often they are worthless and empty coats of former stocks.

It is recommended, if we search in the data table of German magazines "Focus Money", "Börse Online" and the weekly newspapers "Euro am Sonntag" for large companies from Western Europe and the United States, which expect a good profit growth and are undervalued. In short: we look for the stocks with price potential of 50 % in two years. We control the identified indicators and values too on the websites,, and

You can not rely on a single claim, you should make inquiries about each company from five different websites and magazines.

It is favorable for investors, when companies invest in the construction of new company buildings, to increase revenues and profits, or if a company invests in the acquisition of companies with a similar product or service. It is also very beneficial to ensure, whether a company purchases its own shares on the stock exchange and then liquidate them. This rises the value of the remaining, outstanding shares. A company should be able constantly to improve quality, to reduce its prices for customers and save money.

You should purchase only stocks with a dividend yield of at least 3%. Stocks without dividend and should it be the shares of Apple or popular company Berkshire Hathaway, these serve mainly to the enrichment of the chief in company. If your stocks are some years in red, alone the dividend gives rise to joy, especially when the dividend is paid in parts quarterly, like dividends from the United States, UK and Spain. The German and French companies pay only once in the year the dividends.

Unfavorable factors for companies are:

very high manager salaries

bonus payments for the managers

stock options for the managers entitling to obtain of the company paid stocks

drastic increase of manager salaries

luxurious office equipment, private jets and luxury cars

payments of millions for prematurely dismissed managers

excessive priced purchase of other companies

purchase of companies, which make losses

purchase of companies, which offer other products and services

lack of competitiveness over the competitors in the market

However a high debt of a company doesn't need to be harmful, if the foreign capital contributes to the increase of profits. The debt should have no more than the double amount of the equity capital.

2.7 Stock purchase

On the website of our bank or our brokers we register us with user name and password to gain access to our account. To order the purchase of stocks online with computer is much cheaper than by phone or personally at the bank. The stock exchange XETRA or the stock exchange in Frankfurt meets us for the acquisition of stocks from around the world. The exchange NYSE in New York sell many foreign stocks only as certificates ADR. If you buy stocks of a Spanish company from a German account on the stock exchange Madrid, the fee can be twice to three times higher, than if you would buy the Spanish stocks on the XETRA. An European can acquire all American stocks on XETRA or Frankfurt stock exchange and don't need the NYSE or NASDAQ in New York.

You can sell American stocks purchased with their WKN or ISIN numbers on German stock exchanges only in Germany, no matter, whether you choose the stock exchange Xetra or Frankfurt. American stocks purchased with their ticker or symbol in the United States you can sell only in the USA, often no matter, whether you choose the stock exchange NYSE or NASDAQ.

Very well and fast you will buy the stocks at any price, if you choose "market order" or "billigst" on the bank's website. You have the stocks often in a few seconds in the depot. By clicking on the limit and then writing a certain limit for the price of stock, often you will buy no stocks till the close of exchange. Because the stock prices free displayed are already 15 minutes old and the stock can be the whole day more expensive as the price, what you chose as the limit. There is no point to pay for communicating current "real time prices", if you want to keep the stocks a year or longer.

Very well and fast you will sell stocks at any price, if you choose "market order" or "bestens" on the bank's web page. You will sell the stocks often in a few seconds. NYSE, New York Stock Exchange is open on Monday to Friday from 9.30 to 16.00 o'clock New York time.

The stock exchange XETRA is open on Monday to Friday from 9.00 to 17.30. The Frankfurt Stock Exchange is open between 8.00 and 20.00 o'clock central Europ. time.

For the reasonable investor suffices, if the chart of a stock gives him the mere impression that the stock is no longer falling, but rises. He needs not worry, if the stock then the next days goes down. A few months later, he can buy more of the stocks. A trader carefully searched for a good "buy signal" and he is in the next few days too in red.

2.8 The intelligent investor and shareholder

A stock expert from Europe will buy mainly stocks from Western Europe and a few stocks from the United States. He needs no stocks from Asia. He ignores the analyst ratings. Traders, computerized purchasing systems and high frequency trading are no competition for him, because he wants to keep his stocks in the long run. He buys cheap and sell expensive.

The success in the stock market depends to a great extent on the investor taking advantage of the stupidity of the traders. Shareholders behave in general less reasonably, because they sell stocks often too early, when these just start to rise, or they sell stocks at a loss. They believe the analysts, journalists and discussion forums and they act too often. They are interested in stocks first, when these already a long time grow and are already overpriced. Sometimes they lose their patience first, if the stocks are already deep in red and then sell at a significant loss, although then they should really buy more of the stocks down. In one year average at 70 % of the stocks of a portfolio is changed by amateurs but also by fund manager for other stocks. This is not clever! Also the computerized trading systems don't behave reasonably and react like living people, panic with falling prices and sell the stocks often with loss.

In Europe, there is a keen interest in certificates on stock indices, especially with the hedged risk. But about the fees investors lose money and sometimes lose the dividends that were generated with the stocks. In the United States investors are mainly interested in individual stocks and less for certificates or funds. With certificates is also the risk that you will lose your invested money, if the issuer of the certificate goes bankrupt.

The stock is the best workplace for our money. The risk is limited, if you regularly share your money on stocks from different sectors and countries and have patience to hold your stocks at least a few years. The shares of a company are so much worth, how much the company in the future will earn. If the future prospects of a company deteriorate, also usually the stock price falls.

The intelligent shareholder ignores for his successful investment the terms like: "beta factor, volatility, risk and correlation". He is not interested on the ratings of analysts and the estimated price targets. His portfolio is not restructured every year and no modern theories of portfolio interest him. The clever investors are only successful, because on the stock exchange are always many stupid, short term trading people, trading machines and market participants, who respond to the technical analysis, news, tips from journalists and stock brokers and the analyst ratings. Do you believe a Makler, then happen a Malheur.

Some investors don't tolerate 1 % decline of their capital. They are interested only in the total return funds that promise positive results for each year. But the bad year 2008 showed that also the total return fund can lose 20 % in year. Before we will come to a 100% growth with a stock, can the stock first 30 % fall for example in May. Who wants a positive yield of capital annually, he can invest to a savings account or in bonds. Then he deserves sure 2 % in the year, what takes him the inflation.

In equity funds or in certificates invest only, when the stocks are really cheap and sell them, when the stocks are expensive! But restrict yourself to the equity funds and stocks from the European region and from the USA! Avoid stocks from other continents! Even if in a year the stocks from Russia, Brazil, Peru, India, or China would strongly grow, stick to fund with stocks from Western Europe or USA! It is good to know, which stocks from the DAX, EuroStoxx50 or Dow Jones you have in your fund. If you have no access to the fundamental data of the stocks and the company at any time, you can not know about their growth potential or whether the stocks are already overpriced. With the exotic stocks from distant lands it is often very difficult if not impossible for a European or American to obtain these important informations. If you come to the conclusion that half of the enterprises from the fund you don't like, you should also keep your hands off this fund.

Who is buying of each stock a few pieces, has no portfolio but a stock zoo. In 1986 the portfolio of Warren Buffett's Berkshire Hathaway was holding 93 % of capital only in three different stocks positions: Capital Cities / ABC, GEICO and Washington Post. From 1989 to 1993 only 9 stock positions were in this portfolio and only 4 stocks were 76 % of portfolio: Capital Cities / ABC, GEICO, Coca-Cola and Gillette. Warren Buffett thinks that investors their capital allocate on many stocks, to invest surely, because they don't learn sufficiently about the companies, in which they invest. But a broadly diversified portfolio is bad. Inform you well about few companies and invest in them, avoid the wide diversification as the DAX or Dow Jones have! For each of the companies selected for the portfolio you should find any time the fundamental data and messages on websites and in magazines. This of course is not the case, if you want to invest in stocks from Brazil and India. Therefore: keep your hands off these! A manager of an India or Brazil stocks fund know only little bit more, than you can know. Investing in Russian stocks, the shareholders can be expropriated or be forced to sell at very poor prices. It can happen quite in all socialist states.

Stock billionaires thus earned, they bought undervalued stocks for 100.000 USD and kept the stocks several years until their overvaluation. Then they sold and bought for the capital new cheap stocks. They never sold at a loss. They would deserve no billions, if they would operate for 40 years with day trading or speculate with a leverage of 1:30 with stock indices, commodities or currency pairs. With such a leverage can be quickly with little own capital earned millions, but also quickly lose. The exception make the managers of large American hedge funds, which conduct their business with criminal price manipulation, false news and great sayings and collect the annually fee 20 % of profit with the investor's capital.

Warren Buffett, Carlos Slim Helu and Bill Gates earned the most money with longterm investment. Warren Buffett was so rich, because he gave in 1970 only 70 % of shares Berkshire Hathaway on stock exchange and until today he kept alone the remaining 30 % of the shares. 2008 this 30 % of the shares had a value of 62 billion USD. Also Bill Gates retained a large part of the shares in initial public offering from Microsoft and never sold. Carlos Slim Helu from Mexico invested in undervalued Mexican stocks and won billions often through the sale of these stocks. All three were at least once on the Forbes list as the richest man in the world. The richest American in 1937 was John Davison Rockefeller, 1957 Jean Paul Getty, 1993 Warren Buffett and later Bill Gates and Carlos Slim Helu.

What signify netto, brutto, tara?

Full amateur

A highly respected doctor comes to the bank counter and would like to invest in a stock fund 100.000 USD for six months, because he read that this fund grew 120 % in the last year. His expectation was: The fund can increase the next half year 60 % and it will bring him 60.000 USD.

Rule 72

You determine the number of years, in which a stock price theoretically can double, by dividing the number 72 by the annual earnings. This applies only, if you could guess the annually profit growth and if the ratio P/E is assumed as constant. At a 10% annual earnings growth can stock price or dividend after 7,2 years double and quadruple after 15 years.

2.9 Value investing, investing in undervalued stocks

Twelve steps to wealth. Free image of Bobst value investment

The way to wealth, or to the first million in the stock market

The fundamental knowledge is that value investing is the best way to invest your money profitably. The fundamental principle of value investing is finding undervalued stocks and to invest in them in the long run. From this results to create a high level of security in the investment and to minimize the risk. Of course the valuation of stocks plays the central role. You don't need to rack your brain over the "intrinsic stock" value, suffice the low valuation ratios P/E, P/B, P/S and P/C. But an undervalued stock has still no chance to grow, if the company fails to increase its profits. Any serious analysis should make sure that the company expects a profit growth of at least 20 % in the year. Companies should not be in high debt and free cash flow should be positive. Make you a portfolio of 6 to 10 undervalued stocks from different sectors and countries! Then the basic strategy "Buy and hold" will always work, also when the year 2008 due to the financial crisis was an exception. Ignore the capital market dynamics and the daily news! No matter how deep your stocks go in red, never sell at a loss! Have the patience to hold your stocks at least one to four years, until they are not dangerously overvalued or the company will expect profit growth to only 5%! An overvaluation can be the case, when a non-technological stock reaches the ratio P/E 25, P/B 6, or P/S 4. Then you can better sell the stocks and buy other cheap stocks. After some decades you can be rich or earned your first million. You need only patience to follow the principle of value investing only patience – that is all.

What is value investing? Undervaluation and overvaluation Free image from

On the picture you can see that a stock within a certain time may vary between undervaluation and overvaluation. You have to buy the stock, if it is undervalued, the price is outside of the "margin of safety" in the "undervalued" area. If the price remains within the "margin of safety", you must not fear to sell with loss. On the curve "intrinsic value" has the stock its right price. If the price rises over the curve "intrinsic value" and is now in the area "overvalued", this is for you the signal to think about the sale of stocks, before it will go down.

If the front pages of general newspapers write, how much money was made on the stock exchange, experience it also the cleaning ladies and taxi drivers and buy the stocks with the highest increases. Then the stocks are already in the "overvalued" area and it is high time for you to sell. The next big crash of overvalued stocks, which can last two to three years at most, is then not far. As I said, you don't need to engage in the "intrinsic value", sell easily at high P/E, P/B or P/S ratios.

When someone asks you, what do you think about a certain share, tell him, he should himself inform about the ratios P/E, P/B, P/S, P/C and PEG in magazines and websites. Assess a stock you can only, if you are actually informed about these ratios.

If you are a long-term oriented investor, you are not suffering, if one of your stocks fallen 30 % for example in May, because you look on your performance only on the first of January. Also a trader doesn't suffer with falling prices, because he sell his stock generally after 10 % or 15 % fall, mainly over the stop-loss order.

Magazines, websites and television

On television, in magazines and on many stupid websites young editors state that stocks brought no income since the overpricing in the year 2000 to underpricing 2010. In the same media is then advertised to purchase insurance, which bring only 2% in the year, what only to the insurance company earnings gives. In a large book store, you will find 30 % books about the financial crisis and 30 % about the trading on the shelf with stock market books. The magazines don't confine on the publishing of "rating buy" and "rating sell", which is intended to represent the potential of a stock, but they deceive the readers with recommendations to buy, although the stock with a P/E 50 or P/S 6 is already far too expensive, or the company expects a lower profit. They continually advise readers to follow their stop-loss order and sell such overpriced stocks at a price decline of 15%. The chief editor of the magazine "Börse Online" got annoyed with me, when I told him, he should confine on the potential of stocks in his articles, what can be logically determined from the ratios. To pronounce purchase recommendations for stocks can mean that the journalists are paid by the stock companies. Of course he contested this criticism and so I was right. Because of such tips the readers sold several times overvalued stocks with a loss of 15% and then they will fear of stocks after one year. So is the interest in stocks low in Germany. These magazines think much of Warren Buffett as a reasonable investor and the editors should learn something from him and never give advice on the purchase of overpriced stocks, which will then be sold on stop-loss order with loss. Warren Buffett is not dependent on the stop loss orders, he knows his stocks and their enterprises well and never sold at a loss.

To fire the interest in stocks again in Germany the magazines should derive only potential of companies and their stocks from the ratios like P/E, P/B, P/S and PEG. The recommendation of stop-loss order should belong to the past. If the magazines so appreciate Warren Buffett, they should also promote the idea of value investing.

There are some crash prophets and comedians in the financial industry, who have fun to manipulate public and stock or commodity prices.

The crash prophets, who provide falling stock prices: Robert Prechter, Marc Faber, Nouriel Roubini, Joseph Stiglitz, Paul Krugman, Roland Leuschel, Günter Hannich.

Cabaret artists, who make only stupid jokes: Jim Rogers, Jim Cramer, George Soros, Alan Greenspan, Ben Bernanke, Nassim Taleb.

These famous American economists, fund managers, bankers of Federal Reserve System FED, pessimists and crash prophets have a large debt on the financial crisis 2007 to 2009. What leads these sad comedian to their absurd statements about the crisis and the crash? Some were certainly paid for their stupid comments by the hedge fund managers, who speculated with great leverage to 1% changes in stock indices, dollar and euro exchange rate, gold and oil prices. Some direct their own fund. Others with their nonsense make advertisements for their new funny book about the latest or the upcoming crisis and crash. If the websites and newspapers from these crash prophets and cabaret artists were not paid, they should not publish their comments and not participate in this rate manipulation. The majority of investors namely want that the stock prices rise.

The average P/E ratio of the stocks in the Dow Jones 1920–2004. Image with permission from Robert J. Shiller, Yale University

3. Stocks short-term, for a few days, 1 year to 4 years

Investment in stocks is the most rewarding form to get money for a home purchase or to become rich without great risk and effort. Instead of a building loan agreement you should prefer to earn the resources for your home purchase with stocks the resources in 10 to 20 years. You can see that for this purpose the best stocks are those from the German index DAX and MDAX. This also applies to American, British and Spanish investors. You must buy such stocks at the time of its undervaluation and sell in an overvaluation. You also sell the stocks, when the company doesn't wait a growing profit this year or only 5% growth. In the mentioned German indices can be found mostly cyclical stocks and these are the most profitable for us. It is especially worthwhile to buy these stocks, if is the PEG ratio lower than 0,5. The stock dividend should amount to at least 3%, then it is not so tragic once a year to have the stock in the red.

It is wise to save and invest the saved money in stocks so that your capital will grow with the stock price and with the dividends, until you you will have enough money to buy an apartment. It is not wise to buy an apartment, car and other things on credit. In the first case, we make money with our capital, in the second case, we lose money with our capital, because we must pay interest on borrowed capital. Although you get a flat with a loan immediately and don't need then to pay a rent anymore, but you must regularly monthly for 20–50 years long pay a great part of salary for your credit. If you lose your work and can no longer make the payments, the bank will confiscate your apartment and will sell it for half of your credit. The other half of the credit you still owe to the bank and have to pay this, although you have no more the flat. If you can earn in 10 to 20 years with stocks to buy your flat, you will take the money from the salary for the stock purchase only irregularly and only then, if you can afford it. At any time you can afford for example a foreign holiday. After 10 or 20 years you will buy the apartment with cash more expensive, but without risk and without big savings every month and every year. Somewhere the price of an apartment is 10 years the same. If you will lose your work or will have an expensive foreign holiday, you don't need to buy any stocks for a period of time. And if you have stocks with above average dividends, you will have such a high income after a few years that you will pay the rent for apartment with the dividends, before you will earn on your own apartment with stocks.

3.1 Trading and short-term speculation

Try out necessarily two or three years to act with stocks in the short term, to buy and sell within a day or week periods, so as the signals from the technical analysis suggest it you. Probably you will find it no more fun after a few years, if you often had to sell stocks at a loss.

Experienced traders or speculators recommend to protect all stocks with stop-loss orders, because a sudden price decline may occur even after a good buy signal and stocks with 7% minus and at the latest at a 15% minus should be sold. Here you can ask rather normal, sensible people, who have no idea of the trading, like your mother, father, son, daughter or friend. They will tell you, whether you should the stocks bought for 10,000 USD some days later sell again for 8,500 USD. You will consider you as stupid and insane, if you're trading like the experienced trader.