1. www.investing-performance.com Buy Cheap Stocks

2. Disclaimer Stock speculation is very risky Do not trade with more than you can afford to lose. Seek professional investment advice. This is not investment advice. No warranties, you are on your own.

3. What Makes Stocks Cheap? Stocks are cheap when the underlying value of the stock is much less than the current price – Rubber band Price is much less than value = cheap NOT future value – actual, hard, present value No pie in the sky

4. What is VALUE? Value is almost always based on two things 1. Assets 2. Earnings The other things claimed to be value – reputation, goodwill, good management, blah, blah, have to show up in earnings to be valuable

5. Earnings Price earnings ratio – low P/E is good You put $100,000 in a bank Certificate of Deposit (CD) for a year and get 2% interest You paid 50 times earnings = the price of the CD divided by the earnings (interest) How smart is this when you can easily find stocks selling at 10 times earnings or less? But stocks' prices change and CDs are insured

6. Earnings Yield If the stock sells at $10 and makes $1.00 per share in earnings, the price-earnings ratio is ten And the “earnings yield is 10% In other words, all things being equal, your stock should grow 10% per year

7. Valuing Assets Cash – no haircut = 100% Receivables – not all may be collected Inventory – may be stale – how fast does it turn Property, plant and equipment – what price was it bought at, how much deprecation Intangibles – I usually value at zero, can be inflated

8. Shareholders Equity Adjust for preferred stock, warrants, etc. Treasury stock – At what price does the company buy its own stock? Calculate book value per share

9. Cash and Working Capital Calculate cash per share, working capital per share Working Capital is current assets minus current liabilities Calculate current ratio by dividing current assets by current liabilities – two or better is good

10. Summary – Buy Cheap Stocks Cheap stocks are cheap comparing price with value Value is book value and earnings power Do NOT use future value – only present value Calculate book value per share, cash per share, working capital per share, and price earnings ratio

11. Cheap Stocks Can Stay Cheap Cheap stocks can stay cheap forever But you want to reduce risk by buying cheap Figure out which cheap stocks may go up – see my other videos or buy my books on Amazon.com – How to Find a Home Run Stock – How to Pick Hot Reverse Merger Penny Stocks

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13. John Lux Trader, investment banker, former OTC market maker and attorney Lux.Investor@ gmail.com Copyright ©John Lux 2011