In Hewlett-Packard: Should You Buy, Hold, Sell Or Short The Stock?, I analyze the quantitative and qualitative aspects of Hewlett Packard (HPQ) using my unique free cash flow system. In the present article, I introduce a new system that I have been working on that has to do with technical analysis. I call it “Statistical Indicator Analysis” (SIA). Since TalkMarkets.com welcomes articles on technical analysis, I will devote many of my articles at TM to SIA.
Investors should try to verify investment decisions by using a variety of different methods. Much of my success as an investor has come from using free cash flow analysis. By using such ratios as Mycroft Free Cash Flow per share, Free Cash Flow Return on Invested Capital (FROIC) and CapFlow, I established a solid methodology for identifying strong companies selling at attractive prices. These ratios are explained in the article linked above and in the introduction to my book (here: “Mycroft’s Blue Book Stock Guide.”)
I have never really had a problem identifying what to buy or when, but have always struggled with when to sell. I hate to lose money and thus tend to sell once a company hits a certain level of Price to Mycroft Free Cash Flow per share, or for example, has its FROIC go from 20% to 5% in a given year. In business, my company’s motto is “Capital Appreciation through Capital Preservation.” I don’t mind going to large positions in cash when negative catalysts are everywhere (October 2008) or going fully invested when positive catalysts are everywhere.
Security analysis is very complex subject. Some investors do little or no research at all when they buy and just invest in Indices as a one shot investments or throw caution to the wind when they get a supposedly good stock tip from CNBC or a friend. Also if a stock that I own gets included in an index, its fortune then gets linked to that index. Basically it’s all about money flows and as an investor, if you get caught on the opposite side of an outflow from an index, your stocks could get seriously affected, even though the fundamentals of the company are sound and the management has proven itself competent.