HOW TO INVEST PASSIVELY IN STOCK MARKET

Many of you want to invest in the stock market or already do so. For those who watch the charts regularly, you will realize that even if you manage to make money, you are dependent on sitting in front of the screens too often to find the good deal.

The ideal for many of us is to invest and do something else with our time while we earn money.

There are passive investment solutions and you can hit the jackpot without wasting your time. In this article, I give you some keys that an independent trader gave me.

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Why invest in the stock market?

First of all, it's important to understand whether the stock market is an attractive investment option.

After all, the stock market scares a lot of people, as it's synonymous with losses. So why bother? As in any field, we make mistakes when we're inexperienced or have limited knowledge.

Let's try to understand why many investors choose the stock market to invest their capital.

A study carried out in France by IEIF (Institut de l'Epargne Immobilière et Foncière - Real Estate and Land Savings Institute) shows the comparative performance results over 40 years (1979 to 2019) of different investments:

The stock market has an annual performance of 13%, outperforming investments such as real estate (10-11%) or life insurance (6%).

Interesting when you consider that buying a stock requires no apartment visits or tenant monitoring, or lengthy discussions with your bank advisor (or rather, bank salesman).

The stock market is therefore the most profitable and passive investment. But how do you find the right opportunities?

Fundamental analysis on the stock market

Fundamental analysis will take you off the screen and improve your time-to-earnings ratio.

Fundamental analysis is a method of analyzing stocks by examining their underlying financial and economic factors, such as revenues, earnings, assets and liabilities. It involves studying a company's financial statements, management team, industry trends and economic conditions to determine a stock's intrinsic value.

The aim of fundamental analysis is to identify undervalued or overvalued stocks based on their current market price in relation to their intrinsic value. This information can help investors make informed decisions about which stocks to buy or sell, and at what price.

Fundamental analysis in the stock market is a widely used approach. It gives investors a better understanding of a company's financial health and helps them assess its long-term growth prospects. This can help investors identify stocks likely to perform well over the long term, regardless of short-term market fluctuations.

This is particularly interesting for someone who doesn't want to spend all day in front of the charts. But you also need to master your analysis. But how?

The Quanti Trading strategy

This strategy is a long-term investment method based on fundamental analysis and compound interest. It draws heavily on the advice of Warren Buffet and his mentor Benjamin Graham, who were among the pioneers of profitable stock market investing.

The aim is not to trade, but to invest! This timeless method is based on real figures and does not seek to predict the future or speculate on the rise or fall of a share. The focus is on finding stocks that are said to be underpriced, and selling them when they become overpriced.

So far, I've tried to keep things simple. But let's go into a bit more detail to understand how to find stocks "on sale" and resell them at full price.

How does the strategy work?

Choosing the right stock on the stock market is crucial. To do this, you need to apply various filters to your selection.

The Quanti Trading strategy uses a number of filters to select the most promising company stocks:

1. Choosing companies from a selection panel

Financial experts are already doing an important job of selecting from the stock market indices. Taking the S&P 500 index for US stocks already filters out a large number of sometimes higher-risk stocks. So we end up with 500 large companies for this example, right from the first filter.

The S&P 500 measures the performance of 500 large listed companies in the USA.

2. Applying the Value Strategy: B/M Ratio

The B/M ratio (Book-to-Market) is a financial measure that compares a company's book value to its market value. The B/M ratio is calculated by dividing the company's book value by its market capitalization.

B: Book value = actual value. This is the difference between assets (what the company owns) and debts (what it owes).

M: Market value = value estimated by the market. It is the number of shares outstanding multiplied by the most recent share price.

High B/M ratio = low share price, undervalued share therefore attractive because book value is higher than market value.

Low B/M ratio = share price high, share overvalued and therefore unattractive to hold in your portfolio.

The B/M ratio is used in a variety of financial and strategic analyses. In particular, it is used to assess the performance of investment portfolios. Or to determine which companies are likely to generate superior returns over the long term.

3. The F-Score

The F-Score (or Piotroski Score) is a measure used to assess a company's financial quality. Developed by Professor Joseph Piotroski of the University of Chicago, it is based on nine financial criteria that reflect a company's financial health.

This filter eliminates some of the stocks that are still too risky, leaving only a small number for a diversified portfolio.

The rating assigns one point to each criterion met, for a total of nine points. Criteria include measures such as: change in return on equity, improvement in corporate liquidity and improvement in profitability. Companies with higher scores are considered to have better financial quality than those with lower scores.

The F-Score is also used in the comparative analysis of several companies in the same sector or industry. However, it is important to note that the F-Score should not be used as a single indicator of a company's quality, but rather as part of a more comprehensive analysis.

If you'd like to find out more about F-score scoring, you can go here.

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4. Earnings Per Share: EPS

EPS (Earnings Per Share) is a financial measure that indicates a company's net profit for each outstanding share.

EPS = Total net income / Number of shares outstanding.

For example, if a company had net earnings of $10 million and 1 million shares outstanding, its EPS would be $10 per share.

This indicator is used to assess a company's profitability in relation to its outstanding shares. Investors can also use EPS to compare the performance of different companies in the same sector or industry.

The evolution of EPS over several years makes it possible to analyze how a company is improving its earnings, even if the number of shares has varied.

5. The Price/Earnings Ratio: PER

The Price-to-Earnings Ratio (PER) is a financial measure that compares a share's price to its earnings per share (EPS). It is often used to assess whether a stock is over- or undervalued in relation to its earnings.

PER = most recent share price / EPS.

For example, if the share price is $50 and EPS is $5, the P/E ratio is 10. This means that investors would pay 10 times earnings per share to buy this stock.

A high P/E ratio may indicate that the market is optimistic about the company's growth prospects, or that there is strong demand for the stock. However, a high P/E ratio can also indicate that the stock is overvalued relative to its earnings, which can make the investment risky.

Conversely, a low P/E ratio may indicate that the stock is undervalued in relation to its earnings, making it an attractive investment opportunity. However, a low P/E ratio may also indicate that the market is pessimistic about the company's growth prospects, or that the company has financial or operational problems.

The P/E is therefore a measure of the number of years of earnings that investors are willing to pay for a share. A reassuring P/E is on average between 10 and 20.

6. The Price/Earnings to Growth ratio: PEG

The PEG (Price/Earnings to Growth) ratio is a financial ratio that measures the relationship between a company's price/earnings ratio (PER) and its expected earnings growth. The PEG ratio is used to assess whether a stock's price is justified by its earnings growth.

PEG = PER / Expected future earnings growth (%).

For example, if a company's PER is 20 and its expected annual earnings per share growth rate is 10%, the PEG ratio is 2 (20/10).

The lower the PEG, the more attractive a company's shares are to hold, indicating that the stock is potentially undervalued.

How do I apply this strategy?

Accessible to beginners and experts alike, the method is developed by an independent trader who shares his results. You can access an article on his background and results here.

This trader shares his various portfolios and knowledge, enabling investors to achieve the same results he applies to his management accounts. He selects stocks, so investors have just 5 minutes a month to copy his investments.

Today, he has 2 internationally accessible strategies:

US strategy: +20% average annual capital gain on the best-performing US market.
Dividend strategy: +11% average annual capital gains, including ~4.5% annual dividends on the US and European markets, for lower volatility and geographic diversification.

As he says so well, his strategy is the most passive for those who wish to apply it. Please also bear in mind that time is the most important factor in investing. The biggest risk is not to invest now.

You'll benefit from the passivity of the method and the compound interest I discuss here.

In conclusion

Fundamental analysis on the stock market is very useful when you're looking for attractive gains while limiting your risk as much as possible, or how to invest passively. It identifies a company's financial health, the value of a share and investment opportunities.

The Quanti Trading strategy reveals all this, with long-term support for investors wishing to delegate this analysis easily.

If you want to know more and join the Quanti Trading Club, write us an email. We are negotiating a collaboration with the trader to offer the best service to our readers.

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