Monday, May 12, 2008

Profitable Ideas

People wonder if ideas can make money -- yes, there are profits in ideas. Take personal investing, for example. Investing in the right security yields profits. Essentially, we have the equation

Good Idea + Investment = Profit.

There are millions of "good ideas" on how to invest money, and often people hire experts to provide them with investment ideas (stock broker, financial planner, etc.). One problem with this arrangement is that often the expert "hired" really works for a firm who sells investments. Clients wonder, "Who holds sway over this expert, me the client -- or the firm, his employer?" Conflicts of interest occur. For those like me who are self-reliant and don't mind simple online research, I developed a system that generates good investment ideas using free online tools. The method solves the conflict, removing it from clients' worries.

First, I advocate the value investment philosophy proven effective by such icons as Warren Buffett and Benjamin Graham. I recommend reading Graham's book, The Intelligent Investor.

Grounded in the knowledge of how value investing works, you can begin searching for profitable ideas. In Graham's day, people pored over printed materials. One beautiful thing about investing today is that there are so many new tools to get results. I use an advanced, free stock screening tool. I use screening parameters I developed based on the value philosophy and generate lists of potential investments. I take those results to information boards, such as Yahoo's finance page for more detailed analysis of companies I like. Once I gain the knowledge of the business and confirm that it is worth the investment, I place the trade myself. I monitor the results and have a target sales price on the up and down side.

This method generates profits from ideas, true idea power. The key is establishing optimal parameters and maximizing your profit. I will share my stock screening parameters soon, a quick "how to" for today's value investor, but am also interested in other views, so comments are encouraged!

Check back soon for links to my course on value investing, how to pick winning investments, which is under revision temporarily.

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