Emerging stock market
Investors are fully aware that in todays scenario of the financial market, India and China are the preferred destinations for most of the financial institutions. The main reason is the strong economic growth the countries are passing through. Emerging market economies are out performing developed countries in the global economic recovery and may continue for atleast few more years. Investors are required to search with the help of internet for global opportunities that may offer better appreciation on their investments. Investors can select American depository receipts which are listed on reputed foreign exchanges and earn a lot of money.
Use of price/sales ratio
Investors have many parameters to select stock from in emerging markets. One of the experts recommends banking on price to sales ratio strategy. Investors are required to compare a companys market value with its revenue generated per year. By implementing this particular method it is revealed that investors have achieved appreciation on their investment to the tune of 13 to 14 percent annualized returns excluding the brokerage fees and other expenses. The type of stock chosen was from the small cap category and it was working successfully for nearly 8 to 10 years.
In this process, investors need to apply simple mathematical formulas. Investors have to make a list of 40 to 60 companies which are the cheapest with respect to share price to sales ratio. This exercise can be done with the help of computers. Next step is to purchase all the stocks. Later on the stock list is to be further refined by eliminating the stock which is below the inflation adjusted value.
The experts quote the example of other methods such as price to earning ratio or price to book value ratio. Investors who bought the shares on the basis of low price to earning ratio landed up holding of shares of utility or steel companies. Subsequently it was found that, investors earned more in price to sales strategy. The company with high price to sales ratio earns high profit margins. In case of lower profit generation, the company sacks the manager responsible. The low P/S strategy capitalizes on this phenomenon.
Dividend craze
This method explains of utilizing dividend amount more effectively.
Investors are advised to find pairs of stock in the same industry. Their dividend yields should also be similar. The next step is to prepare the list of companies, whose dividend payout dates are longer. Investors need to purchase those shares to be eligible for dividend payouts.
Investors have to take care about tax laws also. From law point of view, it may not be worthwhile if an investor captures the stock just to enjoy dividends and immediately sell the same stock. Investors will be liable to pay higher short term capital gain taxes. The government has made it mandatory to hold the stock for atleast minimum couple of months, in order to get benefit of dividend.
Most of the companies in USA follow the practice of quarterly dividend payouts. Investors can make use of this opportunity to their benefit in the following manner.
Investors should buy the stock prior to the dividend payout date, hold for minimum mandatory period, and earn the dividend. The next important action required is to sell the first stock and utilize the amount to buy the stock from a similar category and complete the same cycle. Then go back to the first stock company. Under this process, investors can get dividend of 7 to 8 percent from one pair of stocks.
Other Articles
