1. Establish financial objectives (i.e. Accumulation of wealth to obtain financial independence).
2. Develop a plan to reach your financial objectives (i.e. Investing in stocks).
3. Control and budget your financial life.
4. Implement plans.
5. Review progress periodically.

1. Discipline (The discipline to do the same thing every month, with no exceptions).
2. Ability to do quality research (on those firms you are interested in investing in).

• When purchasing stock you should choose stocks that offer Dividend Reinvestment Plans (DRIPs) and also offer Optional Cash Payments (usually coincide with DRIPs). You want to take possession of your stocks, opt to reinvest your dividends, and make optional cash payments.
• If no DRIP is available, you must buy in blocks of 100.
• If you are buying big blocks of stock, give a specific market order ("Buy at 56 3/8 only").
• Ideal stock market conditions: Strong growth, no inflation, low or stable interest rates.

• Don't try and time the market. Buy low and sell high is a general rule, no one can precisely time the market. Purchase the stock, and invest the same amount every month, this encourages dollar cost averaging, which means that the highs and lows cancel each other out and your risk is reduced. You buy some high, some low, and some at an average price. This is ideal.
• The price of stock is earnings driven!!
• Investments should be a fixed expense and the number one item to be paid off each month.

Timeliness – 1 is best, 1-3 for long term investing.

Safety –1 is best, 1-2 for long term investing. Quality of the stock (safety in relation to T-Bills).

Beta – Volatility in relation to the market as a whole. 1.00 is average. Above 1.00 is more volatile than the market, below 1.00 is less volatile than the market.

Value Line usually errs on the conservative side.

1. The company name (i.e. Coca-Cola).
2. The company symbol (i.e. KO).
3. The company's safety ranking (i.e. "1").
4. The Earning Per Share (EPS), which forms the earnings trend line.
5. The Dividend Per Share (DPS), which forms the dividend trend line.
6. The payout ratio.
7. The average yearly price.
8. The price appreciation.
9. The P/E Ratio.
10. The Dividend Yield.

The Company Name - Make sure you have the correct name of the company (i.e. Coca-Cola is Coca-Cola Company, not Coca-Cola Enterprises).

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The Company Symbol - This is important for the same reason as the company name. The symbol usually has no correlation to the actual company name (i.e. Coca-Cola is KO).

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The Safety Ranking - This is important because it tells how safe your investment is in relation to U.S. T-Bills. The quality of the stock is apparent in the safety ranking.

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The Earnings Per Share - How much the stock earns per share. The Earnings trend line is taken yearly and equals the difference in earnings from one year to the next divided by the original earnings.

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The Dividends Per Share - Annual dividend per share. The Dividend trend line is taken yearly and = the difference in the dividend from one year to the next/the original dividend.

• The Dividend trend line of a quality company should track the Earnings trend line.

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The Payout Ratio - Annual Dividend divided by Earnings Per Share. - Tells what percent of earnings per share are paid out to stockholders in dividends.

• A low payout ratio is good; it means the company reinvests its earnings back into the company.
• 40% and under is the general rule in the payout ratio. 30% is average.

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The Average Yearly Price - High price for year plus low price for year divided by 2.

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The Price Appreciation - Difference in average price from one year to another divided by original price.

• This gives you the value appreciation of the stock (as a percentage, i.e. 1425%).

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The Price/Earning Ratio (P/E Ratio) - Price of stock divided by Earnings per share.

• In isolation the P/E Ratio is worthless.
• Compare current P/E Ratio with historic P/E Ratio.
• If current P/E is 24 and historic P/E is 42, the price can only go up (a low "E" forces "P" up).
• A low P/E means earnings are going up and the price is not. Be leery when the P/E is low.
• How high is it? Normal? Higher is overvalued, lower is undervalued.

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The Dividend Yield - Annual dividend divided by Price of stock.

• The Dividend Yield is dynamic; it changes with the price of the stock.
• A high yield is a danger sign; no yield means no dividend.
• Good companies have small yields because the price of the stock keeps going up.
• If the yield of a good company approaches 3% then be concerned.
• A large denominator (Stock Price) is good - a low yield is good for this reason.

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