Friday, December 9, 2022

How can a teenager make a lot of money with stocks?

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While there are other methods to earn money in the stock market, the following is a checklist of the characteristics I look for in multi-bagger firms with 5–10x growth potential…

  1. The firm has a market capitalization of around $100 million.
    • The micro-cap or nano-cap area is where huge institutional players can’t join since most of these players can’t invest in anything below $5 per share, and here is where you have an edge over your competitors.
    • Even if you are able to identify tiny firms that are doing well before they are covered by analysts and financial institutions, you will be able to generate multi-bagger returns just by outpacing institutional money.
  2. Current Earnings
    • Sales and profitability growth in the double digits are expected.
    • Sales and profitability growth have picked up pace in recent quarters.
    • Institutional investors are attracted to large and rapidly increasing profits growth.
  3. Annual Earnings
    • Over the previous three years, the company has seen double-digit revenue and profitability growth.
    • A return-on-equity (ROE) of at least 17 percent is required.
    • It is vital to track annual results since a firm may reduce expenses or adopt other methods to raise earnings for a quarter or two, but these actions may not be sustainable in the long run.
  4. Institutional Sponsorship
    • In recent quarters, there has been an increase in the number of funds that possess the stock.
    • Participation in the stock by funds that have beaten the market
    • Once again, the aim here is to get institutional funding ahead of schedule.
  5. Huge total addressable market (TAM)
    • The whole addressable market is defined as the existing revenue potential (or total market demand) for a product or service that is already accessible.
  6. Clean share structure
    • Look at the number of shares that are now outstanding, as well as the breakdown of that number.
    • What is the degree of concentration of the company’s stock?
    • What percentage of the company’s stock is held by management and other funds?
    • For example, if the company’s management owns around 70% of the company’s stock, and institutional investors join, demand will outstrip supply by a significant margin, causing the price to go parabolic.
  7. Good management team
    • Perform due diligence on the company’s executive team, including researching each member’s history as well as their previous business judgments.
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BONUS POINTS

  1. In this case, the firm you’re considering is part of an industry in which there is a strong macro tailwind for a bull market to come, thus your individual company wager becomes a sector wager.
  2. Taking a closer look at anything that has just reached a 52-week or multi-year high might be worth your time.
  3. The corporation is constructing a moat around itself in order to preserve competitive advantages over its rivals and so secure its long-term earnings and market share in the process.
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