The What, When and How Much of Investing? (Part 1 of 3)
By Peter S. Iuvara

Some may say that the only advice an investor needs to know is "buy low, and sell high". While there are many necessary concepts of profitable investing, this will be a nice starting point for our discussion.

"Buy low, and sell high" -- sounds easy enough. It must not take a rocket-scientists' mentality to figure this out. Well, the fact of the matter is that it can be harder than it seems. After all, we all need help and advice when it comes to something as important as our financial future.

When you hear the saying "Buy low, and sell high", three (3) critical questions should race through your mind. Questions of the utmost importance regarding making the right investment decisions with confidence. The What, When and How Much of Investing? So let us begin.

"The what of investing" will answer the important question of what security to invest in?* For this question I like to use a concept popularized by Benjamin Graham and Warren Buffet known as Security Analysis. Security analysis is the procedure of sorting through possible investments based on values derived from fundamental analysis, and selecting those securities which are currently mispriced. Once the "intrinsic" value of the security is known, we can then compare that value with the current market price. If the current market price is lower than the companies "true value", then we can assume the company is undervalued or oversold. In semi-strong efficient markets, which is a fancy name meaning that almost all public information is immediately priced into the stocks price, we can expect the price of this stock to go up. The exact opposite holds true for companies that have "true / intrinsic" values which are higher than current market prices. The theory being that the stock price should fall, because it is mispriced or overvalued. This is a successful method for selecting those securities which are mispriced and allowing up to narrow down several thousand possible securities to a hundred of so.

Fundamental Analysis (Security Analysis) is the first important step in, The What, When and How Much of Investing, but we cannot stop here. We still have to answer, the questions When and How Much. Be sure to check out Part 2, same time, same place next week. Make Profitable Investment Decisions!

* Investor sentiment will also figure into this decision, but it will be discussed in detail separately in Part 3.