I want to focus on low quality stocks because I want to help you avoid losing money. During the Tech Boom in the year 2000 there were so many low quality stocks such as VA Linux, Red Hat Linux, The Globe.com, Infospace, and the lists go on and on. Why do I say that these companies are low quality? The reason is that the business model was not sound and promising. We just buy it because we were crazy about any companies that have things to do with the Internet.

How Do We Find Quality Stocks? We will use Coke as a quality stock for our example. Coke is a fine quality stock because it already has loyal fans. You see Coke and Pepsi everywhere. Coke already proved to us that it can keep making money no matter if there is a recession. When there is a recession people will stop buying expensive items but they will still drink Coke.

Anheuser-Busch Companies will always sell Bud Light because people will still drink beer. I made good profits from Bud Light when Anheuser-Bush sales were declining, and I took advantage buying the stock.

The last example is Procter & Gamble, they sells everything that you will need to run your daily life. They sell Tide, Crest toothpaste, Always, Duracell, and the list just goes on and on. If you really want the ultimate defense stock than Procter & Gamble would be the One.

But you have to ask yourself why would I buy it if the stock is not going up or down? The only reason I can think of is that you can’t find anything to buy. Warren Buffet owned all three of these companies that I mention.

He owned large stakes of it more than anyone. That old man really know about business model more than I do, but I won’t give up on making myself a great investor. The more I make fun of that Old Man the more I am becoming like him. I guess you can call it Karma or Sin.

Final Thought. Most bull markets always have this characteristic:

• The stock price is always high
• The P/E (price earnings ratio) is always high, but not always because high earning make P/E low
• Low dividend yields compare to bond
• Crazy earning reports is a must
• IPO of low quality stocks such as Infospace, VA Linux, and The Globe.com, etc.

First Published: March 21, 2008 @ 16:41