Remember to look at the overall scene and do not be stubborn. If the flower looks rosy except for a thorn or two, do not pull it out. Be sensible when it comes to your portfolio, so that, like your garden, it will grow and prosper.

Are we finished? Almost. Our guide would not be complete without some beautiful statistics, now would it? We don't want you Math gurus to feel cheated; so we will present not just one, but three important statistics for your enjoyment.

The price/book value (P/BV) ratio measures the stock price relative to net assets per share of the company (net assets means book value). Net assets equal total assets minus total liabilities. To obtain book value per share, simply divide net assets by the total number of shares outstanding. For example, you may have a bank account, a car, and a house which represent all your assets, but you also have mortgage loans and an auto loan on the Ferrari that make up your total liabilities. Your net worth would be equal to what is left of your assets had you used them to pay off all your liabilities. Compare this net worth to how much someone is willing to pay to buy you. If the buy price is substantially higher than your true worth, you are either in great demand or simply overpriced. Of course, if someone offers to buy you at a price lower than your true worth, you are underpriced and, indeed, quite a bargain.

Obviously, we are not interested in buying people here. If the price of a stock is near book value per share, then great. If the price of a stock is less than book value per share, then you are actually paying less than what you are getting for your money. In other words, you may have found a bargain. For further clarification, look at the P/BV formula below:

EQ.5

P/BV =

STOCK PRICE

BOOK VALUE PER SHARE

EQ.6

BOOK VALUE PER SHARE = TOTAL ASSETS - TOTAL LIABILITIES (net assets) NUMBER OF SHARES OUTSTANDING

Before you become too attached to using the P/BV ratio, we should warn you: ALWAYS treat book values with caution because assets are comprised of many intangibles such as "good will" or trademark valuations. These intangibles cannot be sold off and are of no real value. Be careful and thoroughly check balance sheets to see what book value includes before you invest in the company.

Now that you are a numbers guru, we will supply the last two statistics needed to complete your combat training. These two statistics can be found in most company research reports.

2.) The Professionals: Institutional Ownership

Institutions are those people holding your mutual fund money, bank deposits, and retirement savings. Comprised of mutual fund managers, pension fund managers, and sometimes bank managers, these professional investors control more money than we will ever see in a lifetime. If your stock falls 10% in one day, these are the people to blame. Together, they have billions of dollars in buying power and that translates into any stock taking a leap or a dive. Institutional investors are the movers and shakers that can make any stock do some dirty dancing.

Say for example, you find that institutions own roughly 35% of your company's stock. If the company has 1 million shares outstanding, institutions own 350,000 shares which is quite a lot. For our companies, we really do not want these "professionals" anywhere near our stock. We can allow institutional ownership of about 5% to 15% at most, but that is enough. Tell them to go find their own superstocks!

Why keep them away, you ask? Good question. Suppose institutional ownership of your company is at 35%. This means that money managers have already spent millions of dollars to buy shares of your company. The stock price has moved up and you may be too late to buy at a bargain price. Unless a surge of other investors start buying, the stock is not going to explode upward anytime soon. Furthermore, if any of these institutional owners get nervous and start selling their millions of shares, gravity takes over and your stock has no place to go, but down.

Basically, when trying to find an undiscovered cash cow of a company, you do not want too many institutions involved yet. Ideally, institutional ownership should initially fall between 5% to 15% of all outstanding shares. Only AFTER you buy the stock should the company get as much exposure as possible. When institutional money managers flood in to push the stock dramatically higher, just sit back and go with the flow. Apply good sense. Focus on companies which are too small to attract institutional interest and have been overlooked by the financial media, and you can often find remarkable bargains. Fortunes are made sooner or later when such bargains get "discovered".

3.) Inside Job: Insider Ownership

Another important statistic is insider ownership. Representing the percentage of shares owned by insiders such as the CEO, senior managers, directors, and other employees, insider ownership can be extremely useful.

For a superstock, insider ownership should fall between 10% to 35% of all outstanding shares. If ownership is over 40%, you should be cautious when insiders start selling because the stock could dive quickly from a large selloff. Less inside ownership also leaves room for institutional investors. When institutions hear about your great company and start buying, the stock price should inflate for a tidy profit.

Let's clarify why insider ownership is useful. Say that you and your friends decide to spend a day at the racetrack. Near the betting booth, you run into the jockey of Oldfart, a horse running in the next race. The first question you may want to ask is, "Mr. Jockey, which horse are you betting on?" He replies, "What an idiotic question! My own, of course!" Now you are thinking, "Great! This jockey really believes in his horse if he's willing to bet his own money!" Perhaps you should bet on this horse too. But before doing so, you should ask another question.

"If you are betting on your own horse, HOW MUCH are you betting?" If the answer is, "Two bucks and some change", you may want to rethink your strategy and avoid wagering your mother's entire life savings on Oldfart and the jockey. On the other hand, suppose the jockey replies, "I took out a million dollar loan and sold my dog to bet on Oldfart!" Then the race would be quite interesting.

The Oldfart example simply illustrates that if insiders own a substantial amount of shares in their company, their management really believes in the company's future prospects. That is, they are willing to bet their OWN money on the company. This statistic is the closest you will ever get to trading on inside information without spending a couple of years in jail. Further, if you can find out what insiders are doing BEFORE you buy your shares, all the better. You can often find clues to reveal a company's future prospects by looking at the reasons behind insider buying and selling. Are insiders buying more shares because the company is coming out with a new product soon, or are they dumping shares because they know that the next earnings report will not meet expectations?

Here are two helpful things to know when watching insider trading. First, NEVER buy a stock if there is a lot of insider selling. If large blocks of shares are being sold by one or more insiders, DO NOT buy the stock regardless of how cheap it may seem. These insiders usually know something that you don't. Secondly, if there are a lot of insiders buying the stock at the same time, the stock is probably a good bet. The reasoning behind these two hints are simple, but they work more often than people think.

Insider statistics can be found monthly in the Wall Street Journal, usually in the "Money and Investing" section, and also in their sister publication, Barron's. Their insider statistics tell you which companies have the highest insider trading volume and also indicate which insiders have done the purchasing. Lexis-Nexis and CD-ROM Compact Disclosure are other excellent sources to find insider stats on your superstocks. If you happen to see heavy insider purchases of your company's stock, prepare to celebrate because the company may do very well in the future with either better earnings or by introducing its new and improved non-abrasive nose-hair clipper. Just remember that insiders are people too; they don't like losing money, especially their own. Furthermore, regardless of how well you did your PRESEARCH, you will never know more than insiders.

These last two statistics may not seem as important as balance sheet or income statement analysis, but do not underestimate their value. The two IO's, Institutional and Insider Ownership, should not be overlooked when it comes to PRESEARCHING your beloved company.

You have now completed your preliminary training. You are ready to wage war with those computer traders, analysts, gurus, palm-readers, and astrologers. We say "preliminary" because this guide is really just the first step. As you become accustomed to analyzing dozens of companies, you will find that PRESEARCHING is a continual learning experience. Hopefully, you will learn from your losers and profit handsomely with your winners. By using ALL of the principles discussed in MoneyPang's guide, you can learn to invest intelligently. To further help you, here are some additional strategic investment rules to live and prosper by:

1.) Never put your entire life savings into one stock. Reduce your risk by diversifying into at least 5 to 10 superstocks (depending on how much you are investing). If just one of them hits the moon, you will be in the money.

2.) Never use one rule to buy a stock, use ALL guidelines discussed in this guide to analyze your company. Make decisions based on ALL relevant information including ratios and common sense. USE BOTH SEXCE AND PEG CRITERIA!!!

3.) You must review your selections, at least, quarterly. Let's see, that's just 4 times a year. Considering that your investment could possibly make the difference between your child going to Harvard or the State School of Shoe Repair, IT IS WELL WORTH YOUR TIME.

4.) Never, ever buy on a whim and this includes listening to the idiot in disguise. Just remember that the person who recommends a stock to you may NOT have been fortunate enough to read this manual (what a tragedy!). Therefore, the advice may not be good. Either way, always PRESEARCH a company BEFORE buying.

5.) Buy low, wait, and have PATIENCE! Remember that downside risk can be minimized if you do your PRESEARCH thoroughly. Buy cheap stocks that have a great story. If the stock price increases, you may want to take profits. But first review the stock to see if it still has potential. Playing the stock market to make millions requires PATIENCE. You can follow a stock from $2 to $200 only if you wait. This waiting time can be approximately 2 to 5 years. If the company still looks sexy after your quarterly reviews, wait a while longer. Learn to be PATIENT and to weather those ups and downs. Real money is produced by the generosity of time, not by unpredictable short-term volatility.

6.) Lastly, have faith in your own judgment. Believe it or not, instincts play an important role in stock picking. Be confident and you can pick winners.

If you apply all the knowledge you learned so far, you should do very well. All the PRESEARCH analytics just described may sound time-consuming, but it is time well spent. As you become more proficient in your analysis, PRESEARCH time will be dramatically reduced. Now for those of you that used this for bathroom reading, a brief summary is provided.

1.) Find company: no problem, just do what you do everyday, shop, look at products, go to stores, read newspapers, magazines (tabloids do not count), etc... Be aware of company names.

Time elapsed: no time wasted, just get a life!

Cost: none, maybe pen and paper for jotting down company names.

2.) Find company description, financial information, phone number: no problem, go to the library, ask for business reference section, look for directories mentioned in MoneyPang's guide, photocopy company information.

Time elapsed: at most 30 minutes to 1 hour, depending on how many companies you have.

Cost: library card, parking meter, pen, change for photocopies.

3.) Assuming the library does NOT have the most recent company information AND does not have LEXIS- NEXIS, call company.

Time elapsed: 5 - 10 minutes depending on how long you are on hold and the number of companies called.

Cost: Listening to annoying secretary, long-distance phone bills, or postage stamps for those of you who like the taste of stamps (cheaper than calling), send a small index card or postal card with your name and address to the Investor Relations Department requesting ALL the latest company information.

4.) Now comes the fun part, analyzing...

Time elapsed: 10 - 30 minutes for EACH company depending on how sleepy you are, how interested you are, how good the company is, and how much analyzing you really need to do (if the company is solid, in a very good industry, has no debt, and satisfies ALL the PRESEARCH criteria, you are permitted to go to bed).

Cost: cup of coffee, some leisure time, some brain work, calculator

5.) Lest we forget, buy the stock.

Time elapsed: One minute on phone with DISCOUNT broker.

Cost: You decide.