Learn How Best Stocks to Buy are Easy to Discover

Learn How Best Stocks to Buy are Easy to Discover You are not rich but have some savings? Want to increase it? Bank deposits have too low interest rates. Investing into stocks might be a better idea. So, how do you get started? Thousands of companies are traded publicly, everyday, and you can buy a part of the company by buying its stocks. However, putting all your money into one stock can be risky; if the company fails, you will lose your investment. Therefore, it is critical to maintain a diversified stock portfolio with acceptable risk levels. So, how do you build your stock portfolio? The following guide on best stock to buy can help.

Modern Portfolio Theory The modern portfolio theory extensively utilizes a concept of beta coefficient. The beta coefficient indicates the correlation of the stock price with the market. For example, the beta coefficient of 1 indicates that the stock price changes exactly in the same way as the prevailing market index price (S&P 500 index). If S&P 500 goes up and beta >1 then the stock price will escalate to new levels, but if beta <0 then the stock price will drastically fall.

Remember, when we talk about correlations we talk about historical prices, and nobody can predict the future.

Beta coefficient when multiplied by the market return is called expected return of the asset. It is in fact an estimation of the value if asset holdings. The formula applied to calculate it; Expected Return = Future value of the stock price â&#x20AC;&#x201C; Current value of stock price The real stock price varies in time, and this behavior is called volatility. Volatility is a measure of risk that you take expecting a return. As per this theory, you can maximize the ratio of the expected return on stock portfolio to the stock portfolio volatility.

Stock Portfolio Optimization It is all about tradeoff. For instance, for fuel economy you sacrifice the horsepower of your car or vice versa. You do optimization all the time. Mathematics has algorithms for that. The first step is problem definition; the second step is solution optimization. In the stock portfolio optimization, your goal is to increase the return and reduce the risks. You maximize the ratio of the expected return to the return rate volatility.

The approach to the stock portfolio optimization is researching all the possible solutions to arrive at the best one.

However, this is a highly time-consuming and ineffective procedure. There are smarter algorithms which do not waste time searching for the solution in hopeless areas. The optimization algorithm starts from the exploration of a wide area, but quickly narrows down to the areas where the optimal solution is present. How can that be? Look at the birds. Birds flock around until one of it finds an area with some food. The flock follows that bird and starts exploiting the area by looking for a food rich region, so is the case with stock optimization.

Four ways to discover best stocks to buy in the year 2015: Method #1: Stock Trading Software on your PC: That is what experienced traders use! Software is good, however it is expensive, and you need to learn how to use it.

Method #2: Excel spreadsheets: Oh yes, many people use Excel. Spreadsheets look familiar and seem inexpensive (excluding the hidden cost of Excel) but always involve plenty of copy pasting and boredom.

Method #3: Matlab: Only if you are a technical geek who likes writing scripts, and for some reasons have a Matlab license. This is also true for any general-purpose math software.

Method #4: Web site: Yes! But how many websites for portfolio optimization do you know which are free and easy in use? Use a web site that work on your iPhone, iPad, and Smartphone that you have.