Do You Have Too Much Money in One Stock? This is the best reason of all to sell because it means you did something right and picked a winner. The key is to not let greed get in the way of smart portfolio management.

common valuation measure is price-to-book (P/B), which compares a stock’s market value with the book value (also known as shareholder’s equity or net worth) on the company’s most recent balance sheet.

watch the “allowance for doubtful accounts,” which is essentially the company’s estimate of how much money it won’t be able to collect from deadbeat customers. If this amount doesn’t move up in sync with A/R, the company may be artificially boosting its results

firms with promotional managers, managers who draw egregious salaries, or who exhibit any of the other red flags covered in Chapter 7 are definitely riskier

If you find great companies, value them carefully, and purchase them only at a discount to a reasonable valuation estimate, you’ll be fairly well insulated against the vicissitudes of market emotion.

You don’t need to do detailed analysis at this point—just glance over sales and earnings growth rates and margins. The most important thing is to look at a variety of firms over a reasonably long time frame—at least 5 years and, preferably, 10.

the investment return is the appreciation of a stock because of its dividend yield and subsequent earnings growth, whereas the speculative return comes from the impact of changes in the price-to-earnings (P/E) ratio.

be very wary of a high financial leverage ratio if a company’s business is cyclical or volatile. Because interest payments are fixed, the company has to pay them whether business is good or bad.

In addition to multiple-based measures, you can also use yield-based measures