Here’s a quick and easy checklist to ask yourself before buying a value stock.

1. Does the stock have consistenly increasing EPS (earnings per share), Sales and Cash Flows?
2. Does it have sustainable competitive advantage?
3. Does the company have future growth drivers in place?
4. Does the company have conservative debt?
5. Does the company have a high & consistent ROE (return on equity) and ROA (return on assets)?
6. Does the company have low CAPEX (capital expenditure) for maintenance of current operations?
7. Is the management of the company holding or buying the stock?
8. Is the stock price selling at a discount?
9. Is the price consolidating or on an uptrend?

Discover how you can invest in stocks, increase your wealth while avoiding RIBA. Download your copy of the bestselling ‘Wealthy Muslims Will Inherit Jannah’ Book NOW!

If you are asking the question how do I get started making higher returns than the bank gives me, or just getting a return while avoiding interest / riba as well as a profitable return.Over the next few paragraphs I’ll share with you four simple techniques of investing that can generate you from 12% to excess of 100% of return in the stock market.

Over my own course of learning and investing in the stock market I have learned that you must use all of these strategies together to earn significant returns while reducing the risk. For obvious reasons you should start with the easiest first and then move up towards higher risk / bigger rewards.

The strategies are as follows from least risk to highest risk and from least return to highest return;

1. Buying the market
2. Value investing
3. Momentum investing
4. Options trading.

Each of these investing strategies are distinct in their nature and used for specific purposes.

Buying the market

This is the easiest strategy with the least amount of risk and the lowest return (still significantly higher than what you are earning with keeping your money in the bank or under the mattress). You just invest in the S&P 500 index, or buy a fund that tracks the S&P500 index. The easier of the two is to buy units in a fund that tracks the performance of the S&P 500 index. This will ensure you get returns equal to the overall increase of the market. This is a long-term strategy and any investment should be typically made for more than 5 years.

Value investing

This strategy is used by investors like Warren Buffet, where you identify an undervalued company, invest in it for the long term and get a profit based on the increase in the company’s market value. There are specific criteria for identifying undervalued companies that we will discuss in a future post. However because of following the specific criteria, such as the company is a monopoly, or has a monopoly over a product or service, has consistent growth over the past 10 years, has significant future growth potential, is priced below its intrinsic value etc. This strategy typically returns between 15-20% years over year. Investments in this strategy are done for an average of 1 to 5 years.

Discover how you can invest in stocks, increase your wealth while avoiding RIBA. Download your copy of the bestselling book ‘Wealthy Muslims Will Inherit Jannah’ NOW!

Momentum investing

This strategy includes an element of probability analysis based on past performance. This is used by sophisticated investors like George Soros to beat the market when it is going up or down. Just by estimating which direction the market is going to move and buying and selling on that basis. Though often thought of as speculative investing, modern traders have modified this strategy to include value investing through which you can make educated calculative predictions on which direction that market will take a value investment and buy and sell in the short term to earn profits in excess of 25%. This is typically a 3 month to 6 month trading strategy.

Options trading

Options trading is the most complex type of trading on the stock market, with the highest returns. In reality it is neither complex nor risky but it does require higher discipline and specific systems to be in place for you to make a profit. This strategy is used by highly sophisticated investors to earn returns in excess of 100% on their investments in a few days. Options trading involves controlling a vast number of shares based on a small amount of initial investment. (This is a complex trading strategy requires a more detailed explanation which will be dealt with in future posts).

Take a look at a dollar in your pocket. Go ahead, take it out, and look at it.

What does this dollar signify to you? What’s it real value.

Did you estimate the power of this $1 to be less than the one dollar – did you think it was just a dollar, or did you understand this was a seed for your million dollar money tree.

Just this one dollar alone is worth a million dollars. I’ll get to that in a bit. Before we do though, let’s assume for a second that whatever we have learned growing up about money is not true. Because we have incorrectly learned the mere basics of money to such a fraction and formed all the rules and thoughts around that money, that whatever we do with it is not correct.

A few realities that we have to accept before we can get to the million dollars.;

1. Taking interest is haram (forbidden by Allah’s decree in the Quran) so we will look at ways and methods which don’t involve haram.
2. Interest, even if we accept that current day interest is not haram, gives us a return of between 0% to 5%
3. The inflation rate on average is 8% year over year.
4. Based on these assumptions even if interest is not haram you lose 3% of your buying power each year just by doing nothing and keeping your money in the bank.
5. As an example if a loaf of bread costs 100 cents today (1$) – and you had 100 cents in the bank. Today if you took all you money out you could buy that loaf of bread.  At the end of the year, the bank would give you 5% interest on your 100 cents so you would have a 105 cents in the bank. However, due to inflation, which is 10%, the loaf of bread would now cost 110 cents. So even if you took out all your money from the bank you would not be able to buy that same loaf of bread that you could buy a year ago.
6. The stock market has given a consistent return of 12% since 1912 (in the USA). This is by merely looking the S&P500 index (the S&P 500 index tracks the stock markets 500 top companies in exactly the proportion in which they are part of the stock market).
7. Most large companies, like Wal-Mart, Nike, Coca Cola etc have been giving a consistent return of 15 – 25%

Now the Magic, we will look at what the $1 can do for us when invested in different places (without looking at the effect of inflation and reinvesting all profits).

Do you dream about making it big in life, making millions while avoiding riba / interest as a muslim. Discover the best selling method of increasing your wealth when you download your copy of the bestselling book ‘Wealthy Muslims Will Inherit Jannah’ NOW. Check out this link!

1. $1 invested today not invested
2. $1 invested today in the bank (giving us a 5% interest)
3. $1 invested today in the S&P 500 (giving us a return of 12%)
4. $1 invested today in a low growth company (giving us a return of 15%)
5. $1 invested today in a medium growth company (giving us a return of 20%)
6. $1 invested today in a high growth company (giving us a return of 25%)

So the simple question is – do you want to leave a legacy of a million dollars when you leave this world or do you just want to tear this dollar up. The choice is entirely yours.

Go ahead, rip this dollar into pieces, or buy a cup of coffee – same difference.

P.S. The above calculation is condensed for this post. If you want to see the actual calculation with yearly figures, return rates and the whole bells and whistles you can download it from here.

P.S.S To learn how you can invest this dollar into a million download your copy of the Wealthy Muslims Will Inherit Jannah ebook.

Often you will hear people say that the stock market is the same as the roll of the dice. Understand that the stock market is a gamble only if you are looking to treat it as such. If you take the advice of fools and naysayers then you will lose your money on the stock market as you would in any other investment. Armed with the right knowledge and tools, you will be able to make excellent investment decisions, and with discipline you will be able to use the follies of others to gain supreme returns. Stock market is a place of trade, you can get bargains and you can buy products that will lose you money. You have to decide what is in your best interest and be wary of people who try to sell you products and companies that you don’t understand.

Following are a few simple rules that will enable you to make the most of your investments without fear of losing your money.

a. Buy a business vs. printed paper
When you invest in the stock market treat it as an investment in the business. Do your due diligence like someone looking to invest in the corner grocery store. Treat each share as your right in the business and your right on the assets and your responsibilities of the debts of the company. Once you start looking at your stock market purchases as definite ownership of business you will start looking at it with global understanding. This is an absolute must to ensure that you treat the business as a business and not take the buying and selling of shares as the business. The buying and selling of shares and treating that as your business will lead you towards loss.

b. Buy what you know vs. what someone tells you
Since you are treating each business as your share in the business invest only in what you know as opposed to investing in products that someone tells you to invest in. This is imperative to help you make clearer, wiser decisions based on your industry knowledge. What someone tells you will usually be based on market sentiment, which is false and exaggerated. It will also be based on heresy and not defined experimentation.

c. Buy when you want to vs. broker recommendations
Similarly, buy what you want to buy. Decide the business you want to be in, that you understand and buy that ignoring your broker’s recommendations. Your broker will recommend fast-moving or climbing shares that may or may not be a good investment decision. So before you go out buying, shop around for the best return on your investment based on the valuation model, what you know of the company and the price of the investment. Buy it only then. Ignore your broker’s recommendations if they don’t fulfill these criteria.

Discover how you can invest in stocks, increase your wealth while avoiding RIBA. Download your copy of the bestselling ‘Wealthy Muslims Will Inherit Jannah’ Book NOW!

d. 10 Trades in a Life Rule vs. ticker watching
As an investment principle make it your life goal to make 10 investments in your life. Most people think that to make money on the stock market you have to keep watching the ticker and a few points up and down on their investment gives them a heart attack. You must think of investing in the stock market as a lifetime investment and stick to the 10 investments in life. Ticker watching will only lead you to financial ruin. When you invest for your lifetime you will look at companies and investment in the stock market thoroughly and make better investment decisions.

e. Discipline vs. folly of the stupid
Once you have decided the company you want to buy, and run the numbers based on the valuation model you have to wait for the price to be at an acceptable level. The market will keep going up and down because that is the natural cycle of the stock market. However if you invest with discipline your investment will keep giving you a constant return regardless of the price of the market. If the market price of your investment goes down due to sentiment, it will come back up based on the underlying fundamentals of the company.

f. Understanding vs. diversification
Investment decisions in the stock market should be based on understanding and not based on “diversification will keep me safe.” This mantra is of people who wish to make a quick buck without proper investigation. Your goal is to invest based on understanding. Once you invest based on understanding diversification will be a hurdle for you. Brokers recommend diversification because it encourages you to do more trades, which is how brokers make money.

g. Price determines return vs. penny stocks
The return you get on an investment is based on the price you pay for it. So if you get a good bargain for $500 and the return on the investment you get is 15% that is much better than buying a stock for 20 cents when the return on it is 2%. So look at the price of the stock you are buying and compare it to the return you can get on it. This should be your guiding principle of investment.

To ensure you get the best deal on your stock market investment. Decide what you want to buy, and then wait for the price match the return you are looking on it.

No matter what your strategy for investing in the stock, you have to devise your own system of investment and then stick to it. This will ensure your success in the long term – alternatively you can download the Wealthy Muslims Wealth Mastery ebook and get the system all ready for you.