Today’s column is essentially a rehash of my presentation at the OSFIC meeting last Tuesday, for the 2,980 or so students who weren’t able to make it. Don’t worry, I know you were busy. You could have called, though. I just don’t feel like you care anymore! *Sniff*

Boy, it feels good to get that out. If you are interested in learning how to pick and value stocks, read on. If not, read on anyway, because I will have a joke somewhere in here where a monkey rides a tricycle.

Stocks are a lot of fun. No, seriously, I mean it. It’s like a great big amusement park, where you can pick stable rides like the monorail, or spinning rides like the tilt-o-whirl, or crazy extreme rides like the 310 foot Millennium Force, except instead of throwing up when it’s over, the bank forecloses your house!

I kid, I kid. Seriously though, stocks are inherently risky. The risk of owning stock is the reason for the great profit potential in the market. I would like to stress, and I am not joking, that investing in individual equities and creating your own portfolio is a task that should only be undertaken by those who seriously want to learn how and why the market works and can be calm when it stops working.

I’ll tell you what. I’ll run through the very basics of equity analysis, the bare minimum, and if it sounds as cool to you as it does to me, and you want to learn more, then go for it. We’ll start with the price:

Price – The price of the stock is how much it costs for one share of stock. Stocks can vary dramatically in price, from a few cents a share, to Warren Buffet’s Berkshire Hathaway (ticker: brka), which as of this writing is selling at $86,200 a share.

Price/Earnings (P/E) Ratio – The P/E ratio is the price of an individual share of stock divided by the annual realized earnings of that stock. So, if there are one billion shares, and they cost $10 apiece, and that year the company earns a one billion dollar profit, i.e. $1 a share, the P/E ratio is $10/$1 = 10. As you can assume, the higher the profits per share, the lower the P/E ratio will be.

Price /Earnings/Growth (P/E/G) Ratio – The P/E/G ratio is the fun ratio! It tells us the value of the stock relative to the long-term growth rate of the stock. In general, if the P/E ratio is equal to Growth (so P/E/G=1), the stock is fairly priced. If the P/E/G is greater than one, the stock is overvalued, and is undervalued if the P/E/G is less than one.

Typically, a company with a high P/E and P/E/G is going to be a growth stock. That is, investors believe the forward earnings of the company will increase so dramatically that the stock is worth much more than its past earnings. As of today, Google (ticker: GOOG) is selling at a P/E of 175 and a P/E/G of 2.78.

If an investor decides a stock is overvalued, she may want to sell short. In a short sale, the investor’s broker borrows shares of a stock that the investor does not own, and sells the stock at the current price. Now the investor has some money in her account from the sale. However, she cannot take that money out. That money is like the cookies that you are not allowed to eat until you finish cleaning your room. No exceptions. I don’t care if Miriam’s mom gives you cookies, this is my house. Alright, young lady, go to your room!

The problem with a short sale is that at some point, the investor must buy back the shares that she sold. She would like to pay less to buy them than she paid to acquire them. So, a short-seller is betting that the price of a stock will go down, and the profit will be the difference between the bought price and the sold price. God help her if the stock goes up!

A company with low ratios is considered a value stock. These are stocks that sell for less than they are worth, unless there are other mitigating factors (Enron, anyone?) that explains its current low price. Let’s look at our old pal, shall we? Enron (ticker: ERNQ.PK) is currently selling at 4.4 cents a share, with a P/E of .212. What a deal! Even so, I’m going to guess we’re all not silly enough to start buying Enron. That would be like paying $120,000 to attend Oberlin and end up training monkeys to ride tricycles.

Now here’s a fun activity, boys and girls. Let’s go over to the computer, and get on www.finance.ya-hoo.com. Pick your favorite company, and look up the ticker symbol. Punch that ticker in, and you have enough ratios to fill your heart’s content. You also have an investment possibility. Check your stock every day or so, and see what happens to it. It’s like a Tamogochi, but it isn’t your fault if it dies!

For more irreverent investing fun, check out www.fool.com. And come to the OSFIC, Tuesday at 9:30 p.m., King 337.