OT
uncle frank,
unless you
a) are planning to take majority control of the company
or
b) are expecting to receive cash dividends
the only reason to buy a stock is to eventually sell it to someone else at a higher price. deciding what stocks to buy consists of deciding what stocks will cause more investor excitement in the future than they do now. whether this future investor excitement that we're trying to predict will come from business prospects, or investing fads, or something greenspan says, or something in the tea leaves, well that's where the different styles of trading/investing differ. when you say you invest in fundamentals, all you're saying is that you expect fundamentals to cause investor excitement in the future.
if improved fundamentals happen, but they don't cause investor excitement, well then you're out of luck. you've only done half the job. look at ford motor. great company. will always sell more and more cars. trades at 8 times earnings.
i don't believe in "this is a great company, so buy the stock." markets are an information game. you shouldn't buy a stock just because the company has great prospects. you should only buy a stock when a company has great prospects AND those prospects will be more highly valued in the future than they are now. if this is the case, then great -- but just remember that you are ultimately doing nothing more than placing a bet on changing perceptions. :-)
ds and i both recommend reading burton malakiel. also, i recommend reading richard thaler. |
