One of the things I learned from Graham's book. Revised Edition.
Just because a stock is cheap does not mean it is a money maker or a buy. More money is made buying a Stock with solid potential at a fair price, Than is made purchasing a fair stock at a low price. Unless you are a very disciplined trader who sells at the first sign it is going against you. The risk out weighs potential gain.
From page 36 of I/ Investor
1) An investor calculates what a stock is worth, based on the value of its businesses. A speculator gambles that a stock will go up in price because somebody else will pay even more for it. As Graham once put it, investors judge “the market price by established standards of value,” while speculators “base [their] standards of value upon the market price.”
2) For a speculator, the incessant stream of stock quotes is like oxygen; cut it off and he dies. For an investor, what Graham called “quotational” values matter much less. Graham urges you to
invest only if you would be comfortable owning a stock even if you had no way of knowing its daily share price.
3) Like casino gambling or betting on the horses, speculating in the market can be exciting or even rewarding (if you happen to get lucky). But it’s the worst imaginable way to build your wealth. That’s because
Wall Street, like Las Vegas or the racetrack, has calibrated the odds so that the house always prevails, in the end, against everyone who tries to beat the house at its own speculative game.
On the other hand, investing is a unique kind of casino—one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor. People who invest make money for
themselves; People who speculate make money for their brokers.
And that, in turn, is why Wall Street perennially downplays the durable virtues of investing and hypes the gaudy appeal of speculation. |
