The Successful Investor's Mantra
If you want to simplify your life and improve your investment returns in a single plunge, just remember one thing: when it comes to investing, always buy cheap!
A cheap price can do wondrous things like turn a seemingly unpopular investment into an excellent opportunity. And you don't always have to wait long for the market to recognize the value that you found.
If you are fortunate enough to find companies mentioned in the financial press that are trading at a discount to their net asset values (ex: book value - intangibles), then you have discovered the most reliable single indicator that you're getting a stock on the cheap.
Also look for companies that are considered to be losers, yet have lots of cash and zero debt. And if some of them were even profitable, then you can't ask for much more than that. In fact, smart, cash-rich businesses often take advantage of down markets to buy attractive assets on the cheap.
You can follow your favorite business. You can religiously use its products. You can even fall in love with the company's stock. But if you want to make money, you must buy shares in your favorite company when - and only when - they become cheap. And, the cheaper the better.
There are a lot of value-oriented strategies. Warren Buffett's strategy is the most complex. He pays what seems like high prices for companies that have high returns on shareholders equity. But Buffett only buys when the price is right. He may pay 20 or even 30 times earnings for a stock, but he'll only do that if the company can earn a high return on equity, something like 20% or more. Thus in relation to the value that he finds, Buffett will only buy when the price is low enough.
The bottom line message here is very clear. When good stocks get cheap, buy them. And after all, we are in a stock-picker's market at this time. So no matter what awful things may happen in the world from year to year, one fact that isn't going to change is this: it's difficult to go wrong buying what's cheap!
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A cheap price can do wondrous things like turn a seemingly unpopular investment into an excellent opportunity. And you don't always have to wait long for the market to recognize the value that you found.
If you are fortunate enough to find companies mentioned in the financial press that are trading at a discount to their net asset values (ex: book value - intangibles), then you have discovered the most reliable single indicator that you're getting a stock on the cheap.
Also look for companies that are considered to be losers, yet have lots of cash and zero debt. And if some of them were even profitable, then you can't ask for much more than that. In fact, smart, cash-rich businesses often take advantage of down markets to buy attractive assets on the cheap.
You can follow your favorite business. You can religiously use its products. You can even fall in love with the company's stock. But if you want to make money, you must buy shares in your favorite company when - and only when - they become cheap. And, the cheaper the better.
There are a lot of value-oriented strategies. Warren Buffett's strategy is the most complex. He pays what seems like high prices for companies that have high returns on shareholders equity. But Buffett only buys when the price is right. He may pay 20 or even 30 times earnings for a stock, but he'll only do that if the company can earn a high return on equity, something like 20% or more. Thus in relation to the value that he finds, Buffett will only buy when the price is low enough.
The bottom line message here is very clear. When good stocks get cheap, buy them. And after all, we are in a stock-picker's market at this time. So no matter what awful things may happen in the world from year to year, one fact that isn't going to change is this: it's difficult to go wrong buying what's cheap!
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posted by Bob Moser at
4:21 PM
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