Thursday, September 01, 2005 3:32:01 PM
Think like an owner, a stock investor should focus on the underlying value of a business based on its long-term potential, not the daily market price of a stock. Although these concepts seem similar, there's usually a big difference. The actual value of any stock is equal to the present value of the future cash flows of the company, on a per-share basis. This value is obviously an estimate, because nobody knows for certain how much cash the firm will earn. However, I'm 100% certain that the true value of any given stock will fluctuate much less than its quoted market price does.
Share prices change for a variety of reasons, many of which have nothing to do with the firm's ability to generate cash. In other words, the price of any given stock is more volatile than the underlying value of the shares. This volatility is a blessing to stock investors because it occasionally provides some amazing opportunities to buy shares at prices well below what they are really worth. Famed investor--and mentor to Buffett--Benjamin Graham dubbed this cushion between the stock's price and its actual worth the margin of safety.
Often, the best opportunities to become an shareholder come when a firm is working through some temporary struggles that have little effect on the true value of the company, but the stock price has been hammered to prices that offer a large margin of safety. In many of these cases, thanks to the market's notorious shortsightedness, you'll find gloomy articles in the media, market pundits proclaiming doom, and naysayer analysts lowering ratings and price targets. It's at times like these that your HOMEWORK and ownership mentality will serve you well. You won't have the psychological comfort of knowing that there's a large crowd of people agreeing with you. Instead, you must stick to your convictions, and focus on the actual value of the firm, rather than the noise surrounding its share price. Quoting Warren Buffett, "Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." Investors can cultivate the right temperament by thinking more like an owner.
Never see failure as failure, but only as a learning experience..
DO YOUR OWN DD...
EVERYTHING I SAY IS STRICTLY MY HUMBLE OPINION!!GLTA
FEATURED Integrated Ventures Files Q3/2024 With Mining Revenues Of $1,983,250 And Positive Earnings Of $0.05 Cents Per Share • May 15, 2024 10:30 AM
Swifty Global Announces Impressive Financial Results for Q1 2024 • DRCR • May 15, 2024 10:25 AM
Branded Legacy Inc. Invites Shareholders to Celebrate Milestones at Open House: Announces Share Buyback and Commitment to Authorized Share Count • BLEG • May 15, 2024 8:30 AM
Alliance Creative Group (ACGX) Releases Q1 2024 Financial and Disclosure Report with an 88% increase in Net Income from Q1 2023 to Q1 2024 • ACGX • May 15, 2024 8:30 AM
Category V Biotech, Inc. Announces Letter of Intent to Acquire Genetic Networks, Expanding into Biotechnology Sector • CATV • May 15, 2024 8:00 AM
POET Announces Design Win and Collaboration with Foxconn Interconnect Technology for High-speed AI Systems • POET • May 14, 2024 10:09 AM