Stock Market Investing !

Some food for thought on this sunday morning...

Many people are trying to outsmart the stock markets, trying to guess how it should move in the future and trying to time it.

This will fail most of the time, leading to poor returns, as it is virtually impossible to predict how markets would move. Don't try to outsmart and time the stock market !

The only thing which is certain for me is that acquiring for a bargain price a company with a strong and sustainable competitive advantage will mechanically lead to higher returns overtime - if you have the patience to hold - no matter when you invest.

Buying cheap means buying companies with lower PEs, PEGs, EV/EBITDAs, etc, all the more than they yield higher returns on capital.

Bottom line : do your due diligence on companies, forget all the rest !

The major difficulty in stock market investing is to remain rationale and cold-blooded all the time (as Buffett would put it, the secret is in managing one's emotions, I fully agree). If in the short run the stock market may behave eratically and irrationnaly, in the long run it will always act as a "weighing machine" and behave rationnaly. So patience is also a pre-requisite to succeed (you may also call it guts).

Comments

[khanh]

I would add a few points, if I may:
--when evaluating the equity characteristics of a stock (finding stocks with low P/E, Price to Book, PEG, Return on Equity, etc…), I would compare that stock with other socks within the same sector (as technology stocks generally have higher P/E than stocks in the retails sector for example), and maybe within the same segment of market capitalizations (small caps, mid caps or large caps).
A low P/E of 20 for technology stocks, is a high P/E value in the retails or consumer durables sector.
--no one can predict the short term direction of the stock market, but a portfolio manager may use the macro-economic indicators to his advantage: i.e. during the recession time of the economy cycle, he or she may position the stocks in specific sectors, whereas during expansion time, he or she would rotate to other sectors.

--Khanh

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