Using the framework I've developed using, per Buffett, "by far the best book about investing ever written," I've developed framework will can help you harvest bargains from the wreckage of a crash and realize gains from optimism in a bull market.
Using the core principles below, you will know the true value of your stock(s) and whether or not it's a good time to buy, sell, or hold.
- A stock isn't just a ticker symbol, but an ownership interest in an actual business with an underlying value that doesn't depend on its share price.
- The market is a pendulum that forever swings between unsustainable optimism (makes stocks too expensive) and unjustified pessimism (makes them too cheap). You'll be a realist who sells to optimists and buys from pessimists.
- The future value of any stock is a function of its present price. The more you pay, the lower your return will be.
- No investor can completely eliminate risk. Only be never overpaying, no matter how exciting a prospect seems, can you minimize your risk.
You'll receive a document outlining true vs. market value and the health of the company
Obvious prospects for physical growth in a business DO NOT translate into obvious profits for investors. Air-transport has yielded cumulative negative earnings, people lost everything in the dot-com bubble, and there was minimal profitability in computers due to over-optimist and high prices!
Market value is the ticker price right now (HUGELY influenced by HUMAN EMOTION). True value is determined by figuring out the value of all the tangible and intangible assets and liabilities. Since you're buying part of a company, pay what's fair (or sometimes, better yet, LESS than true value)!