I learned something really important yesterday. It was my first foray into a professional kitchen and my featured taco was simply too complicated. Keep it SIMPLE Stupid! I mistakenly thought seven steps required to assemble my taco would be fine. Maybe that's the case in a home kitchen but rules change dramatically in a busy restaurant. Good lesson.
Think this applies to stocks markets too. Yesterday US markets rallied on positive earnings. Brings me to my next point, make sure you believe in the money-making ability of the companies you invest in. I'm hoping most of you may have heard of Warren Buffet. He's super controversial right now because his name is being cited right now in a big American tax debate. Billionaire Buffet wants to pay more taxes. Most of us do not.
Despite the controversy, he is one of the most important stock market investors around. His philosophy being seek long-term ownership in quality companies within your 'circle of competence'. This simply means buy into companies you know and can understand.
That allows him to sleep easy at night and ignore the short-term fluctuations of the market. I like that. And I think Warren does need his rest right now as he's just been diagnosed with cancer. Godspeed Warren.
Dearest Financette,
ReplyDeleteI recently read Ben Graham's Intelligent Investor and, indeed, he does have those as foundational principles:
1. don't buy overpriced crap.
2. don't buy (possibly/possibly not) crap you don't understand anyways.
Another principle is understanding how much a company is actually worth. So for instance, knowing that the Hermes vintage alligator handbag actually costs $21,000 in materials alone, making a purchase price of <$21k a reasonable purchase.
Likewise, when people are paying $55,000 for said bag, it's a great spot to sell.
My question is, how do learn how to calculate\gauge\understand the intrinsic worth of the alligator bag\company stock? Is it about learning how to read balance sheets and knowing what to look for? Are there some good materials out there that describe this?
Yours,
OJ.