Do not Buy Cheap Stock!!!
·
Do not buy cheap for the sake of buying cheap.
a. A
company that is part of a dying industry such as today’s large newspaper
holding companies, might be a bad deal no matter how cheap the stock’s price.
b. Not
all marked-down stocks qualify as Fallen Angels; some companies deserve to be
devalued and should not be purchased even if their share prices are depressed.
·
Good investing means stick with sectors and
companies that are highly predictable.
·
Take advantage of errors others make, usually
because they are too short term oriented, or they over react to dramatic
events, or they overestimate the impacts of events and so on.
a. Ideally,
we like to know ahead of time what we want to buy, wait patiently, buy it when
it goes on sale, and then hold it to reap the benefits of compounding after-tax
rates of return.
b. Program
yourself to take advantage of opportunity quickly – if you have done your
homework and determined a reasonable goal, and the price meets that goal, don’t
wait.
·
2 critical elements of a Fallen Angels:
a. Price
below intrinsic value.
b. The
fundamentals are likely to propel it to future revenue and earnings growth.
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