Wednesday, 22 February 2012

You must think for yourself and not allow the market to direct you.

Be warned.  Do not confuse the real success of an investment with its mirror of success in the stock market .

  • The fact that a stock price rises does not ensure that the underlying business is doing well or that the price increase is justified by a corresponding increase in underlying value. 
  • Likewise, a price fall in and of itself does not necessarily reflect adverse business developments or value deterioration.
  • I t is vitally important for investors to distinguish stock price fluctuations from underlying business reality. 
  • If the general tendency is for buying to beget more buying and selling to precipitate more selling, investors must fight the tendency to capitulate to market forces. 

You cannot ignore the market - ignoring a source of investment opportunities would obviously be a mistake -but you must think for yourself and not allow the market to direct you. 
  • Value in relation to price, not price alone, must determine your investment decisions. 
  • If you look to Mr. Market as a creator of investment opportunities (where price departs from underlying value), you have the makings of a value investor.  
  • If you insist on looking to Mr. Market for investment guidance, however, you are probably best advised to hire someone else to manage your money.

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