Monday, 8 May 2017

A sound mental approach towards stock fluctuations (2) Measuring Investment Results

Price Changes as Measuring Investment Results

The success of your investment program in common stocks must depend in great part on what happens ultimately to their prices.
  • How far must you commit yourself to concern with the market's price fluctuation or conduct?
  • By what market tests should you consider that you have been successful or not?

Yet, focusing on short-term or minor fluctuations will make you indistinguishable from the stock trader.

The experienced investors lean toward using a combination of dividend return and market-price change over a suitable period of time as the measure of investment success.  

  • These calculations are made preferably between dates, several years apart, on which the general market level has not changed appreciably.
  • The inclusion of the dividend income make this method a highly satisfactory one for testing investment results.
  • It may be employed: 
  1. (1) to measure the overall performance of an investor's portfolio, or 
  2. (2) to compare one investment fund with another, or 
  3. (3) to assess the merits of alternative principles of investment - for example, buying "growth stocks" versus buying undervalued securities.

Market Price Fluctuations

When the general market declines or advances substantially, nearly all investors will have somewhat similar changes in their portfolio values.

The investor should not pay serious attention to such price developments unless they fit into a previously established program of buying at low levels and selling at high levels.

No comments: