Wednesday 22 October 2008

Historical Earnings

Question: Is it advisable to buy shares based on historical earnings?

One of the fundamental errors of market player is to make decisions based on historical earnings. Such a decision can be a costly affair.

Reasons being, economic situation always keep changing. In addition, each industry also has its own cycles.

It is thus more advantageous to do your own research to try and forecast the profits of a particular company.

If the profits forecast is better than the historical earnings, then it is worth investing in the said company shares.

Points:
Historical Data is just a guide
Do not base your decision on historical profits.
If possible, do both present and future forecasts.


Ref: Making Mistakes in the Stock Market by Wong Yee

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