Benjamin Graham: "Nobody ever knows what the market will do, but we can react intelligently to what it does do."
If the price is rising and everything you liked about the company still persists, such as strong earnings, high margins, low debt, and steady cash flow, then you might decide to invest more. The market is finally recognizing what a great company you're invested in and people are beginning to buy. As William O'Neil recommends, you should move more money into that winner. Business owners buy more of what's working.
If the price is falling and everything you liked about the company still persists, you just stumbled onto a great company at a bargain price. It's incidental that you happen to already own shares purchased at a higher price, you still have the chance to buy a great company on sale.
Think of owning property. Say you bought a 10-acre parcel at $5,000 an acre because of its beautiful meadows and stream. You build your dream home there. Two years later, another 10-acre parcel adjacent to yours goes on sale for only $2,000 an acre. It contains different parts of the same beautiful meadows and a different section of the same stream. Would you react by selling the land and home you already own? Of course not! It's still beautiful. Instead, you'd snap up the adjacent lot because of its identical beauty and the fact that it's selling at 60 percent less than what you paid for the first parcel. That, in a sense, is exactly how you should react when a perfectly solid company drops in price without any fundamental reason for doing so.
React intelligently to the market. It freaks out from time to time, but you don't need to.
Master investors say to buy more of what's working and to take advantage of price dips. That seems to mean that no matter what's happening, you should buy more. That's only true regarding price. Price is not really the most important thing. It seems to be and it's eventually the bottom line, but in the course of stock ownership there are a lot of things more important. For instance, Warren Buffett keeps an eye on profit margins and return on equity. If the company remains strong and keep doing everything right, the market will eventually catch on and the price will rise.
If you bought quality companies after conducting thorough research, you have little to fear in the markets. You will prosper over time. The market will rise and fall, gurus will claim to know where it's going and when, you will hold winners and losers, and by reacting intelligently to all this cacophony your profits will mount.
If the price is rising and everything you liked about the company still persists, such as strong earnings, high margins, low debt, and steady cash flow, then you might decide to invest more. The market is finally recognizing what a great company you're invested in and people are beginning to buy. As William O'Neil recommends, you should move more money into that winner. Business owners buy more of what's working.
If the price is falling and everything you liked about the company still persists, you just stumbled onto a great company at a bargain price. It's incidental that you happen to already own shares purchased at a higher price, you still have the chance to buy a great company on sale.
Think of owning property. Say you bought a 10-acre parcel at $5,000 an acre because of its beautiful meadows and stream. You build your dream home there. Two years later, another 10-acre parcel adjacent to yours goes on sale for only $2,000 an acre. It contains different parts of the same beautiful meadows and a different section of the same stream. Would you react by selling the land and home you already own? Of course not! It's still beautiful. Instead, you'd snap up the adjacent lot because of its identical beauty and the fact that it's selling at 60 percent less than what you paid for the first parcel. That, in a sense, is exactly how you should react when a perfectly solid company drops in price without any fundamental reason for doing so.
React intelligently to the market. It freaks out from time to time, but you don't need to.
- If the market goes haywire and drops the price of your company for no reason, smile coolly and buy more shares.
- If the market goes haywire and drives the price of your stock through the clouds, buy more on the way up. (However, don't buy and consider selling bubbly priced stock).
Master investors say to buy more of what's working and to take advantage of price dips. That seems to mean that no matter what's happening, you should buy more. That's only true regarding price. Price is not really the most important thing. It seems to be and it's eventually the bottom line, but in the course of stock ownership there are a lot of things more important. For instance, Warren Buffett keeps an eye on profit margins and return on equity. If the company remains strong and keep doing everything right, the market will eventually catch on and the price will rise.
If you bought quality companies after conducting thorough research, you have little to fear in the markets. You will prosper over time. The market will rise and fall, gurus will claim to know where it's going and when, you will hold winners and losers, and by reacting intelligently to all this cacophony your profits will mount.
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