We believe price and value are two separate things
Most people judge the performance or quality of their investments by the short-term movements of their price in the stock market.
If an investment goes up they believe they have chosen wisely, if it goes down they have the immediate feeling that they have made a mistake and regret the purchase.
This is a deep but understandable psychological flaw.
We know that over extended periods of time the share price of a business will move in line with the company’s progress.
However, in the words of Ben graham, in the short term the stock market is a voting machine, in the long term it is a weighing machine.
There are extended periods of time when fractional ownership of a quality business trade at a significant discount from the true value.
If you disagree, look at the significant price hikes in stocks when anyone tries to buy an entire company. We encourage investors not to view their shares as ticker symbols, but as ownership of real business.
Further, to consider their value not on the basis of the last available trade, but on the potential to generate cash today and in the future.
While we have no idea of what a business will trade for at on any given day, this does not overly concern us. We are not short-term holders in companies that we like.
Once we have found a great business that we feel confident in, we are more likely to buy after a price drop than to sell, especially as many price changes have nothing to do with the company itself, but the market as a whole.
If you think about it logically, the valuation of a company actually becomes more attractive at a lower price, rather than less attractive, as some people might assume.
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Most people judge the performance or quality of their investments by the short-term movements of their price in the stock market.
If an investment goes up they believe they have chosen wisely, if it goes down they have the immediate feeling that they have made a mistake and regret the purchase.
This is a deep but understandable psychological flaw.
We know that over extended periods of time the share price of a business will move in line with the company’s progress.
However, in the words of Ben graham, in the short term the stock market is a voting machine, in the long term it is a weighing machine.
There are extended periods of time when fractional ownership of a quality business trade at a significant discount from the true value.
If you disagree, look at the significant price hikes in stocks when anyone tries to buy an entire company. We encourage investors not to view their shares as ticker symbols, but as ownership of real business.
Further, to consider their value not on the basis of the last available trade, but on the potential to generate cash today and in the future.
While we have no idea of what a business will trade for at on any given day, this does not overly concern us. We are not short-term holders in companies that we like.
Once we have found a great business that we feel confident in, we are more likely to buy after a price drop than to sell, especially as many price changes have nothing to do with the company itself, but the market as a whole.
If you think about it logically, the valuation of a company actually becomes more attractive at a lower price, rather than less attractive, as some people might assume.
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Most people judge the performance or quality of their investments by the short-term movements of their price in the stock market.
If an investment goes up they believe they have chosen wisely, if it goes down they have the immediate feeling that they have made a mistake and regret the purchase.
This is a deep but understandable psychological flaw.
We know that over extended periods of time the share price of a business will move in line with the company’s progress.
However, in the words of Ben graham, in the short term the stock market is a voting machine, in the long term it is a weighing machine.
There are extended periods of time when fractional ownership of a quality business trade at a significant discount from the true value.
If you disagree, look at the significant price hikes in stocks when anyone tries to buy an entire company. We encourage investors not to view their shares as ticker symbols, but as ownership of real business.
Further, to consider their value not on the basis of the last available trade, but on the potential to generate cash today and in the future.
While we have no idea of what a business will trade for at on any given day, this does not overly concern us. We are not short-term holders in companies that we like.
Once we have found a great business that we feel confident in, we are more likely to buy after a price drop than to sell, especially as many price changes have nothing to do with the company itself, but the market as a whole.
If you think about it logically, the valuation of a company actually becomes more attractive at a lower price, rather than less attractive, as some people might assume.
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Tom Spain
Director, Investment Manager & Stockbroker
Tom founded the business in 2010 and specialises in helping individual clients and business owners in Leicestershire and Rutland with their investment and retirement planning needs. Tom is an expert in individual shares, fixed income and retirement planning including SIPPs. He spends a lot of his time thinking and reading as well as conducting investment research on the companies within client portfolios.
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