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market moves - investing in stocks



5/27/2009
Most the market moves make no sense these days, and like Warren Buffet has stated many times, it's important to use market movements to your advantage; think of them as your friend instead of something to destroy you. You need to think of stocks as being sold like anything else; sometimes they are on sale sometimes they aren't. If they are on sale and you bought it before it was on sale, then unless something has fundamentally changed about the product, feel free to buy more of it i.e. because it's cheaper now. People always buy and sell stocks based on just price, which is actually one of the dumbest things an investor can do. Never sell a stock JUST because it’s going down in price and never buy stock just because it’s cheap. If you bought a good company at a good price, then eventually you WILL make money when the true value of that company is realized. The price is what you pay for something but value is what you are actually getting for the money that you invested. If you bought something for a truly good value then eventually the real intrinsic price of that asset or good will be realized and you can profit from the situation. The questions you must always ask is are the price movements made in my investments legitimate or not, and how can I tell?

-Bad reasons to sell a stock even if the market moves the price

Someone reports some news about the company like sales in the retailing industry appear to be slower than last year and consequently people start selling and the price of the stock goes down. A horrible reason to sell any company is going by what you hear in the news since any individual company may go up or down not related to what’s happening in the news. Another bad reason people sell their stock is simply because a friend or so called expert says it’s a good time to sell. A perfect thing that I tell people who say that I should sell my stock for reasons that are not fundamentals is this “I will sell my business when it’s not making as much money as it should anymore” that one gets them every time.

-Good reasons to sell a stock
One of the best reasons to sell or buy stock that hardly anyone talks about is simply for fundamental reasons. It’s funny because people buy and sell stock just about for every reason in the book besides the fact that the company is doing better or worse. I will give you some fundamental things that you should look out for and sell your part of the company when these things happen. Firstly, have the earnings of the company changed at all? If the earnings of a company have gone down from the previous year you need to ask yourself a good hard question of why? Many times if a companies earnings are down slightly from what they were this can be a natural occurrence in a recession and the company may actually be sound company for the long run; you should never look at earnings alone. The last things an investor should look at before selling is has the ROE, ROC and the amount of debt gone up or down? Return on equity and return on invested capital are very important investing and if both of those go down it’s a sign that the company is not what it once was; also debt obviously is another bad sign.

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Inflation and market moves