Thursday, 4 June 2015

Look Out For Value!!

Yesterday was the first day of IT Fair. Since I was rather free, I decided to go down and take a look because I have been wanting to get a new laptop. Went down and there were a multitude of selections! I am not tech savvy at all and there was no way for me to determine which laptop I wanted. Instinctly, I wanted to get the most value for money! There was no brand loyalty but only a price comparison; trying to get the best performance for the cheapest laptop.

When I got home, it got me thinking. This is the same as stock selection. We should be trying to get the most value for our money. Finding the high quality companies that are selling at a cheap price - not getting too emotionally attached to a stock/company. I feel that this is the biggest mistake that people, including myself, make when selecting which stock to buy. When a stock becomes cheaper, inevitably, we feel that the company is undergoing a crisis and avoid the stock at all cost.

In my short investing journey, I have witnessed this event occurring over and over again. For example, look at all the oil companies that are trading on the stock market - Everyday their prices is decreasing as if the companies are going to go out of business really soon even though their business models are still intact and in fact, they are trying really hard to grow as a whole. While stocks like Amazon are trading at exorbitant prices even though they are not making any money year over year. Of course, I'm not saying that people who buy Amazon are wrong but rather we just have a different perspective on how we value a company.

Since I subscribe to Warren Buffett's style of investing, finding companies that have growing earnings and cash flow is extremely important to me and that is always the first metric that I look at on the financial statement.

To put it in the words of Warren Buffett: "Price is what you pay, Value is what you get".

The Journey to Financial Freedom,

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