Value Investing!

Buying a business is an investment; trading stocks is not. The difference is clear. Value investors believe that as stockholders, they are owners of the corporation with rights and privileges. Speculators of stocks seem to believe that shares of companies are pieces of paper to be traded back and forth among market participants, regardless of the underlying assets associated with the securities.

Investors in businesses base their investment decisions on the economics of the business, the price they are paying relative to the value they are getting. Market speculators make decisions based on their predictions of the behavior of others—buy if the stock “behaves” well and sell if it does not. Surprisingly, some professional stock market participants who speculate on the price movement trade in an out of stocks quite well. It works for them. For most of us, however, such market psychology games are beyond our competence level.

For the value investor, buying a publicly traded business is no different than buying a private company or a home. The thought processes are very similar. Individuals interested in purchasing a home are not interested in “trading” the property. Most individuals intend to buy and hold, or sell five to seven years later. These potential owners take their time, spend countless hours researching potential prospects in the newspaper and on the Internet, and follow up on recommendations from real estate agents. Thorough homework is done. Long-term value investors believe that this level of care should also hold true for events in the public markets.

Value Investing!