Tuesday, 18 November 2014

Buying a good stock is buying a good company?

A good stock to buy does not always equate into a good company to buy into as a shareholder. Some stocks are worth trading as long as they trade at the lowest price and later provide you with an opportunity to sell it at a profit after cost. It is always a good idea to go for the lowest price you can get a stock for. Buy it at that price with a view of selling it when the market for the stock improves. Of course the business should at least be good enough to stay in business while you hold the stocks.

Some business are like cigar butts with not much value, but even that can be hard to find at times. It may not be a good business, it is a good stock only because with some certainty that it has just that little value left in it. It could be like real a cigar butt with one last smoke, only that it is wet and soggy. Sun it dry just a little, and you may get the few last puff left before you hits the cork.

The stock market is distinctly different from the enterprise/industry market of a business. There may be pricing misalignment between the two valuations i.e. the equity valuation of the business may be different from the asset valuation of the business and this is where you have to search for the misprice in valuations.

The lowest price is where the best investment starts and the highest valuation is where profit starts.

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Feel free to ask questions and make comments.

FII