Why do we forget what makes stock prices move?
If you buy
expensive stocks in the long term,
then, as history shows, your income
will be low. Volatility does not
for you money. Only paying fair
price for future earnings, you can count on good earnings. MarketWatch columnist portal
John says in Kumaryanos
today’s review why we
incorrectly assess their capabilities and
We invest with errors.
The great economist John
Maynard Keynes once said: "practical
people who consider themselves to be completely
free from the influence of a reasonable, usually
They are slaves of some deceased
economists". Many analysts argue this phenomenon better than
recently I described it in his blog, Josh
Brown, also known as "Reformed
broker". In the article, cleverly named "Why
the stock market should go down".
Brown incorrectly states that the volatility
ultimately it is what rewards
stock investors who have
the opportunity to stand in front of her.
This is a standard talk,
that most financial advisers rubbed
its customers. Such phrases and conclusions reached
to us from the academic “effective
markets “or philosophical” random
steps. ” But this is not the case. true
that the stock market you nothing
bound, no matter how
it is volatile and how long you are willing to wait.
And that’s why.
Shares are not
magical pieces of paper that
automatically respond to volatility
in the short run and give
high returns in the long
term. In fact, we had
six-year period with 15% and more growth
and low volatility, but there was also
and the 15-year period heinous income
(Less than 5% per year).
It’s not just the volatility,
this calculation. Securities – it’s not magic lottery
Tickets, which are automatically and
be sure to reward those who
waiting, and specifically the action – is a unit of property
some business. You seem to own a small part of the company. It’s corny, we
We know, but everyone seems to have forgotten about it.
This means that the profit from ordinary
share depends on how much you pay
for their future profits, but not on how
long are you willing to tolerate the volatility of
the market price. And the action is not as effective
evaluated, it is always ready to meet
profit volume for at least ten years, what we have witnessed. Fluent
look at the future of real 10-year-old
income chart Shiller PE
(Chart measures the average rating and
predicts profit potential with
adjusted for inflation) proves it.
Buying at high prices give low
revenues, and vice versa.
When volatility is
be more important than profitability?
For example, if you rent the first year (not
considering basic expenses) of a residential building
yields rent of 1% of its price, then this building
will be beneficial to the buyer, even if he
and his neighbors accidentally undergo some radical changes?
Same story with the shares. Generally, if
you pay a lot of money to make a profit,
you will soon become isolated in yields lousy
for a long time.
So when Brown
States that "the only reason,
at which the shares are going up, that is their
the opportunity to go down"He is mistaken.
Stocks go up, eventually
because the company is increasing its
profit. This is not the potential for volatility
or indeed endurance
exchange rate volatility, which rewards
investors (although stamina too
required) – is "birth" income through profits.
It’s not just fear,
it is fear and greed.
There is another problem
with another thesis of Brown. He says: "Fear
is the most critical, functional
a cog in the machine investment".
In this he is only half right. Other
cog – it is greed that makes
Prices disconnected from the underlying
Revenue in such a way that creates
moments when investing money
It gives a very poor long-term returns. Brown forgets
party maniac in manic-depressive
book "Mr. Market". So
also, the fear is the “premium
for investment risk “(the idea that
shares should outperform the yield
bonds) and confirms the opposite
equation that greed can raise
prices and reduced the award to zero. She is
It may even depreciate your investments.
That’s right, that Brown
welcomes the return of volatility
on the market, but should rejoice not for the
reason that he thinks. Herself
volatility is not a guarantee
good returns for patient investors.
Likely volatility for those
who constantly invests in shares,
benefits the longer the time of purchase of securities
at lower prices.
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