Value Investing – Reasonable Expectations (Lesson 1)
One of Aesop’s fables tells the story of the tortoise and the hare whereby the tortoise wins a race between the two of them due to the hare’s ego. The persistence of the tortoise prevails and thus, the moral of the story is that slow and steady wins the race. This is an excellent description of value investing.
Value investing is a systematic process of investing in high quality stocks when those respective stocks have significant market price discounts in comparison to recent highs for that same stock. If the underlying net assets are productive and the company’s financial performance is steady, buyers in the market will ultimately bid the price back to prior market values. In effect, the stock price depression is really a reflection of either the company falling out of favor or some other market concern affecting the company’s share price.
Market price fluctuations occur frequently. Value investors simply wait for price depressions with good quality companies to buy stock and once the price recovers, sell the stock and take their respective gains. With a systematic regimen of buying low and selling high, value investors slowly but persistently
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