Simple Stock Investing Principles
“Buying a company with mediocre prospects because the price is cheap is a losing technique.” — Peter Lynch
This is not discrediting the Cigar Butt strategy. The Cigar Butt strategy focuses on beaten down, undervalued stocks selling at extremely low prices. These companies have an intrinsic value based on the liquidation of assets; if the company were to be sold privately.
What I am addressing is the tendency for investors to buy average to below average companies, because they can be had at a cheap price.
There’s no value to be had in that. Mediocre companies will perform as such, and your portfolio will reflect that.
Bear Markets Are Great.
Yes, you read that correctly. Down markets provide opportunities for major gains in your investment portfolio. The “Buy Low, Sell High” investment strategy begins in a bear market.
July 27, 2022: At the time of this writing, we are currently in a bear market. For the past 5+ years the stock market has steadily gone up with only brief periods of correction. This unexpected drop in stock prices, combined with inflation, has dropped the confidence amongst consumers and investors.
This situation has created an excellent buying opportunity for investors with the courage to pull the trigger (and the preparation to have funds ready).
Another word for this is market timing or forecasting. Just because the price of a stock goes up, does not mean you were right about that stock. The opposite is true as well. Stock prices are volatile, especially in the short-term.
Being hyper-focused on the prices of your stock is a tiring activity. Stay focused on the things that matter, the quality of the company you invested in.