In a rational world, stock prices would reflect company performance and future expectations, adjusted for risk. In this world, stock prices reflect human psychology, and are only indirectly related to actual company performance. Some people who are inexperienced with investing may view a rising stock price as direct evidence that the company is performing well. Similarly, they may conclude that if a stock price is falling, the company has performed poorly.
Investors a decade ago saw the bright futures of these five remarkable companies, and they paid a premium for shares of them. Unfortunately, they drastically overpaid, and therefore their returns were lackluster. Value investors, on the other hand, wisely understand that regardless of how well a company is performing, their stocks must be purchased at a reasonable price. People claim buy-and-hold is dead. It’s not dead. You simply have to do it correctly by buying great companies at reasonable prices.
Source: Dividend Monk
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Posted by D4L | Sunday, November 14, 2010 | ArticleLinks | 0 comments »________________________________________________________________
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