Tuesday, September 9, 2014

Great Analogy Of Company Performance Vs Its Stock Price

What I am going to share is an analogy that I've read from the book "Millionaire Teacher - The Nine Rules of Wealth That You Should Have Learned In School", by Andrew Hallam. Being an half-baked Value Investor, I am totally agreeable with his analogy.
 
For Value Investors, in the short term, the stock price might move upwards or downwards however it likes (basing on the current market's sentiment and supply and demand) but in the long term, it will move along side with the value/assets/earning power of the business.

To illustrate this point, Andrew Hallam akin the business' performance (assets/earning power) as the owner of a dog and the stock price as a leashed dog. So, when you (the owner) are walking leashed dog, the dog might get excited and run frantically to and fro (from you) but he/she can never move too far from you, because he/she was leashed. In short, sooner or later, the leashed dog (stock price) will walk along side with the dog owner (the business' performance) and reach the destination together. 
 
If you are interested to check out the book, click on the image below :
 
 
What is the best analogy of investing lesson you last learned?
 
Cheers!    

4 comments:

  1. Bought wrong stock at wrong time, when we reach destination (graveyard or crematorium) may not even recover hor.

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    Replies
    1. CW8888 : hahaha... that's true lar, that's why it is so important NOT to put all eggs in one basket lor... ;-)

      Delete
  2. Hi Richard,

    Very interesting analogy! I must get hold of this book soon. Thanks for sharing.

    David

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    Replies
    1. Hi David, thanks for dropping by and comment too

      Delete

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