When are there Stock Market Values?
Warren Buffett has said, "We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?"
"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%."
"A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results."
Unexpected changes in the economy disrupt the efficiency of businesses in their production of goods and services. Businesses incur the fixed costs of their production assets such as factories, machines, and fixed labor costs whether these assets are being used in production or not. During a negative shock to the economy such as the oil embargo or the popping of a speculative bubble; investments are written off, layoff costs are incurred, and factories are closed which causes earnings to have a higher degree of volatility as businesses incur the restructuring costs and write offs to reach efficiency again.
"But, surprise - none of these blockbuster events made the slightest dent in Ben Graham's [Buffett's teacher] investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist."
Ben Graham’s viewed stock prices metaphorically as being offers to buy and sell from a business partner called Mr. Market. He thought of Mr. Market as a neurotic businessman who's mood can fluctuate anywhere between incredible cheery optimism and an overwhelming dismal outlook. Mr. Market in one of his manic-depressive phases could wildly depart from its true stock value, but in the long-run the stock will come in line with the business's true value. This is the basis behind the famous Ben Graham quote, "In the short-term the market is a voting machine, in the long-term, a weighing one."
Warren Buffett has said, "Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence."
Ben Graham, in The Intelligent Investor states that, "Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to…the operating results of his companies."
The many booms and busts in financial history provides evidence that the stock price will eventually adjust to reflect the true value-- present value of the projected cash flows to stockholders-- of the underlying business. Unfortunately, countless people have rejected this basic principle of a company's stock price having relation to its value and sold in a bust or brought in a boom.
To conclude, Warren Buffett has said when he buys and sells in his annual report, "The speed at which a business's success is recognized, furthermore, is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price. Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better."
Who makes Value Stock Picks
What is the Value of Stock
Where do I Determine Stock Value
When are there Stock Market Values
Why do I Base My Investments on Value
How Do I Determine Stock Values
Diversify To Where You Are Comfortable With Daily And Even Yearly Price Fluctuations
Never Risk Money You Can't Afford To Lose
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful