Tag Archives: Yourself
The Two Most Important Questions You Should Ask Yourself Before You Make An Investment
Legendary value investor Benjamin Graham was insistent that investors should not ask, “Is this a good stock?” or “Is this a good bond?”. Instead, they should focus on two questions that could change their financial life:
- At what price?
- On what terms?
That may sound overly simple, but putting it to work in your own portfolio can revolutionize your life. Find out how using this approach can help you manage your own money …
The Two Most Important Questions You Should Ask Yourself Before You Make An Investment originally appeared on About.com Investing for Beginners on Saturday, December 31st, 2011 at 18:02:00.
Don’t Fool Yourself Into Thinking You Are a Long-Term Investor If You Aren’t
Just as everyone likes to fancy themselves middle class (the facts: unless you make between $ 2,894.83 and $ 4,335.75 per month, the middle quintile for the American population, you are not middle class), everyone likes to talk about how they are long-term investors. Unfortunately, the facts don’t show that to be the case. While the average American stays in their home for seven years before selling it, many investors think displaying the same patience and horizon with a partial ownership stake in a company such as Pepsi or Johnson & Johnson is unfathomable. To them, six months is a long-term investment!
This begs the question: How can you be sure you aren’t just fooling yourself into thinking you have the right time perspective? To help answer, I wrote a new article called How Do You Know If You Are Making a Long-Term Investment?, which includes a checklist to help you determine if you are in it for the long-haul or trading stocks and fooling yourself.
The article also explains that not every company should be a long-term investment. Typically, you only want to own so-called “excellent businesses” that have very specific financial characteristics. (For more information on that topic, instead, read Getting Rich By Investing in an Excellent Business).
Both should be good places to start for new investors who don’t consider a good time to be chugging Pepto-Bismol in front of a trading screen, afraid to go to the bathroom for fear of losing their nest egg due to a change in the Dow Jones Industrial Average.
The Sad State of Financial Journalism Illustrates Why You Should Think For Yourself
This morning American Airlines filed for Chapter 11 bankruptcy. In this Associated Press news clip, the reporter makes the statement, and I quote:
“American is the only major U.S. airline that didn’t file for bankruptcy protection after the 2001 terrorist attacks”
Anyone who has any knowledge of the airline industry – even a cursory, passing knowledge – knows that this is demonstrably wrong. It is inaccurate. It’s lazy journalism. Following the September 11th terrorist attacks, the United States airline industry collapsed and at least 5 of the 10 major carriers had declared bankruptcy by 2004. However, Southwest Airlines, had remained so successful that at one point in the years following the attacks, its market capitalization exceeded that of the entire remaining United States airline industry combined! This was widely reported in the press and discussed by industry analysts.
Not only has Southwest not filed bankruptcy, over the past 35 years, it is one of the single greatest investments in stock market history, ranking up there with Berkshire Hathaway, Wal-Mart, and Microsoft. The low-cost business model and operating philosophy meant that it was capable of earning money when the rest of the airline industry was running losses, such as fiscal year 2004. It almost always pays to be the low cost producer in a commodity-like industry.
