Many new stock investors get wrapped up in the “story” stocks without looking at the company’s financials. While every stock has to have a story, successful stocks also have earnings.
Unless the investor is ready to roll up their sleeves and do a lot of digging into the numbers, companies with no earnings can be trouble. Even for seasoned investors, predicting if and when a company with no earnings will become profitable is difficult at best.
Stocks are the best place to be for the long term, but expecting “lottery ticket” returns in the next year can be disastrous. A quick and robust return is almost always the motivator for owning stocks with no earnings. It can happen, but there are very, very few who made it with this approach.
I always say that boring can be beautiful. Those boring companies make steady earnings year after year. Eventually, the investment crowd will recognize many boring companies and will flock to them. After all, the investment crowd is similar to the bar crowd. One day, one bar is popular and, the next day, they are interested in another bar.
While solid and fundamentally sound companies are part of the equation, owning them at reasonable prices is essential. The ultimate sin in investing is paying too much for too little. It’s the difference between getting a great new car for 30K or getting the same car for 150K.
Every great investor from Peter Lynch to Warren Buffett started out with a disastrous first stock purchase that tanked. They learned from their failure and began refining their skills to become highly successful. If they had quit or didn’t re-evaluate how they picked stocks, no one would know who they are today.
“Success is not final, failure is not fatal: it is the courage to continue that counts.”
- Winston Churchill
Be smart, be well-read, be aware and be successful.
