| Most market reviews offer sensationalistic propaganda celebrating the
rise or fall of the various market indexes and focus on a few of the companies
that have had the largest percentage gains over a given time period. Although
this certainly grabs the attention of readers, it fails to do a thing to
educate investors about how they can improve their investment returns. The
fact that the S&P Index is up more than 20% since December 31, 1996 is
interesting, but how does this help investors figure out what kinds of businesses
they should invest in? That the Dow has had its single-largest point gain
in six months is arguably a nice conversation starter, but what does this
do to help people figure out what the companies they own are worth?
What is the purpose of a six-month "market" review? Why do investors look
at how stocks have performed over any time period? The past performance of
publicly traded companies can offer powerful lessons about how to invest.
By looking at the kinds of companies that generate significant returns over
a few months, a few years, or a few decades, we can figure out what prices
are reasonable to pay for a given business and what sorts of events can create
an investment opportunity. In a market that is said to be "weakly efficient,"
some rather glaring errors and omissions are consistently made. By focusing
in on those errors and what people were thinking when they made them, we
can all work to become better investors.
This six-month market review attempts to highlight the six most significant
investment lessons so far in 1997. Using very specific examples, the writers
attempt to elucidate some broader investment lessons for you to consider.
Whether it is a question about a large industry or a story about a particular
company, the lessons are there for you to glean. After you read this collection,
you may not have the six largest percentage gainers for the first half of
1997 on the tip of your tongue, but you will certainly be on your way to
a better understanding what the whole project of investing is about and how
to become better at it.
LESSON 1:
THE TOBACCO SETTLEMENT TALKS
Sometimes there is more at stake than an investment. Is there an investment
right or wrong?
LESSON 2:
REFORM BRINGS OPPORTUNITY
Government reform generates winners and losers. Who will win and who will
lose is not always clear.
LESSON 3: THE
DOW DECEPTION
Is looking at a market index the best way to decide whether or not to invest?
How representative are they really?
LESSON 4:
BE SURE TO BUY QUALITY
Swinging for the fences all the time means you tend to strike out more.
LESSON 5:
SOMETIMES THINGS CHANGE
Over time, investors can change the way they value a company.
LESSON 6:
DON'T BELIEVE EVERYTHING YOU READ
Many times the media will declare a company terminal when it has actually
just caught a case of the flu. |
