Businessman Investor

Touching base with the rational business psyche of stock market investors

Monday, November 3, 2014

Flipping a Stock versus Indefinite Ownership

Stock flipping? Why not just indefinitely own it to take
advantage of its underlying compounding power... forever?
On one hand, there's the strategy of appraising a stock and arriving at an intrinsic value. If the current market price is selling below this "fair" value, then it's a signal to purchase the stock. After acquiring some shares, the "investor" would be waiting for the market to correct itself and price the stock at the level of the intrinsic value. Upon its appreciation towards the fair level, the "investor" would then sell the stock to realize an immediate capital gain. It becomes a relentless pursuit, since liquidation forces one back to a cash position, which requires to identify yet again another bargain candidate to exploit.

The more business-minded objective which I personally prefer is not eventual liquidation to realize a one-time capital gain but indefinite ownership to leverage on the compounding power of the underlying business. Indefinite ownership has that consequence of tying-in the stock market investor's rate of return to that of the underlying company's rate of return as a going-concern business. Once you're able to purchase a stock which, given the level of its purchase price yields it good returns relative to some measure of fundamental value/earnings, you would just have to sit back to let the magic of compounding works!

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Disclaimer

The information presented here is for educational purposes only. Under no circumstances should it be construed as a recommendation to buy, sell, or hold any stocks. If you choose to use this information, you do so at your own risk.

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