The Key to Avoiding Mistakes...

Investment is never a perfect game. The best an investor can hope for is making long-term decisions, and most of them will eventually work in their own best interest.

However, investing is a very complex business and mistakes are inevitable. Therefore, it is imperative to avoid obvious mistakes that should and should be avoided.

Obviously, mistakes usually occur when the market or people get emotional. As we all know, the primary emotional responses that can affect investor behavior are fear and greed. Investors rarely act rationally when caught up in hysteria from greed or hysteria from fear. At times like this when stock prices break off from their real valuations. This undeniable fact that stock values ​​are not always rational must be recognized and accepted.

In our opinion, one of the main reasons investors often make poor investment decisions is that their decisions are often based solely on price action. As we will show, price action alone can be very misleading. A rising stock price often puts an investor to sleep and creates a false sense of security that they believe everything is fine.

This article was written to provide a foundation for understanding the principles behind the concept of valuation, also known as fair value or fair value. The idea is that there is a mathematical basis for value, which is a logical function of cash flows or earnings.

In other words, since an investment derives its value from cash flows or gains, the trick is to know how to evaluate the cash flows or gains an investment generates. The simplest way to achieve this is to calculate the actual rate of return cash flows generate at a given investment level.

Calculating valuation accurately is a direct function of accurately predicting future cash flows. Logic states that this is a challenging task full of traps and surprises. On the other hand, intelligently applied logic and logic may depend on the task within reasonable ranges of probability.

Predicting future revenue streams need not be done perfectly, but must be done rationally. Obvious errors to avoid are made when there is no reasonable or rational possibility that valuations will be justified by future realizable growth.

Ignore Noise

Ignore the "noise" in the media. Ignore the so-called "experts", the internet, television and magazines are full of "advice" to get you astray. Remember that media are companies that exist to make a profit, and profits come from increased audiences and ads. The interests of the media will not be in your interests. Educate yourself on how to invest and then apply what you've learned.

Avoid fuss, stick to companies that provide core products and services, buy their shares when they see less value than they value, and then hold it long-term. Your patience will be rewarded with increased passive income from dividends.

has a history of profitability

has an increased dividend payment history

has low debt

stagnation resistant

to have a competitive advantage in the market

Disclaimer:

LUMIBASIS has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.