Peter Lynch and many other famous investors like Phil Fisch

The story is simply that investors should be careful and always willing to pull out numbers to their logical conclusion. However, it all starts with knowing what you are buying (investing) in the first place. Real investors like Peter Lynch and Phil Fischer, Warren Buffett, etc. Most other famous investors invest as company owners, focusing on the power of the business behind the stocks they buy. Therefore, these big investors always buy the earning power of the businesses they invest in according to their purpose and goals.

These valuation principles apply equally to growth stocks as well as dividend stocks. Applied to growing stocks, investors need to understand that the more earnings they can make at a good price today means more future earnings that the market can capitalize in the future. Since this is their only source of return, the more earnings in the future, the more value or return they can expect. Rapid growth typically comes at a higher price, but simultaneously it should be understood that if faster growth occurs, it will generate a larger future earnings pile. And as this article shows, it is future earnings that ultimately determine fair value.

More importantly, a few words about the differences between investing and speculating are perhaps in order. Active traders will not find any value in this discussion because active traders often do not have a company long enough to think about earning power. Active traders only really care about momentum and volatility. It is the "voting machine" segment of the market. This is the primary reason why stocks are misjudged or unrealistic by the voter Mr Market; but there are other reasons to leave it to future controversy. Additionally, being a trader requires a constant commitment to tracking every small price step in the market, and this is beyond the interest of most people investing for their future economic benefits.

Real investors are interested in creating long-term positions in large businesses that are bought at rational prices. This article is intended for this segment of the financial community. Frankly, we believe this is the largest segment of the market, made up of prudent investors who will often do with their time other than watching the bounce ball of meaningless stock price movements. These genuine investors need to understand the valuation principles presented in this article if they are to do so at reasonable risk levels while simultaneously achieving their financial goals.

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.