What is the most important question for
a stockmarket investor?
- Whether the market is undervalued or overvalued?
- Whether interest rates will go up or down?
- Whether a particular company is undervalued
or overvalued? No!
- Whether you should buy ABC or XYZ? No!
- Whether Joe Bloggs, the famous analyst,
says it is a great buy? No!
Tempting as it is to look for answers to
these, we will soon see that they are misleading.
Yet, there are whole office buildings full
of people pumping out answers to these questions. from their
side they are not trying to mislead you. They are just trying
to supply answers to these questions because people keep
asking them and are willing to pay large amounts of money
for the answers.
Even if they could be answered, the answers
will not help you reach your financial goals. Why? Because
they are the wrong questions.
Focusing on these questions will give you
the illusion that you are a serious investor. Long hours
reading all the articles and books, perhaps even poring
over charts and financial reports, will only keep you locked
in the system of struggle and mediocre success.
For others, the questions will give you an
illusion of confidence and comfort because you are acting
on the advice the latest Wall Street hotshot.
But illusions hold you in bondage. As Morpheus
in the film The Matrix explains, "Like everyone else,
you were born into bondage. Born into a prison that you
cannot taste or smell or touch. A prison ... for your mind."
Chasing answers to these questions will keep
you in this prison. At best you may from time to time do
better than the S&P500 or some other index. At worst
you will see your money slipping away with poor returns
and excessive fees.
Consider the case of trying to determine whether
a company is undervalued or overvalued. It may turn out
to be undervalued using some academic model. And there are
hundreds of books describing such models. But if it stays
undervalued for the next 10 years it is not going to be
much of an investment.
Even the whole notion of what is value is
flawed. Suppose you go into a jewelry store and decide to
buy an emerald ring for $2,000. The jeweler assures you
that it is really worth a lot more and even arranges to
get an insurance certificate for $4,000. Great! You are
now congratulating yourself for buying something that is
valued at 100% more than you paid for it.
What if you split up with the person you were
going to give the ring to. No worries, you are thinking.
"I'll just sell it back to the store." But when
you go back in you are told that they will only pay $1,000
to buy it back. What you thought you were getting for 50%
of its true value turns out to be overvalued by 100%.
All the other questions asked above can be
dealt with in a similar manner. For example, Warren Buffett
said that he has no idea what the market is going to do
and whether it is undervalued or overvalued, whatever that
may mean. What is more, he is not interested in knowing.
The same applies to interest rates. Buffett
once said, "If the Federal Reserve Chairman Alan Greenspan
were to whisper to me what his monetary policy was going
to be over the next two years, it wouldn't change one thing
There is only one question. Underneath it
all, there is only one question. What is my profit rate
or percentage return going to be?
The core activity of an investor is to estimate
with confidence the percentage return over a specified holding
period when buying stock in a company. And you want to be
able to do this based on reliable numbers and information.
When you can do this with a range of companies
you have a rational basis to decide when to buy stock in
a particular company, when to hold, and when to sell. You
can decide between companies. You can even decide between
investing in a particular company or in bonds.
You are in control. The market is now working
for you instead of against you. Because you know the expected
return on a range of quality companies, you can wait until
Mr. Market offers to sell you stock in one of these companies
that will give you the return that you want.
You can do this and more in a few minutes
with the Conscious Investor Investment System.
provides essential tools for investors of all levels, from
those just getting started to the most experienced professionals.
Now it is up to you. As Morpheus said in The
Matrix, "I can only show you the door—you are
the one that has to walk through it."