I’ve had a couple people approach me about the lack of consistent content provided on this site.
Let me be very clear. The only way to consistently make money in the stock market is to buy GREAT BUSINESSES at GREAT PRICES! My goal is to post when I see profitable trades or stock purchases. I could easily post an article every other day recommending new stocks to buy but I would be doing a huge disservice. We all have very busy lives and the last thing I want to do is waste my reader’s time.
This is the fundamental problem with the “idea” of the stock market today.
The AVERAGE person/investor feels compelled to do something in the stock market. He or she feels that if they’re not constantly in trades or buying latest greatest tech company that they are missing out on the next big thing.
That couldn’t be any further from the truth!
Here is the TRUTH! When investors get greedy, flustered, and ignorant they rush into stocks blindly and as a result they suffer huge losses and swear off investing. Trustable Gold has done a phenomenal job depicting this process below. Take a look!
Let me show you a real life example!
Here is a 15 year chart of Cisco Systems. From 1998 to 2000, investors bid the price of shares from $10 all the way up to about $75, that’s a 750% move.
However, as you can clearly see less than a year later shares fell all the way down to $15 and have formed consolidation between $15 – $30 for almost 10 years.
So what went wrong with Cisco Systems???
Absolutely nothing if you’re referring to the ACTUAL business. In 2000 Cisco had Earnings Per Share (EPS) of $.36/share.
So at the height of Cisco’s share price, let’s just say $75, Cisco was trading at a Price to Earnings (P/E) Ratio of 208!!!!!
That is absolute insanity, that would mean you would have to wait 208 years in order to get your initial investment back.
Here is a 14 year chart of Cisco’s EPS, take a look at how the actual business has done all along….
In 2001 there was a global recession which accounted for their negative earnings. But from 2002 to 2012 the earnings of Cisco Systems has gone from $.25 to $1.49, that’s almost a 600% increase in profitability.
So it would make sense that for the share price to increase 600% during the last 10 years right??
During the last decade, the 10 year low of Cisco was around $7.50 with today’s price at roughly $19. That equates to a 253% gain if you bought at the absolute bottom and still held shares today.
In 2000 people were willing to by Cisco at a P/E Ratio of 208!!
In 2012 investors can purchase Cisco shares at a P/E Ratio of 12.5!!
What does this mean? As Porter Stansberry would like to say, “People be crazy!”
The average investor goes with the herd and buys stocks when they are EXTREMELY overvalued and sells them when they are at a GREAT DISCOUNT.
Don’t let this be you!