Tuesday, January 20, 2009

Watching Stock Prices

At a party recently, I listened to two people talking about stocks, or more accurately, talking about stock prices. This is harmless enough, but it became evident that these people owned some of these stocks and knew almost nothing of the finances of the underlying businesses.

To too many investors who make direct investment in individual stocks, “due diligence” means little other than looking at stock price charts. Watching stock prices is like watching the score of a football game and ignoring the game on the field. Leading by 3 points with 10 seconds left in the game sounds great until you look at the field and see the other team on the verge of scoring a touchdown.

For the investor with little interest in evaluating businesses, low-cost index ETFs are a great way to go after the long-term returns available from stocks.

1 comment:

  1. Well said! Investors seem to forget sometimes that they are purchasing an actual underlying company, not just a security listed on an exchange.