Hey So What Stocks Are Good?

This is for those of us out there whose friends and relatives are aware that we might either be interested or invested in the equity market (Stocks).

I am 99.99% sure that the following question will almost definitely come up in our conversations:

 

“Hey So What Stocks Are Good?”

 

This question has no upside for you.

Think about it, if things go south (Investment-wise), your friend or relative might not see you in such a great light. And even if things go right on this one advice, it might lead to your relative of friend approaching you for more of such “advice”. Being a game of probability, there would be a high chance of things not going as planned at least once in our lifetime and one of such “bad experience” is all it takes.

Furthermore with everyone having a different tolerance for risk, what is undervalued for me might appear expensive to you. Note that I did not say that everyone has a different tolerance for return. Just think about it, when we mention risk, the higher the risk, the more adverse we are. However we don’t see many people complaining when returns are higher than expected, I don’t think most people find upside volatility too bad of an issue.

Going back to the initial question, to avoid getting caught in such a dilemma, what we can do is to educate others on companies that might be interesting either on their business operations or based on their assets and not to just simply provide a straight buy or sell reply. This is because we do not want to put undue pressure and responsibility on either ourselves or the other party whether or not to make an investment decision, it is just not right for us to take on that responsibility. And I am sure that if we explain this to your friend and relative, they would be able to understand and even come to respect you!

To brighten up your day, here are some other interesting questions that I have come across that I have no good answer to as well!

 

1. “The Guy On TV Says That The Market Will Be Down This Week, How Do You Think Next Week Will Look Like?”

 

Wait, give me a minute to look into my magic crystal ball.

Hmm…I think that next week there’s a chance that stocks might go up. But then again there is also a 50% chance that stocks might go down. So that’s that.

As Benjamin Graham says “In the short run, the market is a voting machine but in the long run, it is a weighing machine”.

Anything can happen in the short run and most of the time price movements in the short term like days or even weeks might mean nothing in terms of how the business operations are reflected in the price. Thus in the short term, your guess is as good as mine and as there is a high chance that I am 100% right half the time.

 

2. “XX Company’s Earnings Miss Analyst’s Estimates, What Do We Do Now?”

 

This cracks me up every single time. Why is it that when company’s do not meet or exceed analyst’s estimates, something is wrong with the company.

As Morgan Housel of The Motley Fool mentioned “No. Earnings don’t miss estimates; estimates miss earnings. No one ever says “the weather missed estimates.” They blame the weatherman for getting it wrong. Finance is the only industry where people blame their poor forecasting skills on reality.”

Unless of course, there is a long term issue that causes the company to miss their own estimates. Then that is something that you might want to take note of.

 

3. “The Market Is Down Because There Are More Sellers Than Buyers”

 

This is like saying that you have more mothers than fathers (Biologically speaking).

There are always the same number of buyers than sellers and to set things straight, there are also the same number of sellers than buyers!

What causes prices to fluctuate is how optimistic or how pessimistic the buyers and sellers are at any given moment.

 

Value Invest Asia

If you have more interesting questions, feel free to send us some of them or just leave a comment right here 🙂

Have a great day!

 

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All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.

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