I bought my house at about $320,000 about 4 years ago. It was a beautiful house with good location.
$320,000 is the price i paid, the Value i get is a nice place to stay. Currently, the house is priced at about half a million. People are now willing to pay $500k for the house, but the value has not change. The size of the house has not gone bigger, and the location has not change. Of course, this example is not perfect, there are times, where location can improve, e.g a new school is built near the house, thus leading to a better price, but generally speaking, most of the time, price swings because of speculation, reaction and emotions, not so much of how much value it can provide to the home buyer.
In the stock market, prices of Stocks swing as well. If you have not noticed, just watch the market goes when it starts at 9:30… And guess what, the price does not reflect the value.
Lets take APPLE Inc (AAPL) for example. Below is the historical Earnings Per Share for Apple. It shows how much the company is earning for a shareholder holding 1 share.
As you can see, in Year 2007, the Share earns $4.02, and increases in 2008 to $5.46, and subsequently to $9.19 in 2009.
Basically, from a Value Investor’s point of view the amount of Earnings each share can give you is the Value they provide.
But lets take a look at the Price of AAPL during the same period:
As you can see,
At the end of 2007 the price of an AAPL share is about $200, and remember that the end of 2007, AAPL reports EPS of $4.02
At the end of 2008, the price falls by 50% to $200, while the EPS increases to $5.46!!!
The Value has increased, but the price has fallen! In 2009, the price went back to $200 which is the same price as 2007, but the EPS is $9.19, which is more than double that of 2007!
So we can see that the stock market is irrationale. Is that a good news or bad news. It really depends on if you know how to make use of the knowlegde and capitalize it for profits.
In our workshop, we teach participants hgow to do it so that they too can make a profit from the stock market using the system and principles of Value Investing.
To your dreams,