Not all companies deserve your long term investment capital. Just because a company is a Good company, doesn’t mean that you should make a long term investment in the company.
Perhaps you have been reading this site and you found a company that was rated “Good” on the Confident Investor Rating (CIR) scale. You now need to decide if this company is attractively priced for you to confidently make a profit on your investment. Just because a company is well-run does not mean that you should buy the stock. In fact, most well-run companies have a market value that is quite reasonable and may even be a bit high.
A well-run company can be a lousy long term investment if a large number of investors invest in the company. This drives the stock price up and inhibits your ability to get a bargain. Often, investors will invest in well-run companies only because they know that they will not lose a large amount of money as a long term investment. They accept there is a chance they will only receive a small return if the market goes up. If the company loses value, these large investors will use the small loss as a tax offset for their earnings on other investments.
This approach will not work for you! You are a small investor. You know that there is a risk in investing and nothing is a sure thing. You need to be reasonably confident that your long term investment will increase. For this reason, you need to calculate if the company is valued fairly or if you can get a bargain.
You need determine what the stock price should be for a company. You want all of your investments to appreciate at least 10%. You need to locate the companies growing at 10% and then calculate whether the stock price is appropriate based on that level of growth. I put several estimates of the long term price in all of my stock analysis posts that are published on this site. If you read my book, The Confident Investor, you will learn how to calculate these estimates. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.
It doesn’t take a huge amount of time to calculate the worthiness of a company as a long term investment. You simply need to follow some simple rules that I carefully cover in my book, The Confident Investor. Once you have mastered these rules, you can be assured that every stock investment that you make will satisfy your needs as a long term investment.
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