Are You The Next Great Wall Street Speculator?

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I received an e-mail from a reader who asked if I possessed a magic crystal investing ball so to speak. Here’s what the reader sent:

do u think china mobile is good buy right now at 72 $ ?

Questions like these delineate why it’s so easy to obsess over short term thinking when investing in the stock market. Looking back a few years, I too focused on the price of a stock, instead of the value of the underlying company. Price focus is gambling; Value focus is investing.

Stock Prices are short term guesses on a company’s value

A stock price is merely what the marketplace thinks a company is valued at over the short term. When you focus on stock prices, then you are speculating on future price movements. Sure, you can make some easy money if you guess right, but when you’re wrong, you lose and the house (Wall Street) wins on commission fees.

I’ve always been a terrible gambler (I lost hundreds in online poker rooms years ago), so I prefer investing rather than gambling on what Wall Street thinks of my companies.

Prices change, but value never lies

When you become obsessed with the progress, value, and future potential of your company, then stock market prices make little sense over the short run. I have no idea whether CHL is a good buy at $72 because I haven’t fully analyzed nor followed the stock enough to gauge a long term valuation on the company.

Also, I would never buy stocks in a bullish market environment because you almost always overpay for the value you receive. CHL is on a tear, but stocks that are popular will become unpopular and cheaper in due time.

Looking at the $74 52-week high, there is tons of risk, yet little room for upside. I would wait for weakness on CHL like we experienced on August 17th, 2007 when nobody wanted to own stocks.

Don’t Pretend to Have a Magic Crystal Investing Ball

My final response to this reader is avoid seeking validation from others, and honestly ask yourself if $72 for CHL is a good buy.

That way, you accept full responsibility for the outcome of your decision. But before you buy, shift your focus to the value of China Mobile Ltd and ignore prices for a moment. Your decision should become much easier because you are willing to own a small share of the company, and leave the gambling to the suckers in Las Vegas.

Reader Question: Are You The Next Great Wall Street Speculator?

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