Investors Have No Target Price

April 18, 2017

Traders love price movement. They love it so much, that's their only focus when making trades. They put indicators on price charts and ignore the fundamentals. Well, most of the time.

Some traders will look at the fundamentals, some don't. But when it comes to placing that trade, a trader will always look at the price chart before taking action. It all boils down to, traders love price.

Investors on the otherhand loves business. They only care about the price just to know if the stock is overpriced. But a great business will always make an investor interested rather than a great price.

Warren Buffett said, "I'd rather buy a great company at a fair price. Than a fair company at a great price."

It only means that, good fundamentals and great businesses take priority than price.

Traders love price

Investors love business

On Selling

When traders sell their stock, its based on the price patterns telling them that the price may fall down. No matter what the fundamentals tell them.

When investors sell their stock, its not the price. Its because the business is bad.

On Taking Profit

When traders take profit, they have a target price. While investors have none. Investors are happy to hold on a stock forever, as long as the business is doing good.

Now, why is that? Why such contradiction?

Its all about the income.

Investors don't have a price target because they don't see a stock as a "profit" thing. They see it as an asset that generates income.

When you buy a house, do you check the price of your house everyday? If you see it as a profit thing, like flipping it, then it might be true. Flipping is same as trading.

But if you're invested in it, you don't look at its daily price, because income is your focus.

This thinking allow investors to hold onto a stock (even forever). Investors don't have a target price because selling an asset that generates income does not make sense.

So when I see people say a stock is at a great price, then put a price target on it. You have to ask, are you trading or investing?

About the author

Wayne quit his engineering job in 2009 to pursue investing. He is now a bum stock investor managing his own money. He wants to teach other people how to invest. How long before he quit is still left unknown.


JEI April 29, 2017 07:04:52

Another great information for beginners.

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