If you go out and buy a business, how many years should it take to pay off the original investment? Don't you look for investments that can pay themselves off in 5-7 years? Shouldn't long-term investors use this same logic when deciding what stocks they'll invest in? For example, if you went out and bought EBAY (the entire company), and the company actually grew at its estimates of 40% for the next five years and 11% every year thereafter, it would take you 13 years to pay off your original investment. The same goes for AMGN and many other Nasdaq 100 companies (16 years if you bought YHOO)...shouldn't long-term investors wait until valuations come back down into the 5-7 year range? Is this logic flawed?
A business is judged by its Profits and Cash generation, with a rate of return on capital. Stocks performance is not the same parrallel... AMZN made no money stocks goes up prior 2000, but it had potential... Some stocks maybe making money now but, with the bear market they may go down.. The stock market is about perception of value, a business is about cash and profits for value...they are not allways related. Unless you are as smart as Warren Buffet who gets these two measures as together as much as possible...note his fund suffered in the TECH boom...as perception that the internet was a revolution... Good luck, Start a nocking shop....
Benjamin Graham and David Dodd, the authors of the classic investing book "Security Analysis.â A value stock, in a nutshell, is one that trades at low multiples of earnings, book value and/or dividends. I like 4 times earnings.
Long term investors do what they do with little regard to capital appreciation. Collectively they have a very wide range of reasons for what they do. People who use equites to make money do not fit into long term investing.