Rodent Regatta

and buying a stock should involve the same disciplines and methodology. Buying a stock ”seems” easy because we can now enter a ticker symbol and a share count for something we read about in the morning paper. Nearly 100% of the time that ’s the wrong thing to do and the wrong way to do it. I take John’s recent references to investing in public companies as ”casino” or ”speculative fiction” to mean there are plenty of places this is true. However, there are disciplines that can be followed when buying all or part of a business that not only reduce and measure the risk, but enhance the likelihood of reward. The universe of those following such disciplines is admittedly small, but their results can be staggering!

Here is a post on stock ownership from the perspective of a mouse.  What do individuals buy when they buy stock?  The books say that you buy rights to a share of future cash flows.   When stocks looked more like bonds (when they distributed excess earnings as dividends to shareholders), this was a valid definition.   What individual investors buy today is speculative fiction in regards to valuation, potential for acquisition, momentum, earnings surprises, etc.   This is a volitile basis for ownership and leads to excess.  The books are right in that over the short term dividends don’t matter, but longer term they matter a lot.  Why?  They force corporate management to avoid low yeild investments and opaque accounting. [John Robb’s Radio Weblog]