One of the biggest mistakes I made when I started investing was assuming: Great company = great investment. It sounds logical. If a company is growing fast, has an amazing product, and is dominating its industry… why wouldn’t you want to own it? Because there’s one problem: Everyone else might already know that. Imagine a company earns $1B a year. Investors get extremely excited about its future and push the company to a $100B valuation. You’re now paying 100x its current earnings. For that investment to work out, being a great company might not be enough. It has to become an even better company than the market already expects. That’s the part I think gets overlooked. The stock market doesn’t just price businesses. It prices expectations. Take a company like $NVDA. You can believe AI will continue exploding. You can believe Nvidia has an incredible business. You can believe it will make significantly more money five years from now. And STILL have another question to answer: How much of that future am I already paying for today? The reverse can happen too. A boring company growing slowly can potentially be a great investment if the market expects almost nothing from it and you buy it cheaply enough. That’s why I’ve started separating two questions: 1. Is this a great company? and 2. Is this a great investment at THIS price? They’re not the same question. You don’t make money because a company is good. You make money when the business ultimately performs better than what was already priced into the stock. That’s also why a stock dropping doesn’t automatically mean the company got worse. And a stock ripping doesn’t automatically mean the company got better. Sometimes the only thing that changed was the price you’re being asked to pay for the same business. So whenever I find a company I absolutely love, I try to ask myself one more question: “What does this company have to achieve for today’s price to make sense?” Because sometimes the best company in the world can still be a terrible investment… at the wrong price.
354 views
2 Comments
Liam
@liam4 · 1h
I didn’t think of it that way great info!
Blossom
@blossom · 1h
See the full comment section 👀Sign up for the full Blossom experience!
