Saturday, February 20, 2010

Know what you buy

What is a Balance Sheet (BS)? If you don't know this, you need more help than you think.

Simply put, in the annual report of a company, the BS shows you what a company has and what it owes others on a specific date, usually the last day of December or June of a year. When you read the BS, make sure you note this, the date.

Before you buy any share of a company, you should take a look at the BS. This is actually "a must" if you want to invest intelligently. Yet how many people do this. I believe as much as 90% of the people don't do this. This is because, most people are interested in the price than the value of a stock. Because these people are traders, they normally do not bother to look into the fundamental aspects of the company they are buying.

"Why bother about the company? What matters is that the prize must be moving up." That's probably what they are saying.Yes, that's what really matters. But they forget to ask what's moving up the price or why the price is moving up.

Warren Buffett once said, "Only when the water has receded, would one know who's swimming naked." What did he mean by this simple statement? I take it to mean that when the market is at the top, everyone is happy and there are no losers; it is only when the market has turned down, then only we know who's who.

Do not count your winnings when the market is near or at the top. Count your winnings when the market is at the bottom. And if you have won when the market is at the bottom, then only you can say you have won.