If you have ever heard fund managers talk about how they invest, you know that many use a superficial approach. First, they decided how much their portfolio should be in stock and how much the bonds would cost. At this point, they may also decide on a related combination of external and domestic securities. Next, they decide on the industries they will invest in. Until all these decisions are made when they begin to analyze any particular securities. If you think this way for a while, you will see how foolish it is.
The stock gain is contrary to its P / E ratio. Therefore, a 25 P / E stock with a yield of 4%, while a stock with a P / E rating of 8 has a yield of 12.5%. In this way, a low P / E stock resembles a high yield bond.
Now, if these low P / E stocks have an unstable or high interest rate, the spread between long-term yields and profit margins of these stocks may be justified. However, many lower P / E stocks actually have more stable advantages than their many higher executives. Others use extra debt. However, within the latest memory, one can find stock with yield of 8 - 12%, dividend yield of 3- 5%, and almost no debt, despite some of the lowest bond yields for half a century. This situation can only exist if investors buy their bonds without looking at the shares. Like buying a van without considering a car or a truck.
All investments are ultimately invested in cash. Therefore, they should be judged by one measure: the reduced amount of their future cash flows. For this reason, the method of investing at the top is irrational. Starting your search by starting with a security or category type is like a general manager deciding on the left or right pot before testing each player. In any case, the choice is not simply a matter of urgency; it would be a lie. Although left-handed thrills are naturally successful, the general manager does not compare apples to oranges; compares jars. Any natural gain or damage to the pot supply can be reduced to a very high value (e.g., start-up value). For this reason, the provision of a pot is simply one (among many) factors to consider, not a choice to be made. The same is true of security. It is not necessary and unreasonable for an investor to prefer all bonds over all shares (or all traders over all banks) rather than for the general manager to select all the lefties over all the righties. It is not necessary to decide whether the shares or bonds are attractive; you only need to determine if a particular stock or bond is attractive. Similarly, you do not need to determine if the "market" is underestimated or too important; you only need to determine if a particular stock has lower prices. If you are not sure if it exists, buy it - the market should be discarded!
Obviously, the smartest way to invest is to evaluate personal safety in relation to everyone, and consider only the type of security as it affects personal testing. A high level of investment is an unnecessary obstacle. Some very smart investors put themselves on it and win it; however, you do not have to do the same.
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