Last updated on March 20, 2023
Someone once said: “You should buy what’s going up, and sell what’s going down.”
Of course, the lowest average cost always wins.
But if it was that easy, everyone would do it, right?
In theory, this is what every trader and investor should do for maximum alpha. But that is easier said than done.
You’ve tried market timing, DCF (discounted cash flow), momentum trading, long-term investing, reading the charts, following the trend, paying attention to the volume, and singing kumbaya under the stars.
But it seems as if nothing is always right. And that’s because it never is. And the point of investing is not to always be right.
The point is to know why you are right and learn from your mistakes (because mistakes will happen no matter what you think).
There is also a different perspective. Instead of just trying to estimate the future value of assets (stocks), you can use a reverse approach.
You can do that by trying to analyze the current price of a stock (and what needs to be done to justify that price or premium) to make better investment decisions.
So, instead of saying this company can be worth $100 a share in 3 years (because of its cash flow potential). You could, instead, look at its current price.
And say whether or not it is justified (fair), undervalued (the market is mispricing its potential), or overvalued (investors got overly excited and are pricing it for perfection).
By doing so, you can start thinking about stock prices differently. And start to use this new perspective to your advantage.
In today’s article, I’ll:
- Go over 8 important ideas to consider when investing in the stock market
- Explain how these can enhance your investment knowledge
- And how to apply these to improve your returns
So, grab a cup of tea (or something stronger), and let’s get started.
What you'll learn:
⓵ What’s expectation-driven investing and how is it different?
Have you ever heard of the saying “It’s not what you know, it’s what you think others know”?
This saying is particularly relevant when it comes to the stock market. The price of a stock isn’t just based on the company’s current performance.
But also on what investors expect its future performance to be. This is where expectations come into play.
❖ What’s expectations investing?
Simply put, it’s an investment strategy that focuses on the expectations of a company’s future performance (rather than just its current performance).
Pretty straightforward, right?
◆ Difference from traditional investing
However, this approach considers not just the absolute expectations, but also the relative expectations compared to other companies in the same industry.
This is a stark contrast to traditional value investing. Which focuses on a company’s current financials (and potential future growth), without considering the expectations of other investors.
Expectations investing takes a more holistic approach. It does that by recognizing that a company’s stock price is determined not just by its own performance, but also by the expectations of the market as a whole.
◇ Benefits over traditional investing
The benefits of considering expectations are clear.
By considering not just a company’s current performance, but also the market’s expectations of its future performance, you can make more informed investment decisions.
How so, you ask?
For example, this approach can help you avoid overpaying for stocks, as well as identify potential undervalued opportunities.
So, how can you apply this key insight in your own investments?
❖ How to use expectations: 4 easy tips
◆ Regularly monitor analyst expectations
One way is to regularly monitor analyst expectations for the companies you are interested in. This can give you a good idea of the market’s expectations for a company’s future performance.
◆ Consider market expectations and company beats
But you need to remember that analyst expectations and market expectations are not always the same. For example, a company might beat analyst expectations but the market might sell the stock because it wasn’t up to their expectations.
So remember to consider normal beats (percentage-wise) of the company in your calculations too.
◆ Keep an eye on news and events impacting expectations
You can also pay attention to news and events that may impact a company’s expectations. Such as new product launches or changes in management.
◆ Compare company expectations to competitors
Another way is to regularly compare a company’s expectations to its competitors. This can give you a better understanding of how a company’s expectations stack up against its peers.
And whether it’s over or undervalued compared to the market (because nothing is ever cheap or expensive on its own)
☞ Remember, the stock market is driven by expectations. Not by what is. And certainly not by what has been. By incorporating this key insight into your strategy, you can gain a better understanding of the market. And thus, make more informed investment (or trading) decisions.
⓶ Understand expectations in determining a stock’s price
When it comes to stock market investing, it’s essential to understand the role that expectations play in determining a stock’s price and its future performance.
But what exactly are expectations?
And why are they so important to consider when making investment decisions?
❖ Expectations determine stock prices and future performance
Expectations refer to the assumptions (and predictions) that investors and traders make about a company’s future performance. This includes earnings, revenue growth, and future prospects.
These expectations can greatly impact a stock’s price, as they help to determine the value that investors place on a company’s shares.
For example, if investors expect a company to report strong earnings in the next quarter, they are likely to bid up the stock price in anticipation of good news.
Conversely, if investors expect a company to underperform, the stock price may drop in response.
◆ Self-fulfilling prophecy?
However, it’s important to understand that expectations can have a self-fulfilling effect on a stock’s price.
◇ Overbought vs oversold
For example, if investors expect a company to perform well, they may bid up the stock price. This, in turn, can attract more buyers. And thus, drive the price even higher (overbought).
On the other hand, if expectations are negative, this can lead to selling and a significant drop in the stock price (overselling).
☞ And this is why you need to constantly monitor performance and price. Because this is how opportunities are made. But you need to be quick (and confident) when the time arrives.
⓷ Use both absolute and relative expectations
When considering expectations, it’s important to look at both absolute and relative expectations.
❖ Absolute vs relative expectations
Absolute expectations refer to the specific targets or goals that investors have for a company’s future performance. For example, an investor may expect a company to report earnings per share of $1.50 in the next quarter.
Relative expectations, on the other hand, refer to how a company’s performance is expected to compare to other companies (in the same industry or market).
For example, if investors expect a company to outperform its competitors, they are likely to bid up the stock price.
And this is why it’s essential to consider both absolute and relative expectations when making investment decisions. Because this will give you a more complete picture of the expectations that are driving a stock’s price.
◆ Sources of expectations and how they change over time
Expectations can come from a variety of sources.
This includes analyst reports, earnings releases, news articles, and even social media (like StockTwits, and FinTwit).
But remember: expectations can — and will — change over time, as new information becomes available (or as market conditions change).
For example, if a company releases strong earnings in one quarter, this can drive expectations higher for future performance. Or, if a company reports weak earnings, this can lead to a drop in expectations.
And this is what changes the price and future expectations. And that is the right time to make a decision.
❖ Buy, sell, or hold?
Make your decision always based on what’s expected. Sometimes the market misses the point (buy or sell). Other times, it’s right (hold if you still like the future prospects of the company).
All this creates opportunities along the way. Only take the chances in your favor. Choose probability (more certainty) over pure possibility (speculation).
Always stay informed and up-to-date on the latest developments and expectations for a company. This is crucial when it comes to making more informed investment decisions.
❖ How to apply absolute and relative expectations: 3 practical tips
◆ Stay informed
It’s important to keep an eye on the news and events that can impact a company’s expectations and to be willing to reevaluate your investment decisions as new information becomes available. This can involve monitoring company earnings reports, analyst ratings, and media coverage, among other things.
◆ Understand the difference between absolute and relative expectations
Another key aspect of considering expectations is to be aware of the difference between absolute expectations and relative expectations.
Absolute expectations refer to the actual earnings or performance that is expected of a company.
Relative expectations refer to the company’s performance relative to its peers or to the overall market.
For example, if a company is expected to have a 20% growth in earnings this year, that’s an absolute expectation. But if its peers are expected to have a 30% growth in earnings, the relative expectation for that company is lower.
A company with high absolute expectations may not be a good investment if its relative expectations are low compared to its peers.
On the other hand, a company with lower absolute expectations but higher relative expectations may be a better investment opportunity.
◆ Be mindful of changing expectations
Expectations can (and often do) change over time.
So be prepared to adjust your investment strategy as new information becomes available.
For example, if a company releases a new product that is well-received by the market, the expectations for that company’s future earnings may increase. This can lead to an increase in its stock price.
On the other hand, if a company announces a major recall or a change in management, the expectations for its future earnings may decrease. This can lead to a decrease in its stock price.
☞ Always keep an eye on the news and changing expectations. Consider both absolute and relative expectations. And be willing to reevaluate your investment decisions (as new info becomes available). So you can make more informed decisions. And improve your investment (or trading) outcomes.
⓸ Consider management quality and corporate actions
Have you ever wondered why some companies seem to soar while others flop, even though they are in the same industry and facing similar market conditions?
The answer might lie in the quality of their management and the corporate actions they take.
❖ Good vs poor management
Good management can make all the difference in a company’s success. And investors take notice.
Companies with strong leadership, clear vision, and a track record of making smart decisions can inspire confidence in the market (and boost the expectations for their future performance). Which, in turn, can lead to an increase in the company’s stock price.
On the other hand, poor management can have the opposite effect. If a company is plagued by mismanagement, scandals, or a lack of direction, the market’s expectations (for its future performance) can drop. And this will lead to a decrease in its stock price.
◆ Corporate actions matter too
But it’s not just the quality of management that matters. Corporate actions can also have a significant impact on expectations and stock prices.
For example, a company that announces a major merger or acquisition can see its stock price soar if the market views it as a smart move that will boost the company’s future prospects.
On the other hand, a company that announces a major recall or a large layoff can see its stock price drop if the market views it as a sign of trouble.
But you need to be careful. Sometimes a layoff might be a good decision so the market will reward the action. Some other times it won’t be a good action. And the market will punish it.
This depends on a number of factors including interest rates, and growth potential. And this is why you need to pay close attention to the wider economic and market context too (more on this later on).
❖ How to apply management actions to your strategy: 4 simple tips
So, how can you apply this insight when making investment decisions? Here are a few suggestions:
◆ Research management quality
Before investing in a company, take the time to research the quality of its management. Look for information on the leadership team, their track record, and their vision for the company’s future.
◆ Pay attention to corporate actions
Stay informed about the corporate actions taken by the companies you’re interested in investing in. This can include things like mergers and acquisitions, new product launches, and changes in management.
◆ Consider the market’s reaction
Pay attention to how the market reacts to these corporate actions. Are investors excited about the news? Or are they selling off the stock?
This can give you a good indication of the market’s expectations for the company’s future performance. If you think the market is wrong, then act accordingly. And remember Benjamin Graham’s words, that the intelligent investor buys from pessimists and sells to optimists.
◆ Compare to peers
Don’t just look at a company in isolation (ever). Always compare it to its peers in the same industry. This can give you a better sense of whether the company’s management and corporate actions are better (or worse) than its competitors.
Just like a price is never cheap or expensive on its own, a company is never good or bad on its own. Always compare.
☞ By incorporating the impact of management quality and corporate actions into your investment decisions, you can gain a deeper understanding of the market and make more informed investment decisions. So, next time you’re considering an investment, don’t forget to take a closer look at the people behind the company and the actions they’re taking.
⓹ Overcome behavioral biases
As investors, we all have biases that can impact our investment decisions. From the fear of missing out on a hot stock to the tendency to hold onto losing positions.
These biases can lead us to make decisions that are not in line with our investment goals. In order to be successful in expectations investing, it’s important to be aware of these biases and take steps to overcome them.
So, what’s the role of behavioral biases in investment decisions (and how to avoid them)?
❖ Behavioral biases affect expectations and investment decisions
Behavioral biases can have a significant impact on our investment decisions.
For example, when FOMO kicks in, it can lead us to invest (or speculate) in a stock that is overvalued. And thus, likely to experience a price correction.
◆ Sunk-cost fallacy
The tendency to hold onto losing positions (known as the sunk-cost fallacy) can keep us invested in a stock that is underperforming. Yes, even when it’s clear that it’s not a good investment.
❖ How to avoid biases and improve your returns: 3 important tips
To overcome these behavioral biases and improve your investment outcomes, it’s important to be aware of them and take steps to avoid them. Here are a few tips to get you started:
◆ Stick to a plan
Having a well-defined investment plan can help you avoid falling into FOMO and other biases. When you have a plan, you’re more likely to stick to it. And hence, avoid making impulsive decisions based on emotions.
◆ Keep emotions in check
Emotions can play a big role in your investment decisions. So it’s important to keep them in check. One way to do this is by taking a step back. And evaluating the situation objectively (rather than letting your emotions drive your decisions).
Remember: opportunities come and go. No need to chase every single one of them (it’s impossible).
◆ Seek out multiple opinions
It can be helpful to seek out the opinions of other fellow investors. This can be friends, family, or even financial advisors, to help you make more informed decisions. This can help you avoid falling into biases. And make decisions that are in line with your investment goals.
But remember to hear out different opinions. Don’t be prejudiced. Keep an open mind. And then take the time to think and act accordingly.
❖ Avoiding behavioral biases is essential to successful investing
Avoiding behavioral biases is essential to the success of expectations investing because these biases can lead to poor decisions (and lower returns).
☞ Just by being aware of these biases, it will be easier to identify them and take steps to overcome them. Thus, improve your thinking, decisions, and returns in your investing journey.
⓺ Avoid base rate neglect
❖ What is base rate neglect and why does it matter?
Base rate neglect is a common behavioral bias when it comes to investing. Investors overlook important information and focus only on recent events (or anecdotes) when making investment decisions. This can lead to poor investment outcomes (and missed opportunities).
◆ How to avoid base rate neglect
To avoid base rate neglect, it’s important to consider the broader context (and historical data) when analyzing a stock or a market.
This can include considering factors such as the overall performance of the industry or market, the company’s historical performance, and any relevant trends or patterns.
◇ 4 practical steps
- Conducting comprehensive research and analysis of a company’s financial and operational performance.
- Looking beyond the recent stock performance. And considering the company’s long-term prospects.
- Examining the broader market and industry trends. And how they may impact the company’s future performance.
- Staying informed (and up-to-date) on market news and events. And how they may impact the company’s expectations.
Let’s say you’re considering investing in a tech company. That has recently seen a surge in stock price due to a new product launch. While this recent success is certainly a positive sign, it’s also important to consider the base rate and broader market trends.
You may want to research the tech industry as a whole first. To see if there are any broader trends or patterns that suggest the company’s success may be short-lived.
You may also want to consider the company’s historical performance. And its ability to maintain its competitive edge in the market.
☞ By considering the base rate (and avoiding base rate neglect), you can make more informed investment decisions. Decisions that are based on a comprehensive — and unbiased — understanding of the market and the company.
⓻ The wider economic and market context matters
❖ Why consider the wider economic and market context?
When it comes to investing, it’s important to consider more than just the individual company (or stock) that you’re interested in.
The wider economic and market context can play a big role in shaping expectations for a company’s future performance. And ultimately affecting its stock price.
◆ Strong economy vs recessions
A strong economy can create a favorable environment for companies to grow and perform well. On the other hand, a recession can make it more difficult for companies to perform well. And can lead to a decrease in stock prices.
Also, during a recession, investors tend to take money out of the market too. Because they may need it for basic needs. And this is why it’s important to master your money (and have an emergency fund) before investing in the stock market.
Similarly, the overall performance of the stock market can also impact individual stocks, as investors tend to be more (or less) optimistic about the stock market as a whole.
❖ How to consider the wider context
When considering the wider economic and market context, it’s important to keep an eye on key indicators such as:
- GDP growth
- interest rates
- the overall performance of the stock market
- current events and geopolitical developments that may impact the economy
◆ How to stay informed
You can do so by regularly reading financial news and analysis. Including The Wall Street Journal, The Financial Times, and CNBC.
Another way is to subscribe to financial newsletters (or follow financial experts on social media) to get a sense of what’s happening in the market. But be careful who you listen to. And always keep an open (and critical) mind.
◇ 2 practical tips
One practical tip is to consider the overall performance of the stock market when making investment decisions.
For example, if the stock market is in a bear market (a period of declining stock prices), it may be a good idea to be more cautious with your investment decisions and focus on investing in companies with strong fundamentals.
Another practical tip is to consider the impact of interest rates on your investments.
For example, if interest rates are low, bonds may be a less attractive investment option compared to stocks, as stocks tend to perform better in a low-interest rate environment. Hence, investors might pour more money into the stock market. Thus driving prices higher.
But, if interest rates are high, then some investors might prefer the low-risk approach and choose bonds over stocks. Thus, driving stock prices lower.
Also, high-interest rates make it more difficult for companies to borrow. And thus more difficult to grow. Clients also become more cautious about spending which may slow down sales and growth of the companies even further.
☞ It’s all linked together. So it pays to consider everything together. And nothing in isolation. By doing so, you’ll be able to make better decisions. And take action based on your investment goals and risk appetite.
⓼ Adopt a process-driven approach
❖ Why is a process-driven approach critical?
Expectations investing is a complex and nuanced investment strategy that requires careful consideration of multiple factors. It’s not enough to simply look at expectations, valuation, quality, and price in isolation.
To truly be successful with expectations investing, you need a structured and disciplined approach that takes into account all of these factors and more. This is where a process-driven approach comes in.
A process-driven approach to expectations investing provides a framework for making investment decisions that are grounded in sound principles and logic. It helps you to avoid biases, stay focused on your goals, and make informed decisions based on the best available information.
A good process-driven approach to expectations investing should also be flexible enough to adapt to changing circumstances and new information. So, how do you go about developing a process-driven approach to expectations investing? Here are 5 key steps to consider:
◆ How to develop a process-driven approach in 5 steps
◇ Step 1: Define your investment goals
What are you trying to achieve with your investments? Are you looking for long-term growth, income, or a combination of both? Clearly defining your investment goals will help you to make better investment decisions.
◇ Step 2: Establish a research process
Do your due diligence by researching the companies you are interested in investing in. Read analyst reports, earnings releases, and news articles to stay up-to-date on the latest expectations for a company. Consider both absolute and relative expectations when analyzing a stock.
◇ Step 3: Consider the wider economic and market context
When making investment decisions, it’s important to take into account the wider economic and market context. Consider factors such as interest rates, economic growth, and market trends.
◇ Step 4: Avoid behavioral biases
Behavioral biases can have a significant impact on investment decisions. Be aware of common biases (such as overconfidence, anchoring, and herding). And work to avoid them.
◇ Step 5: Reevaluate your investment decisions regularly
Finally, be prepared to adjust your investment strategy as new information becomes available. Regularly monitor your investments and reevaluate your decisions as necessary.
❖ 5 key elements of a successful process
To summarize, the 5 key elements of a successful process-driven approach to investing include:
- Clearly defined investment goals
- A structured research process
- Consideration of the wider economic and market context
- Avoidance of behavioral biases
- Regular reevaluation of investment decisions
☞ By incorporating all these 5 elements into your investment strategy, you can improve your investment outcomes and achieve greater success.
⓽ Further reading
Here are four books (along with a short summary) that you can study further:
“The Most Important Thing: Uncommon Sense for the Thoughtful Investor” by Howard Marks: This book provides practical insights into successful investing by focusing on the importance of discipline and common sense.
Marks argues that the most important factor in investing is avoiding mistakes. And he provides readers with a roadmap for avoiding common pitfalls in the market.
The book covers a range of topics. Including market cycles, risk management, and the role of the investor’s psychology in investment decisions.
“Thinking, Fast and Slow” by Daniel Kahneman: In this book, Nobel Prize-winning psychologist Daniel Kahneman explores the two systems of thought that drive human decision-making.
System 1, which is intuitive and automatic. And System 2, which is reflective and deliberative. Kahneman shows how these two systems can lead to biases in decision-making. And offers practical strategies for overcoming them.
“The Little Book of Behavioral Investing” by James Montier: In this book, James Montier, a leading expert in behavioral finance, explores the role of psychology in investment decisions.
Montier argues that investors often make irrational decisions (leading to suboptimal outcomes). The book covers topics such as anchoring, confirmation bias, and overconfidence. And provides real-world examples of how to avoid them.
“Contrarian Investment Strategies: The Psychological Edge” by David Dreman: In this book, David Dreman, a renowned investment expert, explores the role of psychology in investment decisions and the potential benefits of a contrarian approach to investing.
Dreman argues that by going against the crowd and avoiding common biases, investors can achieve better investment outcomes.
The book covers topics such as the role of emotions in investment decisions, the importance of a long-term perspective, and the benefits of a contrarian approach to investing.
⓾ FAQ on expectations
What’s the concept of expectations about?
Expectations investing is a philosophy of investing that prioritizes the role of expectations in determining a stock’s price and future performance.
But it’s more than just considering expectations. It’s about understanding how they’re formed, how they change over time, and how they interact with other factors (such as valuation, quality, and price).
How is expectations investing different from traditional investing?
Traditional investing tends to focus on a company’s past performance, assets, and intrinsic value. While expectations investing prioritizes the role of expectations in driving a stock’s price and future performance.
This approach simply recognizes that the stock market is driven by expectations. And that understanding and considering these expectations is crucial for making informed investment decisions.
What are the benefits of considering expectations?
Expectations investing offers a more dynamic and proactive approach to investing. As it takes into account not only a company’s past performance and intrinsic value but also the market’s expectations for its future performance.
By considering the role of expectations, it can help investors make more informed investment decisions and potentially achieve better investment outcomes.
What are the four pillars of expectations investing?
The four pillars are:
- expectations (revenue, cash flow, profit margin)
- valuation (compared to peers)
- quality (management, growth potential)
- and price (how the market reacts to news, earnings, mergers).
These pillars interact and contribute to investment success. And this approach recognizes the importance of considering each of these factors in the investment process.
What is the importance of a process-driven approach?
A process-driven approach is critical to your success. Because it helps ensure that investment decisions are made based on a systematic and consistent methodology.
By having a process in place, investors can avoid common mistakes and biases, and make more informed investment decisions.
Why is it important to avoid behavioral biases?
Behavioral biases can significantly impact investment decisions and lead to suboptimal investment outcomes. By avoiding these biases, investors can make more objective and informed investment decisions. And potentially achieve better investment outcomes.
What is the concept of “base rate neglect” and why it’s important?
“Base rate neglect” refers to the tendency to ignore or undervalue relevant statistical information when making investment decisions. This can lead to overconfidence and suboptimal investment decisions.
By considering the base rate, traders and investors can make more informed investment decisions and avoid the potential pitfalls of base rate neglect.
Why is it important to consider the wider economic and market context?
The wider economic and market context can significantly impact investment decisions and outcomes.
By considering the wider context, investors can gain a better understanding of the market and make decisions that take into account the broader economic and market conditions.
Why is further reading and education important for investors?
Further reading and education can help investors gain a deeper understanding of how to use expectations. And provide new ideas and insights on how to apply this philosophy in their own investments.
By continually educating themselves, investors can stay up-to-date on the latest developments and best practices in the field, and potentially achieve better investment outcomes.
⑪ Applying the key principles in 4 easy steps
By now you should have a deeper understanding of:
- what expectations investing is about
- the role of expectations in determining a stock’s price and future performance
- the importance of considering both absolute and relative expectations
- the impact of management quality and corporate actions
- the role of behavioral biases
- the idea of “base rate neglect”
- the importance of considering the wider economic and market context
- and the importance of a process-driven approach
But how do you actually put these key insights into practice?
And how do you incorporate them into your investment strategy and monitor your progress?
Here are some practical steps (and tips) to help you get started:
❖ Step 1: Develop a process-driven approach
Having a process-driven approach is critical to the success of expectations investing.
To develop your own process-driven approach, consider the following tips:
- Define your investment objectives and risk tolerance
- Identify the key factors that impact the expectations of the companies you are interested in
- Regularly monitor the news, earnings releases, and analyst reports for updates on expectations
- Consider both absolute and relative expectations when analyzing a stock
- Consider the wider economic and market context when making investment decisions
- Monitor your investments regularly and reevaluate your investment decisions as new information becomes available
❖ Step 2: Avoid behavioral biases
The role of behavioral biases in affecting expectations and investment decisions cannot be overstated.
To avoid these biases, consider the following tips:
- Stay informed and aware of the different types of behavioral biases and how they can impact your investment decisions
- Regularly monitor your own thoughts and emotions when making investment decisions
- Seek out objective and impartial sources of information to help counteract the impact of your own biases
- Consider seeking the advice of a trusted financial advisor or mentor to help you stay objective and make informed investment decisions
❖ Step 3: Consider the wider economic and market context
When making investment decisions, it is important to consider the wider economic and market context.
To do this, consider the following tips:
- Regularly monitor economic indicators such as GDP growth, interest rates, and inflation
- Stay informed on the current state of the stock market and how it may impact the expectations of the companies you are interested in
- Consider how macroeconomic trends may impact the expectations and performance of different industries and sectors
- Use this information to inform your investment decisions and adjust your investment strategy as needed
❖ Step 4: Regularly monitor and reevaluate
Regular monitoring and reevaluation of your investments are key to ensuring that you are incorporating these key ideas into your investment strategy.
To do this, consider the following tips:
- Set aside time each month or quarter to review your portfolio and investment strategy
- Use these key insights as a framework for your analysis and reevaluation
- Consider seeking the advice of a trusted financial advisor or mentor to help you stay on track and make informed investment decisions
- Be prepared to adjust your investment strategy as new information becomes available
☞ By following these 4 easy steps (and tips), you can take the first steps towards becoming a more successful investor. By incorporating these 8 key insights into your investment strategy, you can gain a deeper understanding of the market and make more informed investment decisions.
Expectations investing (or any single approach out there) is not meant to make you an overnight success.
But it sure as hell prepares you for your stock market investing journey.
Spend the time to understand its principles. Play with it in your mind based on past events to see if it makes sense. And then decide if it fits into your own strategy.
Personally, I feel that it provides a realistic and simple (not easy) approach to investing. And this is key. Because a simple approach that you can stick to over the long term is sure to increase your chances of success. Rather than jumping from one strategy to the other.
Investing (as with everything good in life) takes time. So (before investing your hard-earned money) take the time — and put in the effort — to understand how the stock market works.
How the market reacts to certain events. How expectations are formed. And how the market (re)rates a stock. It will increase your chances of success and minimize your risk too.
And don’t forget: to earn superior returns in the stock market, you need to improve your odds of correctly anticipating revisions in market expectations.
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