It's a Business...

April 2016

 

If you invest in securities that trade in the markets, you have to expect price fluctuations. Markets can be volatile over the short term. It goes with the territory. But never forget that shares represent part ownership in a business.

Many people are fascinated by the stock market, especially "hot" stocks that are moving up sharply. It is an old adage in our industry that you can tell the peak of a bull market when you overhear people sharing stock tips in the barber shop or on the subway.

As a Chartered Financial Analyst, I have been studying securities and the companies that issue them for many years. What has always interested me more than stock price fluctuations is the underlying business of a company. I like to learn what enables a good business to be profitable and how management makes decisions to deploy capital, in order to make it grow.

What I have learned from this experience is that, while stock prices may fluctuate, a good company simply keeps chugging along. If you are a long term investor and own shares in a good business, run by capable management, you will do well even if there are occasions when the shares get caught up in a market decline.

At Friedman Investment Group, we believe that the more you know about what you own, the better. If shares in a particular company happen to be down, you will be more comfortable staying with that investment if you know something about its business; and understand that there has been no material change to future prospects. You can ignore market noise and sleep well at night knowing you own a percentage of a great business run by accomplished professionals whose job it is to make money for you over the long haul.

Of course, this approach does not mean that investments should not be constantly monitored. Management can change or the business could be impacted by outside factors, like more competition, new regulations, or a slowdown in the economy. So research and analysis never stops, especially once we have made an investment.

I sometimes think of the stock market being like a bus ride from Calgary to Vancouver. Some of the ups and downs over those mountain roads can be frightening but, if you have a solid bus and a good driver, you will ultimately get to your destination.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World

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