|
There are a lot of different schools of thought about approaching the stock market. One of them is the "chart" approach, where you (or an algorithm) try to discern the future movements of a company's stock price based on the past performance. Sometimes this works. Mostly, though, it doesn't. There's also a big difference between "trading" and "investing." Trading is what you've described -- buying shares in the morning and hoping they'll go up in the afternoon so you can sell them later. Investing is buying shares of the company to become a part owner and hold them for years or decades, not days. If you looked at NFLX's chart in 2012, you could "discern" that the share price would continue to hover around that price, maybe go up a little, maybe go down a little. And you could have bought it in September 2012 for $8 a share and sold for a nice $1 profit in October 2012 for $9 a share (split adjusted). But what the chart wouldn't have told you -- and would never have been able to tell you -- is that it would skyrocket in 2013 and up to its current split-adjusted price of $110 a share. The thing is, the chart never would have told you about this. And even a "pure" numerical analysis like could be done by a computer -- P/E ratios, cash flows, etc -- would not have predicted that growth. You could do DCFs all day every day in 2012 and never predict Netflix's rise. There are a lot of things that go into a company's rise that aren't numerical, like the quality of management, market moat, market growth, etc. And, of course, you had to buy it, and hold it for years, in order to see that return. (In the interests of full disclosure, I should probably note that I'm a bit biased in this. I work for The Motley Fool, which advocates for long-term buy and hold investing, and produce a podcast for growth investors called Rule Breaker Investing.) |