Why Valuations Are Important
Stock Investing Hub ⮞ Stock Valuation ⮞ Why Valuations Are Important
5 RESOURCES
⮞ Introduction
⮞ Share Price Don’t Matter. Look At This Instead.
⮞ Why Valuations Are Important
⮞ How To Valuate Companies?
⮞ The Margin of Safety
Why Valuations Are Important
In our previous chapter, we talked about fundamentals of the business.
We always want to invest in quality businesses - that's the first step to investing.
If you missed out the chapter on finding quality business, you can check out the chapter on Stock Fundamentals, where I break down where you can find profitable businesses to invest in.
The second step - valuations.
We never want to overpay for businesses.
Imagine a house that give you $10,000 in rental every month - that sounds pretty good right?
What if I told you that the house will cost you $12,000,000.
This means that you need 100 years of rental collection just to break even on your investment.
Now, even though getting $10,000 of cash every single month sounds attractive, it is not worth paying $12,000,000 for a property like this.
This means that even the stocks have great fundamentals, it may not always be a good investment if the price is overvalued.
Your potential to make money is from the buying - not in the selling.
The concept of not overpaying applies to investing as well.
You don't want to overpay for your investments, or your returns will suffer.
Now, what do you think then is a reasonable price to pay for a business?
Well - that is what we will answer thoroughly in the next chapter.
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