Secrets of Stock Investing

Invest in high quality businesses, not stock symbolsFor most people investing inside a stock is little much more than watching the trail left by the stock symbol as its price wanders along some drunken path. They realize that the symbol is associated having a business while not being too certain what is expected of this business to make sure that its share price will rise. It is a case of let�s sit back and hope for the best.Then there are others who deliberately do not want to know anything about the activities of the business. They want to study the pure movement of the stock price with the belief that they can use this information to make forecasts about the future movements of the cost. This is like trying to play bridge without looking at the cards. It just makes no sense to ignore the fact that the stock symbol is attached to a company. And it makes no sense not to apply sound business principles to analyze these companies. The much more we know about the business, then the more confident we can be about the cost of the stock. Not on a day to day basis, but over time.So before buying a stock, think of it in terms of buying a whole company, just as if you were buying a store down the street. If you were buying a store you would want to know all about it. What were its products? How consistent are the sales?Do they keep trying new products or do their products stay fairly constant? What competitors does the store have and what distinguishes it from them? What would be the most worrying thing about owning such a store? This leads to the idea of looking for companies that have a strong and durable economic moat. Just as castles have moats to protect them from invaders, so companies can have economic moats to protect them from challenges of competitors and changes in consumer preferences. The moat can be made up of attributes such as brand name, geographical position or patents and licenses.All these principles about purchasing businesses are equally applicable to purchasing shares. It becomes one of the most enjoyable parts of investing to look into the �business� aspects of any company that you are considering adding to your portfolio.Don�t invest for ten minutes if you�re not prepared to invest for ten yearsWhen we look at the share price of a business we usually see a wildly fluctuating graph with mighty hills and plunging chasms. For example, on the right is the graph of the daily closing prices of a company over ten years. It would be a brave person who could look at this graph and say what was going to happen in the next 24 hours, let alone the next 5 to 10 years. Yet this is a typical graph of the prices of a listed company.In other words, as investors we focus on the medium to long term business characteristics of companies. It is these that drive the share cost. Focusing on the short-term aspects of a company including both business and cost fluctuations is foolish. Even though we focus on the long-term, the investment is even more profitable if we purchase the stock during one of its drops.