The long-established, reliable principles of long-term investing that I, a securities analyst, have arrived at
The stock market is not easy to read. In particular,it is impossible to accurately predict what will happen to stock price movements tomorrow.
However, even if you cannot read the current stock price,there is a principle that can be said to be “certain” in the long run. I will introduce two of the biggest ones for me.
1. Stocks of companies with growing profits rise
Profit is the most important factor that determines long-term stock prices. If profits are increasing, despite short-term stock price fluctuations, eventually the stock price will follow.
A metric based on profits isPER. If a stock has earnings per share of 100 yen and its price is 1,000 yen, the PER is 10 times (1,000 ÷ 100). If PER remains 10x, when earnings rise to 200 yen, the price will become 2,000 yen.
The key is to determine whether the profits of the company you’ve identified truly grow. If you invest in a company with shrinking profits, the stock price will inevitably fall. Strengthening this judgment is the first step in sharpening your stock-picking skills.
With practice,you will find companies that steadily increase profits without much effort. For example, Ryohin Keikaku (Uniqlo’s MUJI) (7453) has continued to grow profits as the number of stores increases.
Fundamentally,you should keep holding stocks whose profits are increasing. However, not many people can implement this in practice. The reason is that stock prices move daily. When prices fall, confidence in whether earnings will truly improve wanes.
Even if you must wait several years for the results of earnings to appear, holding on can erode your grip. Therefore, the key to long-term investing ishow much confidence you have in your own discerning ability. Of course, you also need the courage to correct course immediately if you are mistaken.
2. It is better to buy when prices crash
If 1 is the principle of “fundamentals,” 2 is the principle of stock price movements “technical.”
There are various participants in the stock market, and stock prices move every day. Since prices go up and down, when you consider holding a stock like in 1, it is clearly better to buy at a lower price than at a high price.
It is simple, butmany people find this difficult to do. When prices are falling, anxiety that they will fall further takes precedence, and people feel like selling.
However, the more such times you face, the more prices become unjustifiably cheap. In the example of 1, prices may fall to half, andPER may drop from 10x to 5x. After the Lehman Brothers collapse, that was exactly the situation.
Considering this,a 10x stock is by no means difficult.
From this way of thinking, Iaim to “buy good stocks cheaply”. When you think like this, long-term investing becomes very simple. The only talents needed are patience to avoid being greedy and to wait to buy and sell.
