Buffett: Hagstrom Screen
|Buffett: Hagstrom||S&P 500|
|Five Year Return:||11.8%||11.1%|
|Ten Year Return:||10.5%||4.4%|
Every share of a company's common stock represents direct ownership of a business. Ownership of even a single share entitles the holder to a fractional ownership of the firm's net assets, which hopefully generate a reasonable flow of earnings and dividends. Shareholders do not normally run the company directly, but rather elect a board of directors that select the management team that actually operates the business.
Although most beginning investors understand the basic principles of company ownership, the everyday activity of the stock market tends to capture the majority of investor attention, and there is a tendency to think of the success and failure of a company through the movement of its stock price. While periods of optimism and pessimism for the market, industry or even the company may push the stock price of the company away from the value of the business, over the long term the stock price will tend to follow the economic worth of the company.
A fundamental approach to investing first begins with an understanding of the value of a business, and then determining if the current stock price presents an attractive buying opportunity.
…To read more, please become an AAII member or login.