Why I buy stocks
Howard Lindzon wrote a Medium post that explained why he buys stocks, and then asked “Why do you?”
Since I buy stocks, ETFs or mutual funds, I wanted to answer that question.
I buy stocks for two reasons:
One, because I believe that companies can and do sell goods and services a price that is higher than it costs them to make them. The difference is profits, and I believe that over time this profit, either retained or paid out as dividends, makes the company more valuable and will result in price appreciation over a long time period.
That said, I realize the prices of investments do not move in a straight line. Stocks can be “overvalued” or “undervalued” for long periods. And there isn’t a sure way to tell what the value should be at any given time. But, a steady investment stream should, over the long term, smooth out the variations in value.
Understanding that trading results in mispricing, I do buy, sell and short stocks and options for the short term to take advantage of these fluctuations. It may be a fool’s errand to think that I can judge how the market is mispriced over a few days and weeks. That’s what all traders are trying to do, even if they don’t admit it.
But properly managed, the benefit of being right can outweigh the risks. Or so I tell myself.