Is The Stock Market Broken…?
Traditional investing principles might be dead
Last week, something crazy happened in the financial markets…
Asset prices tanked because US job numbers were better than expected.
The S&P 500 fell by 2.80% and the Nasdaq Composite dropped by 3.8% because 263k jobs had been created.
But that’s a good thing. Why did markets fall…?
The reason is positive job numbers increased the chance of a higher interest rate hike by the Federal reserve.
This makes borrowing costs higher, and limits business growth. So investors sold assets in fear of the move.
Traditional Value Investing
Traditional value investing is supposed to be the answer to this kind of short-term speculation.
Rather than buying or selling based on short-term news events, it focuses on long-term business fundamentals.
Factors such as profit margin, debt, and return on invested capital are used to make a projection of what the company should be worth now and in the future. We then decide if the current market price is “good value”.
The problem is this only works in a healthy market where asset prices rise to reflect the true value of the…
