Does Fundamental Investing Make Sense In This Day and Age?

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man pointing to graph on monitor

man pointing to graph on monitorYou might be asking yourself, “Does it make any sense to put in a lot of research in a particular stock and its industry when the market operates at light speed?” This is a very good question to ask. In fact, if you read a lot of financial news sites, it is easy to get discouraged. It is easy to feel left out of market action.

The market works by factoring in so many data points at a very high rate of speed. Not surprisingly, stock prices rise and crash based on these data points. Consider the huge interplay between timing, data points, and market performance. It is very easy to conclude that, most of the time, the market is very very efficient with information and the market already prices in data on a real time basis.

Not surprisingly, if you are the type of person who will play the market on a fundamental basis, you would be on the losing side at least in the short term. This is why a lot of analysts raised their eyebrows when Warren Buffett bought in to John Deere. Conventional wisdom says that this is not the right kind of investment at this time. This incident highlights the difference between fundamental investing and real-time investing.

Real-time investing is all about short-term gain. In fact, you don’t even need to watch a wide range of stocks to benefit from real-time investing. You can just target one stock with a high level of volatility and a huge float and market base, and you would do well. As long as you know what you are doing, you can come out ahead.

Fundamental investing, however, is all about looking way into the future. It is all about the intrinsic value of the company and the industry it is in. It is a strategy for people who are looking to buy a stock and hold on to it for many years to come. In fact, it is a great strategy for people who are looking to hold the stock for decades. Taking the long view, despite all the data and all the short-term considerations, actually pans out. According to a recent study, if you are to hold the S&P 500 companies as they develop, without dropping any stock or moving from stock to stock, you would actually come out ahead if you stretch out the timeline long enough.

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