Today’s Take: Lower prices are your friend.
Amazon’s Prime Day just wrapped up. This year, the e-commerce giant’s big sale was June 21–22.
Now, Prime Day is huge. Analysts estimate that in 2020, Prime Day sales worldwide topped $10 billion.
That makes it the most successful shopping occasion in Amazon history — easily beating its previous Prime Day, Black Friday and Cyber Monday sales. And we’ll likely see this year’s sales break records again, too.
But that’s what gets me scratching my head: How come we love buying stuff when it’s on sale everywhere but the stock market?
In fact, the opposite actually takes place. When prices on stocks fall, people tend to sell … not buy!
I have yet to see someone in the supermarket say: “Dang, ground beef is cheaper per pound than last week. No way am I buying. I’ll wait for the price per pound to go higher.”
Yet, the exact opposite happens when people invest.
They sell low and buy high. In other words, they dump their stocks when prices fall and buy them back when they are rising.
Let me let you in on a secret that I’ve learned from being on Wall Street for close to 40 years: You’ll never get rich doing that.
Instead, the answer to making real money in the markets is pretty simple…
Knowing What a Business Is Worth
You want to do the opposite: buy low and sell high.
When you buy a product, let’s say one pound of Red Delicious apples, you have some idea of what the price should be, even if you’ve never bought them.
I don’t do the grocery shopping in my home. However, if my wife asked me to buy a pound of Red Delicious apples, I wouldn’t spend more than $2 to $3 per pound.
Any higher than that, and I wouldn’t buy. And if the price was $0.50 or lower, I’d think that it’s a great buy. (By the way, the average cost of a pound of Red Delicious apples is usually around $1.40.)
And that’s my point: You may not know the exact price, but you have a pretty good idea.
So, when people sell stocks when prices go down, and buy when they go up — they really have no idea what the stock price should be.
They forget that a stock is really a piece of a business, and they have no idea what the business is worth.
That’s why, before I buy any stock, I make sure I have a pretty good idea of the underlying worth of the business.
I first figure out a ballpark price for the business. That isn’t hard to do if you know what to look for like I do. Then, I see if the stock price is trading above or below that price.
If I estimate the business is worth $50 per share and the stock is trading for $100 per share, I’m not interested. But if it’s trading for $20 per share, I buy it. And if the stock price fell to $10 per share? I’m buying more!
Lower prices are your friend if you know the underlying worth of the business. And the further the stock price goes down, the happier I get.
But if you don’t know the underlying worth of the business when you buy the stock, you’re at a big disadvantage. You don’t know if $20 is a bargain price or an expensive price.
Helping You Take out the Guesswork
I hear from people all the time that the average person doesn’t have the time or experience to research every company to figure out the underlying worth of its business.
And that’s why I want to help.
My team and I dedicate hours to doing deep dives into financial filings, company statements and our own data. It’s what we love to do.
We take the guesswork out of it, so you don’t need to wonder whether a stock is trading at a bargain or not or why. And we show you in plain language, without bogging anything down with a bunch of jargon.
It’s like having me looking over your shoulder telling you what’s worth buying and what’s not.
If you’re not already one of my Alpha Investors, it’s not too late to get started on your path to prosperity.
And my good friend Governor Mike Huckabee agrees. It’s why he’s helped me launch our brand-new project: The Miracle on Main Street.
In our special interview, we lay out how everyday Americans just like you can take advantage of bargains in the markets to achieve financial freedom. So, be sure to check it out right here.
Founder, Alpha Investor