Understanding a Stock

The Sage of Omaha says that when you buy a stock, you are actually buying the business.

I am wondering how long one takes to understand a Company's business. Fundamentally, Stock Market values a Stock based on its current & future earning power. Yes, there can be other parameters that help valuation but from a very very fundamental & conceptual perspective, I believe, its the earning power.

What impacts the earning ? Well, Its Pricing Powers, Competitive Edge, Product Leadership, Economic Cycle, Regulatory Forces, Quality Of Management & so on.

Understanding a Company Business needs substantial efforts. Tracking the Quarterly Performance, Reading Balance Sheets, Management Interviews, Brokerage Reports & Market Views..

When Central Banks tighten liquidity, this means pressure of a Bank's margin since Banks now need to keep more money with Central Bank with lower yields.Similarly, Rising Crude has a cascading impact in the Economy and impacts the earnings. Decreasing or Increasing import tariffs have again substantial impact. So when one understands the underlying business, its easy to analyze the developments and identify impacts on the stocks.

We are not saying that we need to watch like a hawk quarter on quarter. After all, the Equity investments are for long term. Yes. But the deeper understanding of the business and earning helps one to maintain an outlook & take a position in line with goals. This is one reason, I strongly discourage most of the individuals I meet, from trading directly in equities & instead focus on Regular Investments through Mutual Funds.

Time, as they say in the market is more important than timing the market.

Regards, Rohit