Thursday, August 18, 2011

Jim Cramer On Why Price Matters

Click Here To Play The Video
Fact, or Theory?
TV host Jim Cramer calls the notion that investing requires a "hands off" approach, one that ignores short-term volatility,  a myth.  He advocates taking advantage of those short-term fluctuations to buy good companies cheap and sell them when they get expensive.  (Never mind the efficient market hypothesis - see previous post - that says that should be impossible).  He says the risk profile of holding a stock changes as the price changes.  He also says the market correction of 2008 has convinced him, more than ever, that "buy and hold" does not work.

His advice is price matters.  Who should we believe, the academics labouring over elaborate models with which they hope to support their theories of markets they don't totally understand, or the ex-fund manager, who made himself very wealthy by following his own common-sense advice? 

Who do you believe?

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