I believe that in its truest sense, investing is based on fundamental values. Earnings and cash flows are the ultimate determinant of True Worth™ or fundamental value. So how do you deal with young companies that have promise, but no earnings?
If you really like the business, you speculate. The key point is that you are conscious of the difference between a speculation and an investment. Therefore you don’t say, “I am investing in XYZ Company with no earnings.” The proper statement is, “I am choosing to speculate in XYZ Company.”
Today’s video looks at Genomic Health, Inc., a young oncology-based biotech company with promise but scant earnings.
Best when viewed in full youtube screen.
Disclosure: Author Does Not Manage Portfolios Long GHDX
When considering investing versus speculating, it’s not a matter of whether one behavior is better than the other. It’s about knowing the difference and accessing the risk. You should not say, “I am investing in the lotto.” The more appropriate statement is, “I am gambling a dollar on the lotto.”
The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.