Hope this is useful
Introduction
Never chase shares for the sake of having it, once your money is spent buying up shares, it is out of your control and will be totally dependent on market forces in the short term, economic & other outside forces for the long term.
in other words....you will lose all control of the Value of your money.
Be prepared to buy for the long term because a good company will increase in value over time and your invested money will also increase in value.
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Article Proper
Value over Premium
to buy a share, we pay a premium + value.
value = what the company is more or less, actually worth.
premium = what the market thinks the company will be worth in the future and the extra cash the market is willing to pay for its shares.
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during corrections like the recent sub prime crisis, we see this premium or "willingness to pay" reduced very fast and share prices trade closer to their "value".
Sometimes even below their "value"
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during bull runs like most of 2006 & 2007, we are more and more inclined to pay higher and higher premiums for the shares of the exact same company - sometimes within a day !
Such is the waste of our money when we have to "pay the market premium" to own shares of companies we wish to invest in.
sometimes, even rumors can trigger a mad increase in premium as the market anticipate fast short term gains.
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We must never be caught in the trap of paying for premium. Value can be more or less predicted and is a steady, natural moving force. while premium simply fluctuates with whatever the market conditions are
for example, the Value of a oil & gas company can be assumed to be steadily increasing as the oil & gas industry enjoys the huge increase and sustained demand for oil..which has also raised oil prices to its highest ever.
the Premium of this same company however, changes according to whether theres news about it, whether the market is going up or down, whether its raining or not, whether there are buy calls or sell calls made by paid analyst for free....etc etc
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So use your cash wisely and pay for value. Dare to invest when the market has yet to chase up the premium.
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This Author is an active investor in the Singapore Stock Market. He tries his best to identify companies with the best prospects to invest in.
If you are interested in Singapore Shares or his Articles, you will find his blog at
http://singaporeshares.blogspot.com
