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Post of the Day
June 24, 1999

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Subject: Re: First, er Second, Stock
Author: babyfrog

Zach,

One thing I've learned here at The Motley Fool is that investing is best done with a long-term focus in mind. That a stock drops 20 points in the short term is not a big deal, if the company's fundamentals are sound and its management is capable of continuing to operate and grow the company profitably. If you were willing to buy a stock at 100, what fundamentally changed that made you consider -not- buying it at 80? If the company was worth purchasing at 100, then it should be even more worth purchasing at 80, unless there was a fundamental negative shift in the company's ability to produce or sell its goods and services.

A great place for you to look to get an education on how to value stocks and determine what would be appropriate investments for you is right here, at The Motley Fool, check out Fool School, at http://www.fool.com/school.htm . This will give you a rather in-depth overview of how to look at the stock market and approppriately determine your own investment choices.

Let me illustrate with an example. I work for the company mentioned below, and I am a stockholder in it as well. I am not a spokesman, and my statements do not reflect the company's opinions in any way, shape, or form. I am certainly not recommending you buy, sell, or hold stock in the company. The example given is for historical, illustrative purposes only and makes no prediction about the future. The statements here are my opinions and are mine, my own, and mine alone.

"Let me ask you a question: Why should you trust me or my opinions on any stock or anything else having to do with money? You don't know me from Adam. For all you know, I, and everyone else here at the Fool could very well be serving time at a Federal Prison for Fraud. Why would you trust perfect strangers with your money?"

One of the best investments of the past decade was Procter & Gamble. Yes, P&G (NYSE: PG), the Soap company. Even in this crazy tech-heavy economy, where money losing internet companies were tripling in stock price on a daily basis, that company continued to post regular, solid profits and stock price gains. In fact, if you compare P&G's stock to the S&P 500, the DJIA, and the NASDAQ indicies over the past 10 years, you would discover that P&G stock outperformed all those indicies in the past decade. And it did it while selling the same type of products it has been selling for over a century... Boring Consumer Staples like soap, toilet paper, and detergent.

Check out these links:

P&G vs. NASDAQ, 1 decade

P&G vs. DJIA, 1 decade

P&G vs. S&P 500, 1 decade

Over the past week, however, the stock has been pummeled. It has fallen nearly 20 points from its all-time high, and it has dropped about than 10 of those points last week. The stock drop occured following a major announcement regarding the Organization 2005 restructuring that the company is undertaking to help improve its sales. In that announcement, the company said that it would probably not meet its previous target of doubling its sales by the middle of next decade, but that the new restructuring, once in place, would allow it to grow its top-line at a 6%-8% annual rate, as opposed to the 2%-3% rate it had been growing in the past few years.

After the announcement, both Moody's and Standard and Poor's announced that they were affirming their ratings on P&G, suggesting that they believed that the restructuring would not be a bad thing for the company. Yet the stock price continued to fall. Why it did and continues to is beyond me; after all, the low top-line growth has been evident for the past few years, yet it hadn't affected the stock price at all; now that the company announced that it was going to actively do something to grow its top-line faster, its stock got hit hard. All that does is reaffirm my belief that in the short term, the stock market is really just a guessing game.

Again, that whole section was my opinion and my opinion alone. It was not a recommendation to take any specific action towards the purchase, hold, or sale of stock in any company, nor did it represent an official company position on anything.

"The best free stock market education around is at your fingertips. Learn it well, and the financial rewards will find you."

In the long term, a company's fundamentals determine the direction of its stock price. A company that can grow its sales and its earnings year in and year out will be rewarded with solid, long-term stock price appreciation. The shareholders that held on during the momentary price swings will also be rewarded with a solid, strong long-term return on their investments.

Let me ask you a question: Why should you trust me or my opinions on any stock or anything else having to do with money? You don't know me from Adam. For all you know, I, and everyone else here at the Fool could very well be serving time at a Federal Prison for Fraud. Why would you trust perfect strangers with your money? You posted a request asking people you don't know and never met to tell you how to spend your money. The best free stock market education around is at your fingertips. Learn it well, and the financial rewards will find you. Best of all, it will put YOU, not some random stranger who does not have your best interest at heart, in charge of your money and financial destiny.

Best of skill, Zach. A couple hours at the Fool School, combined with applying the knowledge you pick up there, will pay off better for you in the long run than any quick stock tip that I or anyone else here can give you.

-Chuck