When evaluating investments, look at value, not just price - Ahwatukee Foothills News: Money

default avatar
Welcome to the site! Login or Signup below.
|
||
Logout|My Dashboard

When evaluating investments, look at value, not just price

Print
Font Size:
Default font size
Larger font size

Kim DeVoss

Related Stories

Posted: Saturday, January 21, 2012 8:00 am

Most investors pay a great deal of attention to the price of their investments - yesterday's price, today's price, tomorrow's price, next year's price, and so on. And that's understandable, because we always want the prices of our investments to rise. Yet, if you focus too much on prices, you could end up making some costly mistakes.

Why? Because price-driven behavior is emotional behavior - and as an investor, you're much better off making decisions with your head, not your heart. Suppose, for example, that you've seen a steep decline in the price of one of your investments. After a while, you may feel that you just can't take it anymore and you decide to "cut your losses" by selling the investment. Conversely, you may have an investment that has gone up and up - and to grab even bigger gains, you buy more shares.

Both these decisions could backfire on you. When you sold the investment whose price had fallen, you might find yourself on the investment "sidelines" if that same investment starts to turn around. And when you throw more money at an investment whose price has skyrocketed, you're betting against history - because no investment goes up forever. Furthermore, in both cases, your emotions will have led you to violate one of the guidelines of investing: buy low and sell high.

But apart from the tactical errors you may make when you over-concentrate on price movements, you're also ignoring another key characteristic of investments - their value.

Traditionally, an investment's "value" has been largely defined as whether or not it's considered "expensive" or "cheap." That's why many investors take a close look at a stock's price-to-earnings ratio (P/E). Generally speaking, a high P/E means a stock is more expensive, relative to its earnings, than a stock with a low P/E. Investors may be willing to pay more for the high P/E stocks because they feel these companies will be worth more in the future.

But P/E doesn't tell the whole story of investment value. Any individual investment may have value to you because it can help you diversify your holdings. And while diversification, by itself, can't guarantee a profit or protect against a loss, it can help you reduce the effects of volatility on your portfolio. For instance, if your portfolio is heavy with stocks, the presence of some bonds - even those whose market price has fallen because interest rates have risen - can help reduce the impact of a downturn that primarily affects stocks.

Clearly, the value of any investment has several dimensions - any or all of which may be valuable to you as you pursue your goals. So, as you build, maintain and adjust your portfolio over time, keep an eye on the changing prices of your investments - but don't overlook their true value.

• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Kim DeVoss, CFP. Reach her at (480) 785-4751 or Kim.DeVoss@edwardjones.com.

More about

More about

More about

  • Discuss

Movies in a Minute: 'Jason Bourne'

Do you realize it’s been nine years since the last “Jason Bourne” movie? As a fan of the franchise, I have to say I’m disappointed in this one…

Published: July 29, 2016 - 11:43 pm @ http://ktar.com/story/1201697/movies-in-a-minute-j…

Phoenix Planning for a New Approach to its Urban Forest

A city famous for tall palm trees wants to find some shade.William Yardley reports on an ongoing planning effort in Phoenix to cultivate a tre…

Published: July 29, 2016 - 11:12 pm @ http://www.planetizen.com/node/87654/phoenix-plann…

From Arizona to Montana, Native Voters Struggle for Democracy

The Navajo Election Administration in the Chinle Agency. (Aura Bogado) Leonard Gorman is a man of maps. He heads the Navajo Nation’s Human Rig…

Published: July 29, 2016 - 8:43 pm @ https://www.thenation.com/article/arizona-montana-…

Infographic: International Tiger Day 2016: Tiger facts you need to know

STEPS FOR DISABLING AD BLOCKERDriving in Canada Canada - a home away from home Canada, it's time to change! Living with a disability in Indo-C…

Published: July 29, 2016 - 8:18 pm @ http://timesofindia.indiatimes.com/world/rest-of-w…

#WeMadeHistory

By Victoria A. Brownworth The tension built over the course of an hour. At the Democratic National Convention in Philadelphia, the ceremonial …

Published: July 29, 2016 - 7:42 pm @ http://www.curvemag.com/News/WeMadeHistory-1368/

VP nominee Mike Pence to appear in Phoenix, Tucson Tuesday

TUCSON, AZ - Indiana Gov. and Donald Trump's vice presidential nominee, Mike Pence, is scheduled to appear in both Phoenix and Tucson Tuesday …

Published: July 29, 2016 - 7:17 pm @ http://www.abc15.com/news/region-central-southern-…

Libs at DNC Call GOP Racist; Here's The Historical Facts

Back in 1857, in a landmark decision, a Supreme Court packed with Democrats determined that not only was Dred Scott not a citizen, not only th…

Published: July 29, 2016 - 6:12 pm @ http://www.thefederalistpapers.org/us/libs-at-dnc-…

8 Instagrammers to Follow As Your Kids Grow Up

When Will was born, I picked up a book called 100 Places to Take Your Kids Before They Grow Up. For a few months, I flipped through all the id…

Published: July 29, 2016 - 5:39 pm @ http://solomomtakesflight.com/blog/8-instagrammers…

Online Archive Documents Destruction of Ancient Sites

Print Irreplaceable Art Objects Will Get Virtual Backup Copies Russian Orchestra Plays at Ancient Syrian City of Palmyra Damage to mosques, a …

Published: July 29, 2016 - 5:41 pm @ http://www.voanews.com/content/online-archive-docu…

Turkey shuts down dozens of media organisations

STEPS FOR DISABLING AD BLOCKERDriving in Canada Canada - a home away from home Canada, it's time to change! Living with a disability in Indo-C…

Published: July 29, 2016 - 5:16 pm @ http://timesofindia.indiatimes.com/world/middle-ea…

Facebook

ahwatukee.com on Facebook

Twitter

ahwatukee.com on Twitter

RSS

Subscribe to ahwatukee.com via RSS

RSS Feeds

Spacer4px

Most Popular

Online poll

Loading…