Bernanke baseball analogy applies to value investing too
Ben Bernanke just wrote an opinion article on Wall Street Journal on how a baseball team performed wonders despite of injuries under a far-sighted coach. He exhorted Washington D.C. to learn from this team winning ways.
He wrote:”The point is that Davey fully appreciates the importance of making decisions based on factual evidence and rigorous analysis. He strikes the right balance between relying on the tangible (data) and the intangible (confidence and motivation) and shows the rare ability of being able to make the right trade-off between winning the day’s game and motivating a player who will help the team win in the long run.
These trade-offs don’t always pay off, but many times they do, and the high success rate is a reflection of Davey’s ability and judgment”
Value investing requires the courage to select stocks that looks like duds but which have the potential to turn around and perform better than before. Data analysis using the ratios like PE, PB, ROE, debt to equity etc may unearth the undervalued stock but it is not fool-proof, only by looking at the fundamentals of the business and the quality of the management and perhaps doing some scuttlebutting (as espoused by Philip Fisher), will the chances of striking the multi-bagger be higher.
Of course, the right judgement can’t do without patience to wait for the stock to perform.
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