It is all in the price of the stock

I often hear this refrain from investors: all the news is already in the price of the stock. This becomes an excuse not to buy high quality stocks or not to sell crapy ones.

The fact of the matter is we never know whether it is all in the price of the stock at all. In many cases, good news begets more good news, and success breeds more success. On the flip side, failure engenders more failure. If a company is poorly run, it is very likely it will stay that way for a long time. Turnaround is very, very rare.

In investing, people are always attracted to "value". But what is "value"? I believe you get what you paid for. A fundamentally strong company rarely sells cheap. Cheap stock is cheap for good reason. In majority cases, cheap stock is value trap.

In a competitive market, great products are expensive and cheap products sells cheap. Occasionally, you do find expensive products are actually craps. But you rarely find great products sell cheap. It is same in the stock market. Great stocks are expensive, and cheap stocks are craps. And you do find cases in which expensive stocks are craps. Avoid those, then you will beat the market.

There are periods when great stocks can sell at cheap valuation. It is not due to the fundamentals of the companies, but due to difficult financial market or cyclic factors. As long as these companies are well managed, and fundamentally strong, when financial market dynamics turn around, or the end market improves, they will come out stronger, gaining more shares from fundamentally weak competitors.

In conclusion, if you are an investor, not trader, I suggest you focus on the fundamentals of the company, not its valuation. And you need to make sure that the strong fundamentals of the company you invest in are sustainable. If you can do this, you will have better returns than average investors over a long term.