Back in 2003, Microsoft stock traded in the $20s. And guess what happened? It continued to do so every year for the next decade that followed. Between 2003 and 2013, there was at least one trading day in each year in which the software giant traded in that price range. During this 2003-2013 stretch, Microsoft’s earnings grew incredibly from $0.97 to $2.65 per share. The profits quadrupled!
As Seth Klarman once said in Margin of Safety:
“Investors are sometimes their own worst enemies. When prices are generally rising, for example, greed leads investors to speculate, to make substantial, high-risk bets based upon optimistic predictions, and to focus on return while ignoring risk. At the other end of the emotional spectrum, when prices are generally falling, fear of loss causes investors to focus solely on the possibility of continued price declines to the exclusion of investment fundamentals. Regardless of the market … Read the rest of this article!