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Hybridge's Approach to Managing Your Money
Buy growth at a reasonable price
The stock price of even the best companies can get bid up to excessive levels by overly optimistic investors, an “irrational exuberance”, pushing the stock price temporarily ahead of what is supportable by earnings’ forecasts. A hiccup in earnings’ growth can cause a sudden correction in the stock price down to more reasonable levels.
Choosing quality companies whose stock price is at somewhat less than the typical price to earnings level of its industry or of the market as a whole furnishes an element of downside insurance to the investment. Lots of money may be made in highly priced equities if things continue to go right but the downside can be equally great if earnings disappoint.
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