Rules are Broken

Normally most professional investor would tell you, “don't gamble on Earning expectation”. They are correct, but it's not good investment value if you see profit and not take it. For example in the last 2 week two major company that are doing really well GOOGLE and APPLE. I manage to pocket a 18% gain on my portfolio by gambling on them. Well technically it not a gamble more of well time decisive decisions. Like everything in life you don't put limit to what you do. I could sit here after the facts and tell you that I profited and how smart it was to invest in it. It wasn't because I was smart, it's common sense. Let me explain why? First let me explained how the stock market work, there something call stocks (a stock = 1 share of a company, Company offer shares because they needed to fund capital for growth, these shares are traded in a stock market. There are a lot more other details that goes into a stock, but you probably could Google it or read it in a book) these stocks are traded in a stock market by investor. For every stock being sold, it have an investor as a buyer and a sellers. The price is determine by the willingness of an investor that willing to buy that stock and a seller that willing to sell that stock at that same price. If there are more bidding(buyers) then asking(sellers) then the stock would go up vice versa the stock would go down. So as a investor our first job is to determined if a stock price is undervalued or overvalued. First, Let analyze Google. This stock peek at 700 early in December 07. why did it drop $260+ in 4 months to the low 400s? First, once it hit 700 people began to question it price value causing it to decline. Second the fear in the economy due to the financial crisis cause it to drop some more. and Third, people just like to follow the trend(this is why stock are overprice and underprice). The fact is the fact, Google was the same strong running company in December. Nothing in those 4 month tell me why it should decline that significantly. I draw a conclusion that the real price is somewhere in between 700 and 500. I believe that if it beat it estimate earning it would retrace it self back to somewhere in the 500. If you follow Google you know that it had beat earning repeatedly by a wide margin. This same argument hold truth to apple, the only thing is apple had already retraced some of the decline before the earning. But it was obvious that apple still is undervalue because if you look at it closely. From what I see that Apple future growth is a lot higher then Google. It's a really well run company by Steve Jobs, Data show it's gaining market share in the new Mac design vs PC. I mean this also go with what it had done with the Ipod and Iphone. So it a win no lose situation just by investing in the company even if the stock price didn't go up right away due to earning. In this case the Rule that “ don't gamble on Earning expectation” , well even tho it right it not always correct. In this situation because of the huge decline in price before, it give you a better value to buy. Compare to the past where the price is running with the earning(The price is running with the earning = if it a strong company it stock price for that quarter earning has rose during that period because everyone has the same expectation). Most of the time price is set into the earning this is why you don't get huge gain from earning surprise and you don't gamble on it. So it different this time around. All this just support one of my ideas, You really can't put a rule to beating the market, you sort just go and make decision base on what your own ideas of how the market will move. But I want to let people know that the Rule “Don't gamble on the Earning expectation” is still a legitimate statement because when I started out investing, that what I personally did thinking that I was ahead of the game( I end up losing and I learn and value it). Another rule that all the successful investor always said is “Invest in something you know”. This is a related to my second ideas in the previous post that knowledge is irreplaceable. Why? Well It allow you to have more confident and make better decision. I wouldn't have been this confident or even invested if I didn't know a lot about Google and Apple. Concluding this week post , I want you to know that Rule about investing are exactly truth and it for your own good but they are NOT SET in Stone just like everything else in Life it vary....