Is it ever OK to forget valuation? Yes -- if you have the right mindset.
Once I learned how companies were valued, and how to value companies, I found it increasingly difficult to trade stocks that I may have found interesting before. The idea behind investing is that the stock market offers you businesses at premiums and discounts to their values. Obviously, to make money, you try to purchase the stocks with the deepest discounts and wait for the market to realize their value. However, this certainly has its flaws -- namely, you might have valued the company incorrectly. If you have too much conviction in this valuation, you can stand to lose a lot of money.
Trading is different from investing because you don't look at a stock as a business -- you look at it is a "stock." This mindset has its benefits over investing -- primarily the fact that money management becomes much easier because you can quickly cut losses without guilt.
Prior to learning about the concepts of value investing, I would guiltlessly trade in and out of stocks based on which sector was hot, momentum in earnings, and even momentum in price. And I happened to do well, but when another commitment came up (school) I was forced to shift to a more long-term mindset.
Once I learned how companies were valued, and how to value companies, I found it increasingly difficult to trade stocks that I may have found interesting before. The idea behind investing is that the stock market offers you businesses at premiums and discounts to their values. Obviously, to make money, you try to purchase the stocks with the deepest discounts and wait for the market to realize their value. However, this certainly has its flaws -- namely, you might have valued the company incorrectly. If you have too much conviction in this valuation, you can stand to lose a lot of money.
Trading is different from investing because you don't look at a stock as a business -- you look at it is a "stock." This mindset has its benefits over investing -- primarily the fact that money management becomes much easier because you can quickly cut losses without guilt.
Prior to learning about the concepts of value investing, I would guiltlessly trade in and out of stocks based on which sector was hot, momentum in earnings, and even momentum in price. And I happened to do well, but when another commitment came up (school) I was forced to shift to a more long-term mindset.
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