A time to buy
QThis is a good time to buy stocks now, right, because the stock market is down? — R.Y., Charleston, South Carolina
ARight! When the overall market tanks, even the stocks of great and growing businesses can fall — often below their intrinsic value. But do your research first, and make sure any company you invest in is built to last. This pandemic is dealing harsh and sometimes fatal blows to lots of businesses.
Dig deeply into any company you’re considering investing in, since you’ll essentially be buying a piece of it — and its future. Study its annual and quarterly reports; assess its cash and debt loads, its profit margins, cash flow, and the growth rates and trends for such measures.
Warren Buffett recommends asking the following questions when evaluating stocks: 1) Can I understand the company? 2) Does it have sustainable competitive advantages? 3) Is the management honest and competent? 4) Is the price attractive?
QCan you explain how Uber apparently only raised $8.1 billion when it went public last year, when the company was valued at about $75.5 billion? Why didn’t the initial public offering raise $75.5 billion? — T.M., Spokane, Washington
AIf Uber had offered all of its shares to the public market in its IPO, it would have collected around $75 billion. But as companies typically do, it offered only some of its shares for sale to the public, with insiders maintaining majority ownership — and control.
If a company needs more cash later, it can always sell more of its shares on the market via a “secondary offering.” Companies can also change their number of shares over time by issuing more shares or by buying back shares.
profit from the stock market — investing in one or more low-fee, broad-market index funds.
Also, as you noted, think twice before selling, as great businesses — and the U.S. economy — are likely to keep growing over the long run. Shares of microprocessor and computer graphics chipmaker Advanced Micro Devices advanced by double and triple digits in 2018 and 2019, respectively.