It has been hard to ignore news about Twitter recently which went public on November 7, 2013. It immediately went from $26/share to $40+ topping out $50.09. It has since retreated recently (11/13/13 – $42.60) leaving me confused. To date, Twitter has never made a profit. Of course there are a ton of companies that aren’t profitable, but those usually don’t have a market cap of $23,000,000,000 (“B” with a billion) or if they once did they no longer do (cough cough Blackberry).
Call me crazy but when I am investing in a business through ownership of their shares I want that business to be profitable. The clear downfall in this mentality is a lack of vision or being rewarded for a lack of vision when that business turns over to being profitable.
I think there is a compartmentalization going on in my mind which separates “investing” from “trading.” As such, I have voted yes for plenty of unprofitable companies in my investment club, even suggesting some myself.
Going back to “investing” the first thing I do when screening for my dividend fund is to look for a P/E ratio of less than 20. Since I am looking for a certain number Being that this number exists or is positive indicates that there are at least earnings
Don’t Forget Buffet’s Message in 1999
I recently started reading The Snowball an authorized Warren Buffett biography. Before going deep into the Buffett family history there is a slice of history around 1999 when Buffett was giving a speech to the leaders in finance and business at Sun Valley. It was there he predicted the downfall of the tech bubble ending his speech with,
There was no new paradigm, he said. Ultimately, the value of the stock market could only reflect the output of the economy.