Fifteen favourite fallacies
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6. "It's such a great company, I can't go wrong"
Actually, you can go wrong in several ways.
- You can overpay even for the best companies.
In fact, especially for the best, since they tend to be in the highest demand. The most exciting new technology of the Twenties was radio. But American investors who bought industry leader RCA at the top of the market in 1929 would have made less than 1% a year on the stock up until its acquisition by General Electric in 1986.
Always remember: Price is what you pay, value is what you get. - Great companies have to fight to stay great.
For over a century, Marks and Spencer was Britain's leading retailer. Indeed, it was rated as one of the best businesses in the world. But in the 3 years after October 1997, its shares lost two-thirds of their value. It had stopped innovating, while smart and aggressive competitors like Gap had begun to steal its customers. - Things change, especially in technology.
Like living species, some companies and industries survive and flourish, while others decline and die out. They fail because changes in the economy, society, fashion and - above all - technology make their products and services obsolete.
If you wanted to go wrong in all three ways simultaneously, you could have tried buying shares in the leading maker of buggy whips, back when horse-drawn carriage congestion was at its height, in the years before Mr Benz unveiled a noisy new contraption called the automobile. Watch out you don't buy into an equivalent company in future.
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