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Why Stock Price Doesn't Matter

When investing in stocks, price doesn't matter. Discover how you can begin to make this mind shift and give yourself a professional investor's point of view.

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Here’s a bold statement that might spin your head a little: price doesn't matter. You are probably thinking I’m crazy, who says “Price doesn't matter”?

Maybe I should not make such a blanket statement but, when investing, price doesn't matter. It certainly doesn't matter as much as so many other factors. My goal with this blog is to show you a context where I can help you begin to make this mind shift and give you an investor’s point of view.

Robert talks about his CASHFLOW Quadrant with the Employee, Self-Employed, Big Business owner and Investor. Robert often explains how the people in each quadrant think differently. For most of us it takes time to go from the employee mindset to the investor mindset. Consider this blog as an opportunity to begin to change your context.

When it comes to accepting that price does not matter there are two different scenarios. Scenario number one: Robert buys Bitcoin, gold and silver. Just the other day he bought more gold. When he is asked what price he bought it at he says “I don't care. The price doesn't matter.”

In Robert's way, when he’s hedging, he doesn't care what the price of gold is. He doesn't care about the price of silver or Bitcoin because he's not buying it to make money. He’s not buying it as an investment. He's buying it to protect himself from the destruction of the dollar. He’s buying it as insurance.

But that is not what I will be showing you today. I’m going to start with a bigger picture, and we'll narrow down to a smaller picture. Let’s get into scenario number two: People consume. As they consume, they are obsessed with price. Let's say we are in Nordstrom and we're browsing, and we see someone pick up a pair of blue jeans. The clerk will come and over and ask if they can help them. Usually, the first thing out of the customer’s mouth is, “how much are these jeans?” Then the customer makes a judgment based on the price.

Now, let’s say I come to you and say “I have a deal. If you want to invest with me and get in the deal, you’ll need to pay a million dollars.” Right there, you are probably making a judgment whether that's a lot of money or little money.

We all make judgements. Generally, we have the consumer mindset, that context of consumer price, where high prices are bad, and low prices are good. That's the way we think about it.

Investors do not think that way. Investors think about what we call return. To an investor, price doesn't matter. Return on investment (ROI) matters. To an investor it really doesn't matter if it's a million-dollar investment. If it's going to make that investor two million, then he/she probably thinks that is a good ROI.

It also, doesn't matter if it's $10,000 investment. If it makes no money it’s a bad ROI and a bad investment. Even if the investment only cost one dollar to get in on, if it makes no money, it is a bad investment.

Can you see how price means nothing, and return on investment is everything to the investor? If you came to me and said “Andy, here's a deal and it's a, it's a $10,000 investment” you haven’t told me anything. I have I have no information on whether it's a good or a poor investment.

The price has no power to tell me the quality of the investment or whether it would be good, bad, or ugly. It is completely meaningless to me because I want to know what the return on the investment is. That is how the investor thinks.

What if I come to an amateur ‘investor’ and say, “my deal is a hundred thousand dollars”? The amateur might say that that is too much money. That person may have just lost out on a great opportunity that could have doubled his/her money simply because they were too afraid of “big” price. Price, by itself, cannot tell us anything. It is meaningless.

Here is my challenge to you, next time you're at Nordstrom and you pick up the blue jeans and the clerk asks you, “may I help” you say “yes, I was wondering what my return on investment is on these jeans.” Of course the clerk will immediately call security and have you escorted out because they don't know what that language is and they will think you are crazy.

I am Rich Dad’s Stock Advisor, but I can say that this investor mindset is not just with stocks. Let’s take real estate. If you buy a house in real estate, you put your down payment down and are left with a mortgage. The price of the rental house doesn't actually matter. As long as your renters can cover the your mortgage, and you make a little extra, then the price doesn't matter. As long as your NOI is in the positive, you're making money.

Let’s take this to the next level.

If we were to look at our financial statement and we were to look at the asset column, most people would look at their statement in terms of net worth or equity. Basically, they would determine their value based on the number calculated by the dollar amount they are left with after they sell all their assets and paid off all their liabilities. What would they be left with? They would have their ‘net worth’. Most people believe that is the number to determine your wealth. I disagree.

Investors look at their financial statement differently. We don't look at how much money our asset column shows. Instead, we look at the number of assets we own. We do not look at how much gold we have in terms of money. We look at how many ounces do have. We don't look at real estate in terms of how much money the building is worth. We look at how many doors do we own; how much square foot do we have. In stocks we look at how many shares we have.

Why? Because the square footage won't change. The price of the building may change, but the square footage won’t. The amount of gold ounces won't change even if the price does. I won't look at the price of a stock. I look at how many shares of stocks I have. The price may change but the number of stocks does not.

Lately I’ve been having fun with Ethereum. Ethereum has been down. It’s suffered a pretty big drop lately. And yet I look at my financial statement. I have more Ethereum coins than I had when I started investing in it. I’ve learned how to cash flow my Ethereum and create more. I don’t care that the price of Ethereum dropped, I care about how many Ethereum I have.

Here is what an investor asks, this should show you their mindset. An investor asks, “am I getting more stuff? Am I getting more assets?”

Let's change the conversation a little bit though. Let's say I gave you a Jack-in-the-box and you could turn the crank once a month and instead of a clown popping out it opened up and a one-hundred-dollar bill popped out.

dollar machine

You know that every month, on the first day of the month, you can get out your Jack-in-the-box, play the little song and a new, a hundred-dollar bill would come out. You get it for the rest of your life. Think carefully now, how much did it cost you? Nothing. I gave it to you.

What if the Jack-in-the-box was not a gift, but it was only a hundred bucks? After the first month it's as if I gave it to you for free. In other words, if it pays for itself, it is just like the gift I gave to you.

Price doesn't matter. If it cash flows, it is only a matter of time before it pays for itself. It's really more about time than price. The real question you should be asking is, how long does it take to pay for itself?

That's the question. Price doesn't tell me anything. Let’s bring this into the world of stocks. Let’s say I have company X, Y, Z, and I get dividends and I sell options on it. And in a period of five years, through its dividends and cash flow, I own it free and clear. I have made back all the money I spent on it. While I have my stocks free and clear, I still get the dividend. As long as it continues to play the dividend it's like having that Jack-in-the-box that pops out money… forever. I would not care about the up and downs of its price.

If you had that Jack-in-the-box, would you ever sell it?

It's like owning a golden goose with it's the golden eggs coming out. You're not waking up every morning saying, “how can much, can I sell my golden goose for?” No. The price of the golden goose is not what we care about. It's “hey, did we get an egg today?”. It's the return.

Anyway you look at it. The price doesn't matter. It is the return on investment that matters. It's the idea of how quick it can pay for itself and can I accelerate that.

Price does not matter. It's what you get. You pay the price once. You get the benefit of profit for the rest of your life.

That's my spiel on price.

Original publish date: June 03, 2022

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