Confusion – The company or its stock:

There are some very good companies with mediocre stocks, and some mediocre companies with very good stocks. It can be difficult trying not to confuse the two. This quite simply is a fundamental analysis versus technical analysis issue. Some stocks simply have excellent trading characteristics while others don’t. Maybe it’s a matter of liquidity, or a fanatical message board following, or a daytrading clientele, or a myriad of additional contributing factors. Take Amazon.com for example. Is the company a good one? Who knows? But the stock is great. I would be very reluctant to hold it for 20 years, but I sure don’t mind trading it a few days at a time, the “right” days. Over a long period it has proven to be a great investment and a terrific trading vehicle.

“Baby Bells” are at the other end of the spectrum. For the most part they have proven to be great companies. They: I wouldn’t mind owning for 20 years. But you have to pick your spots when you go to trade them, because they regularly trade in an extremely small daily range.

Also worth remembering: even the stock of a great company can go through a bad patch. IBM is a great company today, with its stock selling at 124, and it was a great company five years ago, when its stock was selling at 13.