it works like this: Imagine you have a huge amount of money, enough to buy whole companies like Apple, Coca Cola and Walmart. you want to keep your money and ev

it works like this: Imagine you have a huge amount of money, enough to buy whole companies like Apple, Coca Cola and Walmart. you want to keep your money and even make it grow, so you're looking for good businesses to buy. I have one company for sale at USD329 billions, it grows 50%-100% a year for now and currently generates USD3.29 billions I have another company for sale at USD219 billions, it is shrinking at 1.4% a year and currently generates USD14.69 billions And finally I have another company for sale at USD200 billions, it is growing/shrinking between -8% and 60% a year and generates USD7.35B Most people prefer the second one, who makes you a good 7% return a year. the first one looks good, but will take at least 6 years to be as good as the second and the last one is so so. the companies where 1) Facebook 2) Walmart and 3) Coca cola. (we're ignoring how much assets and liabilities they have for simplicity) And as you see, even when facebook has a promising future, we don't know if it will reach a good value/margin level as walmart. so we may agree it's overvalued at is current price. Hope this shed some light, I'm not a trader or something, so this info is very simplistic P.D.: this analysis is called Fundamental Analysis, you can go deeper and honestly it has worked very well in my portafolio. I bought stock in Gerdau (GGB), a brazilian steel company, because I studied as a whole business and discover it was priced very low. that was starting in November, I bought those stocks at 1.22 and recently they reached 2.44. I basically duplicated my money in 6 months. Remember stocks aren't just tickets, they are little parts of a big business.