On waiting for a better valuation

In the Knowledgebase I beat you guys over the head with this thought:

…Don’t wait around for a slightly better price. When it’s at $50, I can guarantee that you won’t remember or care whether you paid $10.05 or $10.30, but you’ll be kicking yourself if you didn’t get in. The issue is: Do you want to buy the stock? If the answer is yes, don’t fool around trying to buy it a bit cheaper. You are buying with a long-term perspective….

…I assume that any good stock I might want to buy probably traded at a lower price some time before I found out about it…Duh… But so what? I can’t go back and buy it in the past. What I care about is whether the stock is a good buy now. I see too many people who are “waiting” for a price to go back to where it had been, for a lower price, a better buy in point, or whatever. They may get it and save a $1 or $2, or they may miss getting in, and miss a $50 eventual rise in the stock. Don’t try to wait for the price to go down before getting into a stock. Geez, you are getting into it in the first place because you think the price will go up, not down. If you like it and are convinced, at least take a starter position now…

…If it’s at $25 and I wait for $22, to buy at a “cheaper price,” I’ll really kick myself when it’s at $120 and I never got in because of waiting for a cheaper price…

Well, here’s a real-life example from David Gardner, one of the founders of the very useful newsletters whose free board we are using:

But in 1995, Yahoo was trading for $29, and I had calculated my own valuation for it. I had it at $25.60, or something like that, so I was waiting for Yahoo to get down to $25.60 so I could buy. It never did. What it did, though, was rise to $2,560 without my money on it. And that… changed me forever into saying, “It’s about buying greatness. It’s not about my discounted cash flow analysis out to the second decimal.”

Best,

Saul

61 Likes

Thanks for the response Saul; got it.

Thanks for this reminder. I have learned this the hard way and you are the master at it in my mind.

Wayne

Since reading that in that knowledgebase I have completely stopped using limit orders. I would say the same thing goes for exiting a position. I used to fret when the stock price of a position went down, I never looked at it as buying opportunity. My attitude has done a 180 on that. Now I try and understand why it went down. Was it a downdraft in the market that brought just about everything down? Was there a misunderstanding about something in the earnings report (I’m still developing this skill, Saul is a master at it). Did the company do something stupid like deworsification?

I was up 83% last year, even with the recent downturn I’m up 32% this year at the end of June. I’ve never, not once gotten in on any company at the “ground floor.” Every issue I’ve bought was cheaper at some time prior to my initial purchase. Darn! If only I could have been smart enough to get in earlier. Oh, wait a minute, I did say 83% in 2017. 32% so far in 2018. My goal is 20% per annum.

I guess missing the bottom is not killing my gains, not so far anyway.

18 Likes

I was up 83% last year, even with the recent downturn I’m up 32% this year at the end of June. I’ve never, not once gotten in on any company at the “ground floor.” Every issue I’ve bought was cheaper at some time prior to my initial purchase. Darn! If only I could have been smart enough to get in earlier.

Hi Brittlerock, I’m with you, Man! …From the Knowledgebase:

I assume that any good stock I might want to buy probably traded at a lower price some time before I found out about it…Duh… But so what? I can’t go back and buy it in the past. What I care about is whether the stock is a good buy now.

Best,

Saul

7 Likes

can’t you think about that in reverse?

why should I get in now? I don’t need to. I can get in 6 months or a year or two…what is the rush? yes it is going up now (in the past days or weeks or even months). why be so quick to get in now? wouldn’t I be happy after the stock falls by 30 or 50% in a short amount of time? and I could say ‘wasn’t it great I waited and I didn’t get in yesterday or last week or last month’ because it is now lower than when I started wondering if I should buy or not?

repeat the question for that stock or any other stock that appears to you to be great.

tj

2 Likes

Any money not in stocks will not gain any value but surely will loose value.

Br
MK

wouldn’t I be happy after the stock falls by 30 or 50% in a short amount of time? and I could say ‘wasn’t it great I waited and I didn’t get in yesterday or last week or last month’ because it is now lower than when I started wondering if I should buy or not?

Hi tj,
If you are thinking about buying it, I assume you like the company and its prospects and think it will prosper, and that the stock will go up. Why would you wait for the stock to fall 30% to 50% in a short amount of time? Surely your judgement is better than that, and the vast majority of stocks you have selected to think seriously about buying will rise more likely than they will fall.
Saul

6 Likes

As I am fairly undisiplined and lack accumen when it comes to investing. I need crutches to help with the emotions.

I try to hold 8 to 12 companies in my portfolio with a little cash. As such I consider a full position as being between 8 and 12 percent. If I buy a company and it goes up to 20 percent, I have to ask myself, am I willing to hold a 5 postion portfolio? If not I need to sell some. If one drops, I have to ask, do I still believe in this company? If so, I need to add some to get it back to a full position. This lowers my cost basis.

There is danger here as revealed by NKTR. But it does help give structure and reduce emotions.

Cheers
Qazulight

1 Like

I have to ask myself, am I willing to hold a 5 postion portfolio?

Why? No one has ever said that all holdings have to be equal. Indeed, many say that the size of the holding reflects their confidence. I can see where 60% in one company would make holding 8-12 companies total a bit absurd, but not 20%.

1 Like

Why? No one has ever said that all holdings have to be equal. Indeed, many say that the size of the holding reflects their confidence. I can see where 60% in one company would make holding 8-12 companies total a bit absurd, but not 20%.

Indeed! They are not. But for the undisplined like myself, it makes a good set of training wheel.

Cheers
Qazulight