Out of curiosity, when you consider buying a new stock that meets your criteria for investment, does its price behavior influence your decision making at all?
For example, if a stock had the exact same financial/fundamental data, but it was up 300% year-over-year, would you be more inclined to buy it than you would if it had fallen 50% year-over-year?
Hi Steve, I’m sure that the previous price action affects me more than I realize but I try not to be overly affected. For example, If the stock was up 300% that would turn a lot of people off. They’d say it must be overpriced. For me it would depend on why it was up. For example if revenue was up 120% because of a great new product catching on, and earnings had quintupled, sounds good to me. If it was up 300% because of hype like the 3D printing stocks were, I wouldn’t touch it.
On the other hand, if it was a great company, with good results, and was down 50%, and at a cheap PE, I might add. If it was down 50% for good reason (bad results, bad news), I’d stay out.
This is from the KB with a little editing: Price anchoring is a BIG mistake. Treat a company as if you had just encountered it, and then decide, based on its current earnings growth, PE ratio, prospects, price, etc, whether you want to buy it NOW. Where the stock price was in the past is irrelevant. Any company you might want to buy was once at a lower price. Guaranteed! You can’t go back and buy it at that cheaper price where it was two months ago, or two years ago. I prefer to buy a stock when it’s going up rather than going down.
I pay no attention to moving averages, but that’s just me. I’m buying a share of a company, not a stock price.
Saul