Selected excerpts from the Knowledgebase -3

Investment Analysis Clubs Saul’s Investing Discussions
1

Selected excerpts from the Knowledgebase -3

I’ve decided to do a daily small excerpt from the Knowledgebase as sort of a thought for the day. In many cases they will have extra thoughts of mine, or small updates. I hope you’ll find them interesting.

Saul

Here’s the third:

Never miss getting into a stock because you are waiting to buy it a few cents cheaper. The decision is whether you want to invest in it or not. Once you decide, take a starter position, at least. 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.

Here’s a real life example:. Some years ago, very early in the 3D printing craze, I learned about a little Swedish company that no one had ever heard about from an article on Seeking Alpha. It sounded interesting and I bought some Arcam at about $15.30 (I think). That was the price it was selling at. I never considered trying to wait to get it 25 cents cheaper or even a dollar cheaper. It went straight up, and later that same year it got to $190 for about a 12-bagger in less than a year! Do you think I remembered, or cared, whether I spent $15.10 or $15.40 per share? How would I have felt if I had put my buy order in 30 cents below the market and missed that $175 dollar rise to try to gain 30 cents?

Or think about Amazon. As you know, I bought it earlier this year at $550. It closed yesterday at $834. I could easily have tried to get it $10 cheaper (after all it had been lots cheaper in the past), and missed that whole rise.

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! You’ll hear people talk about using puts to try to back into a position and get the stock put to you on a little pull back. It would have taken hundreds of successful puts to make up for missing that one 12-bagger. If you like it, and are convinced, at least take a starter position now!

28 Likes
2

Saul,
I really like this idea of posting knowledge base excerpts. Thank you for taking the time to do this!

On starter positions:

I am curious, how do you handle a stock which is actively falling even though you know it is a good stock for long-term investment? Especially if the falling price is not related to the stock itself? For example in January when the whole market was falling. When do you buy a starter position in such a situation? When do you sit back and watch the price fall?

3 Likes
3

Saul, I really like this idea of posting knowledge base excerpts. Thank you for taking the time to do this!

Thanks, Othalan, it’s fun for me too.

I am curious, how do you handle a stock which is actively falling even though you know it is a good stock for long-term investment? Especially if the falling price is not related to the stock itself? For example in January when the whole market was falling.

If it’s one of my stocks, I worry about it much less if the whole market is falling. If it is just my stock falling, I try to figure out why, and then figure out if the reason is really one I should be worried about (INFN for instance) or one which is a misunderstanding (SBNY for instance, which happens to be up $3.68 or 3.0% as I write, for whatever that’s worth).

When do you buy a starter position in such a situation? When do you sit back and watch the price fall?

In general, I don’t try to time the market and will buy a starter position during a fall. Look, the stock may be up several percent the very next day. I’d feel terrible if I missed it because I was waiting for a better price.

Saul

3 Likes