- Investment strategies
- Why invest in the stock market?
- Buy and hold or technical analysis? Why you need an investment plan
- Value investing and short selling in volatile markets
- Using technical analysis to support value investing
- Investing in the unexpected
- Franking credits, explained
- What is dividend stripping and is it a sensible strategy?
- Investing in quality IPOs
- How to invest in stocks that benefit from a moving Australian dollar
- Reasons to avoid bonds when interest rates are low
- How value investors use Skaffold
- Quality, growth and value = a winning strategy
- Know your investor type and boost your performance
- Technical + fundamental analysis = better buy and sell decisions
- Fundamental investing
- Value investing and the price earnings ratio
- Intrinsic valuation models and methodology
- Value investments or value traps?
- How to find value stocks in a bull market
- Find value investments in expanding markets
- Why capital raisings struggle to add investment value
- How to value an insurance company
- Top stocks
- 5 qualities of top stocks
- How to find stocks with a competitive advantage
- Why return on equity is the best measure of business performance
- Using cash flow to find value investments
- Finding high quality dividend stocks
- Debt is not always a dirty word
- Why Skaffold share investment software makes sense
- Using economic factors to uncover the best investment options
- How do experts find top stocks to invest in?
- Investing in global stocks
- How to invest in international shares on global stock markets
- Benefits of investing in international shares
When is the best time to buy shares?
Find out the triggers for share investment.
When is the best time to buy shares? Do you insist on a 20 per cent safety margin across the board? Maybe you’re prepared to pay a little above today’s value because you believe the future value of the business is likely to be materially higher.
Whatever your approach, be consistent. It’s when investors deviate from their investment approach that trouble can occur. Also remember that you won’t make money on every trade. When it comes to investing, not losing money is just as important as picking the winners.
The very best stocks often trade at premiums to what their businesses are actually worth. Woolworths (WOW), CSL Limited (CSL) and Cochlear (COH) are just a few examples.
Take advantage of market corrections
Smart investors buy shares in great quality stocks when the market is telling them otherwise – during big market corrections – when the baby is being thrown out with the bathwater. Investors who braved the chaos of the GFC, IT wreck and the 1987 crash, and bought shares in top quality businesses during these times have laughed all the way to the bank.
The problem is that these are such rare events and you can’t always wait for them to come along.
Find top quality stocks to watch
Some investors will undertake fundamental research first, then overlay technical strategies to time their entry and exit, and this is a valid strategy.
An alternative strategy is to focus on building a portfolio of stocks that are of significantly higher quality (and buying their share at the right price) than the quality of the stocks in the broader indexes that you are seeking to beat.
With your watch list full of top quality stocks, your focus now shifts to paying a rational price.
Work out your Safety Margin
That’s where safety margin comes into the equation. Safety Margin represents the difference between the intrinsic value of a company and the share price. The bigger the discount, the bigger the bargain.
Is there a ‘right’ safety margin? As a general rule, professional investor Russell Muldoon looks for at least 10 per cent for industrial businesses and 20 per cent for resources.
Warren Buffett famously said he’d rather buy a wonderful company at a fair price than a fair company at a wonderful price.
Cochlear has never traded below value. In 2008, 2009 and again in late 2011 it came close. Focus on the wonderful companies first – the ones with bright prospects – and don't be concerned if the share price is 5 or 10 per cent above what the intrinsic value is today.
There aren’t a lot of top quality companies listed on the ASX, and even less trading at prices less than what their businesses are worth.
If you find a great business, and are planning to remain an owner for five years or more, will paying an extra 5 or 10 per cent today really matter if your timeframe as an investor in the business is over 5 or 10 years?