Stocks on SaleThis past week, I realized that I made a fairly novice mistake with my dividend growth investing.  This mistake didn’t cost me to lose any money.  However, I realized that I was worrying about something when in the grand scheme of things it was pointless to be worrying.

The Situation

Last week, I made the decision that I was ready to make my first purchase of Visa (V) shares.  I’ve been watching/interested the company for awhile and finally decided I was going to pull the trigger and add some shares to my portfolio.

I like Visa a lot.  More and more people are switching from using cash to using credit cards to pay for everything they purchase.  In my own house we use credit cards for everything.  We are collecting points to use for air travel and as long as we pay our bills in full each month, we incur no additional interest charges or fees.

It is my belief that credit and debit card usage will continue to grow and become more popular worldwide.  Visa is a dividend growth company set up to be one of the leaders in this electronic payment society.

Currently, Visa trades with a P/E ratio around 25.  This is normally higher than I am willing to pay for any of my companies.  However, Visa also offers high growth opportunities as they have had 5 year net income and earnings per share growth both over 20% compounded annually.  I decided I was going to take the chance and pay a little higher valuation for Visa than I would normally be willing to accept on other companies.

So last Monday, I was ready to pull the trigger.  But when I logged onto my brokerage account, I saw that Visa was up around 0.50% for the day.  For some reason, it is difficult for me to psychologically make a purchase when a stock is having an up day.  I decided I would wait until the next day when I figured the stock would come back down.

But Visa stock didn’t come back down.  Instead, the stock continued to go up in price.  I felt like I missed out.  Last week, Visa stock climbed every day of the week for a total gain of 3.1%.

I failed to ever pull the trigger.  I continued waiting around thinking that the stock would have a down day soon and I would get a better entry price.

And now, I still sit here without having any shares of Visa stock in my dividend growth portfolio.

Why This is Stupid

I was talking to my wife about not actually making the Visa purchase and I came to a realization.

This is absolutely stupid!

For some reason I psychologically have trouble purchasing a stock when it has an up day.  But in the grand scheme of things, it really isn’t going to make a big difference on my overall wealth.

I am a long term investor.  I am purchasing stocks for the 20, 30 and even 40 year time frame!  Do you think that over a 40 year time frame it is really going to matter if I paid a couple percentage points higher for a stock?

The answer is absolutely no!

When you are ready to make a purchase, just go ahead and make the buy!  If you have decided that the current valuation of a company is good enough for you, then an increase by a couple percent shouldn’t change that valuation enough to all of a sudden make the stock overpriced and not worth buying.

Especially when you look at it from the viewpoint of a long term investor.  Truthfully, the longer you own a stock the less important the price you purchased it for becomes.

No, you can’t go around buying stocks no matter the valuation.  You don’t want to buy stocks at ridiculous valuations.  But, time is the friend of the long term investor and time can help make up for small mistakes.  If you pay too much for a stock, time is your friend and as time goes by that price you paid will become less important.

As long as you are picking companies that are growing their profits, growing their earnings per share and growing their dividends, then your entry price will soon become irrelevant.  This is because as companies grow their earnings per share, the company will become worth more and the price of the stock will naturally increase.  Over 20, 30 or even 40 years this stock price will increase by a lot.  You could be looking at 100%, 200% or even 500% increases in company values.

When you are expecting your companies to increase by large values over long time frames, it becomes less and less important that you paid maybe half a percent more than you possibly could have for a stock.

My Takeaway

My mistake was that I worried too much about purchasing shares of Visa at a slightly higher price than I could have just the day before.  My bigger mistake was allowing the slightly increasing price to keep me from making my purchase.

Over the long run, it would have made no difference in the overall success of this investment.  If I’ve done my research right, if I know Visa is a good company that will continue to grow profits, if I am comfortable with current valuation of the company, then I should be fine picking up shares of Visa even after the 3% increase I watched the company go through last week.

When I’m ready to make a buy, I’m not going to worry about what the stock is doing.  I’m not going to let a market increase or decrease affect my decision of buying.  I’m going to go ahead and pull the trigger.

When the market opens today, I’m going to pull that trigger.  I’m going to be adding Visa as my newest holding in my dividend growth portfolio.

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20 Responses to Quit Worrying About the Perfect Entry Price to Buy a Stock! Just Buy When Ready!

  1. I hear you, Dan. Ive missed on a couple of stocks in the past worrying about the perfect entry point thinking that a stock will eventually come back up. But with the ongoing bull market, stocks have continuing the runup with no letup, and some great stocks are missing from my portfolio. But I am not all sad, as I did end up buying other great companies.

    Great post. Keep it up.
    R2R

    • Dan Mac says:

      Great Roadmap. I think I’ve come to realize, if I like a company at a certain valuation it doesn’t become a bad investment just because the price has jumped a couple percent. As long as price hasn’t gone up dramatically, it’s probably still worth buying.

  2. I keep doing the same thing. There are lot of stocks that I want to initiate positions in, but unable to do it because of the market conditions. The market just keeps going up and somehow, I keep waiting for a down day to make the purchase.
    And I have missed lot of stocks doing this. I hope to be able to do what you mentioned… just login and put an order as long as I am comfortable with the stock and the valuations.

    • Dan Mac says:

      Psychologically, I log in and see the stock is up maybe 0.50% and decide that I’ll wait until it comes back down before buying. But sometimes it doesn’t come back down! And I then realize, I would have been just fine buying when I first thought about it even if I was paying 0.50% more than my initial review!

  3. I know where you’re coming from Dan. I’ve “missed” my share of good investments because the price per share was a couple percent higher than I would like. Visa is a great company, but I just can’t make myself buy it at these levels. There is definitely a balancing act though, because no company is great enough that the purchase price truly doesn’t matter.
    -Bryan

    • Dan Mac says:

      I think we try to be perfectionists. If the stock we are interested in is close to our fair value (even if it is just slightly higher) I think it’s probably in our best interest to pull the trigger. In the long run it will be fine.

      I think Visa looks fine at current levels (although it keeps getting higher so be careful). I’m willing to pay a slightly higher valuation for Visa compared to your typical dividend growth companies (Wal-Mart, Coca-Cola, McDonald’s, etc.) because Visa has in my opinion higher growth opportunities going forward. Eventually, growth will slow and they will settle down into the more consistent steady growers that I am used to buying in the 10-20 P/E valuation range.

  4. Rabd says:

    I agree with your conclusion in a bull market like we have, but when the bears come out, you would be better waiting. We’ve been in a bull market so long that anything you buy looks good in the short term. But over the long term, you have to bet the PE is important. Most of the blue chip stocks PE’s are high because people are shopping for yield with the low interest rates we have.

    • Dan Mac says:

      Even if we are in a bear market, if I’ve decided valuation is fair and I’m willing to pay that valuation for the company, I’m going to pull the trigger and make the buy. You never know when a Bear bottoms out and starts rising again. Trying to time a bottom is just as big of a mistake as trying to time a market top.

  5. I’m with you Dan. I use some metrics, but in the end, I just pull the trigger when I feel the price is right for me.

    • Dan Mac says:

      That’s the way to do it My Own Advisor! I don’t know why I have trouble pulling the trigger when I see the price has gone up slightly. It’s just a fraction of a percent! Just make the buy already!

  6. Great article…I need to do the same. Not sure what is behind your inactions but for me, it is a few bad experiences I’ve had in the past. Like all bad things, I need to get over them and move on. This was a great inspirational post that will hopefully get me over that hump. Cheers to Stop Worrying! :) AFFJ

    • Dan Mac says:

      I think if you are comfortable paying a certain valuation for a stock (and really valuations are ranges not a set target price) then you should be ready to pull the trigger and buy. I finally did on Visa. Just a week later than originally planned!

  7. ZaVodou says:

    Before buying shares I calculate a ceiling price in order to earn a certain return.
    So, I think a ceiling price should remain a ceiling price. Therefore I think it was not a fault to buy not at that higher price than your ceiling price. Why at all calculating a ceiling price?
    But I think it’s a fault to buy not if the price drops and is under your accepted price, in the hope that the price drops even more.

    • Dan Mac says:

      Thanks for your thoughts ZaVodou. Quick question, if a stock rises say 0.01% over your ceiling price are you then decided to pass? Has it now become a bad investment?

      • ZaVodou says:

        Dan,
        it’s not a worse investment, but it has something to do with rules.
        I say to myself. Be patient the next train will come for shure.

        • Dan Mac says:

          Thanks ZaVodou-

          I definitely agree with you on following your rules. I believe it is when we stray from our rules when we begin to make the investing mistakes. As always, if you aren’t 100% comfortable with an investment for whatever reason, there are usually plenty of other opportunities available.

  8. Dan,

    Great stuff there. I’m also guilty of this sometimes. I actually experienced the same exact scenario with the same exact stock over the last week or so. I was pumped up to purchase V this month, as it’s right at the top of my watch list. And then I watched it take off.

    I wasn’t particularly arguing over $1 or so on the price, but rather I kept going back and forth between it, IBM, GE, and DE. And before you knew it the price took off on me and that was that. I’m still looking at it, however.

    Best wishes.

    • Dan Mac says:

      Thanks Dividend Mantra, I definitely understand your hesitation if you were still deciding between a couple different companies. For me, I had already made the decision that Visa was going to be my purchase and I was comfortable with the current valuation. Then I hesitated when I saw a small increase that first day. And I continued to watch it go up all week and I never pulled the trigger. I would have been better off pulling the trigger when I was first ready especially considering my long term time frame.

  9. farcodev says:

    Yeah! Forget valuation and price, buy the 1929 way!
    I’m sorry to be ironic but your post is the contrary of the value investing rules that I apply.

    As ZaVodou, when a stock encounter my valuation range, I set a max price of entry. If by the time to have enough cash the stock is above it is OK because I have a full list of other stocks to buy (12 currently). If I haven’t something to buy anymore, I put part of the cash on hold and use the other part into a short term investment or trade without respecting any value investing rule in this case.

    Cheers

    • Dan Mac says:

      Thanks for your comment but I think you missed the point of my article. My point was that I have trouble psychologically buying when a stock has risen in price (even if it is still within my range). Also, I believe that over the long term this extra small amount I may pay will not make a difference. If I pay an extra 0.20% or whatever, in 40 years in really won’t matter much.

      I’m not advocating buy at whatever price. I say buy stocks at reasonable prices. Don’t worry if you have to pay slightly more than when you originally evaluated the company as long as you still think the price is fair. My issue was that I reviewed a company and then when I went to buy the stock was up half a percent so I decided to wait thinking it would be back down the next day. Well the next day it was up again and I missed out because eventually over a week the stock rose past my reasonable entry point.

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