Village Roadshow Limited, Collection House Limited & Amcor Limited – why now is the time to buy

One of the commonest mistakes that investors make is basing an investment decision on a company’s past performance or current share price. It’s a mistake we in the investment community refer to as ‘price anchoring’, whereby investors let irrelevant information dictate their investment decisions.

For instance, they could see that a company is trading near an all-time-high price and establish that it would be silly to invest, assuming that the shares can climb no higher and only recognising the downside risks. After all, what goes up must come down, right?

Wrong when it comes to investing at least – Isaac Newton was spot-on when it came to apples. While it is obviously important to determine whether a company has become overpriced, being overpriced and trading at a record high are two completely different things! Sure, it would have been nice to have bought in at an earlier date before the shares rallied (retrospect can haunt you like that) but sometimes you simply have to pay up for quality businesses.

Just ask those investors who turned their back on Apple Inc. (NASDAQ: AAPL) when the shares had doubled in price to hit $14. They have since risen a whopping 3,639% to close overnight at US$523.47 a share and could certainly climb higher from there.

What should you do?

It is important to remember that when you buy shares, you are not simply buying a three-lettered ticker symbol. You are actually buying a portion of a company that you believe will be much larger and much stronger five or 10 (or more) years down the track, hoping to take advantage of their growth and any dividends paid along the way.

Village Roadshow Limited (ASX: VRL), Collection House Limited (ASX: CLH) and Amcor Limited (ASX: AMC) are all perfect examples of this. They are all currently trading around multi-year highs but have plenty of growth ahead of them.

Village, for instance, will explore the possibility of making a push into Asia with its theme parks while debt collection group Collection House continues to deliver solid growth in its revenues and collections of outstanding debts. Likewise, Amcor will continue to expand as it focuses on operations in emerging economies following its demerger from Orora Ltd (ASX: ORA) last year.

Foolish takeaway

Choosing to wait on the sidelines for a company’s shares to fall in value could prove to be destructive to your overall wealth. Sure, they could fall in the short-term but if you believe in the company’s prospects, the longer-term will surely be much brighter.

The top ASX pick you've never heard of...

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Ryan Newman owns shares in Collection House Limited.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.