The age-old motto of ‘buy low, sell high’ is extremely easy to understand and hard to put into practice. It can be hard to stick to your investment philosophy when the market does unexpected things. Also, the market does not simply go up and down in predictable patterns.
So how are you meant to know when to buy and when to sell? I try to narrow down all the options on the market to a shortlist of ones I am potentially interested in, then buy when I think they’re attractively priced to me. My watchlist currently contains around 50 listed companies, trusts and indexes.
How are you supposed to know when your potential target has hit its ‘low’? Think of TPG Telecom Ltd (ASX: TPM) that kept on dropping and dropping from $12, to $11, to $9, to $7 and almost to $6. I think the best tactic in this example is to be patient and wait until the share stops falling, even if it takes months and then buy, it’s okay if you miss the absolute lowest price.
Patience can also work when a share price is rising. The Blackmores Limited (ASX: BKL) share price achieved tremendous growth in 2015. Investors suffering from a ‘fear of missing out’ who invested at over $210 are not far off a 50% loss on paper at today’s prices. Sometimes patience can see your target fall back in price.
It’s impossible to get every investing decision right but with a bit of patience the target may stop falling, or stop rising.
I’m following the Costa Group Holdings Ltd (ASX: CGC) share price, wishing I had bought when it was under $3. But buying now at $4.39 doesn’t ‘make up’ for the gains that I’ve missed out on. Hopefully the price will come back a bit and I can buy at a cheaper price.
I’m also looking at Capilano Honey Ltd’s (ASX: CZZ) share price steadily fall. Every $1 that it falls makes it more attractive. However, what’s to say it won’t go to $13? Or even to $12? By being patient I may be able to buy at a better price. But, it’s currently trading at 12.9x FY16’s earnings with a grossed-up dividend yield of 4.03%, which could still make it a good long-term buy.
The Retail Food Group Limited (ASX: RFG) share price has been on a rollercoaster for shareholders over the past two years. Since the start of 2017 it has fallen from $6.98 to $5.34, every month it is getting more attractive. It’s trading at 13.2x FY17’s estimated earnings with a grossed-up dividend yield of 7.83%.
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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia owns shares of Capilano Honey Limited and Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.