The Class Ltd (ASX: CL1) share price and Gentrack Group Ltd (ASX: GTK) share price has roared higher.
The best advice on buying shares
If I offered you an investing strategy to never lose money but always have 100% upside, would you use it?
Chances are, you wouldn't.
Evidence shows that most of us don't.
It's nuts, I know.
But you can use the strategy oh-so-simply.
You see, it goes like this: patience doesn't lose you money.
Finding a good company to invest in is 75% of the battle for most sharemarket investors.
So when we do find one, we often rush to buy it. Many (most?) do so without even thinking about valuation. Valuation puts the odds of success in your favour.
The thing is, if you find a good company and rush in to buy without considering its value, you are immediately putting 100% of your money at risk for 100% of the potential gain.
However, if you are patient and keep your money in a cash account earning 3% while you wait for a compelling valuation (Warren Buffett calls it "a fat pitch"), your downside is limited to +3% (or whatever you are earning in interest). In addition, you have the opportunity to take advantage of that unlimited upside potential if (not 'when') the company's share price falls into a more compelling price range.
You could still lose money, of course. But in the meantime, you're nearly guaranteed to make money.
It's a subtle but important difference.
Good long-term investors know it too well.
Patience doesn't lose you money.
That's why I'm not in a rush to buy these two ASX shares.
Class
Class is a small-cap software company developing programs for SMSF and investment portfolio administrators. The company's shares have risen 112% since listing on the ASX in late 2015. At $3 or more, I think Class shares are a good one for the watchlist.
Gentrack
Gentrack is another excellent small-cap software business. The company's shares have risen 86% in a year. While I believe it is deserving of a higher share price – and could be worthy of a small position for a long-term investor – its valuation has become less compelling.
Foolish Takeaway
FOMO, as the kids say, stands for the 'Fear Of Missing Out'. Like little kids, big kids get FOMO. When you are investing in shares, you too will get FOMO. Academics call it an 'opportunity cost'.
Whatever you call it, avoid it. Because you can buy something does not mean you should. Be patient – wait years if you have to – and swing for the fences if you are delivered a fat pitch!
