A lot of the best businesses in Australia are trading at very high multiples. This time last week Altium Limited (ASX: ALU), REA Group Limited (ASX: REA), a2 Milk Company Ltd (ASX: A2M) and Treasury Wine Estates Ltd (ASX: TWE) were all trading at high multiples, they were almost priced for perfection. The latter two have come down a bit this week.
I think it’s important for all investors to remember that investing isn’t a ‘race’. The harder you try to create big returns the more likely you are to shoot yourself in the foot.
As investors, we can wait for the right investment opportunity to come along. We don’t have to act on a ‘fear of missing out’.
Warren Buffett has an excellent analogy for this concept. He essentially says that investing isn’t like baseball. In baseball the batter has to swing at the ball if it’s pitched in the strike zone, even if it’s just on the edge on the strike zone. However, Warren Buffett can sit there all day long and watch pitches (investment ideas) go by. He only jumps on the ones that are really good deals.
There’s nothing wrong with waiting for a better value investment to come along. Shares are not always trading at all-time highs. There will be a time in the future when one of your favourite ideas is better value again.
Patience is extremely important in investing. Patience means giving your investment the time it needs to fulfil the thesis. Patience also means giving the market time to spring up an opportunity for you.
When the market is so highly valued like it is now I think it’s completely okay to wait many weeks (or longer) for the right opportunity to come up. If you buy at a too-high price you could be nursing a paper loss for a while.
Where to invest $1,000 right now
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of A2 Milk and Altium. The Motley Fool Australia has recommended REA 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 Scott Phillips.