One of the most obvious pieces of advice about investing in anything is to buy when that asset is good value. The seller has a reason for selling, are you making a good choice by buying?
It’s quite easy to follow the mantra of buying at good value when there are a lot of good choices to choose from. However, the Australian share market and American share market are close to their highs since the GFC.
Some of the growth shares delivering exciting profit increases every year are trading at eye watering levels like REA Group Limited (ASX: REA), Altium Limited (ASX: ALU) and a2 Milk Company Ltd (ASX: A2M).
The only shares that seem to be attractive at the moment are companies with a higher risk profile. Greencross Limited (ASX: GXL) has accounting and retail questions hanging over it. Bapcor Ltd (ASX: BAP) is supposedly in long-term trouble due to the shift of electric and automated cars. Ramsay Health Care Limited (ASX: RHC) is suffering from private health insurance affordability issues.
Almost none of the blue chips look like good value to me. House prices are dropping and the Royal Commission is having an effect, the retail sector is pretty tough and you never know what’s going to happen with resources.
So, what can you do in a market like this? I think there is something to be said for being brave in investing into unloved shares. There’s a good chance that Greencross, Bapcor and Ramsay will outperform REA Group, Altium and a2 over the next 12 to 24 months.
However, there is nothing wrong with waiting a little for the next opportunity. It is extremely unlikely that there will never be a good opportunity to buy lots of shares at good value again. It could be tomorrow, next week or next month – but there will be opportunities again.
The fear of missing out (FOMO) can be a very strong motivator to make an impulse investment, you’ve seen how well shares have done over the past year and you don’t want to miss any more. Waiting an extra week or a month for an opportunity will not ruin your 10+ year investment horizon.
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Motley Fool contributor Tristan Harrison owns shares of Altium, Bapcor, Greencross Limited, and Ramsay Health Care Limited. The Motley Fool Australia owns shares of and has recommended Bapcor and Greencross Limited. The Motley Fool Australia owns shares of A2 Milk and Altium. The Motley Fool Australia has recommended Ramsay Health Care Limited and 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.