One of my favourite Warren Buffett investment lessons is that you don't need to swing at every pitch. What that means is that you don't need to invest in every share opportunity that you come across.
I think it's important to remember this lesson more than many others at this time because of how elevated a lot of share prices are.
Valuation models are useful for most investors, however they can be used to justify investing at prices which probably don't make sense if you're giving yourself a good margin of safety. "It's better to be roughly right than precisely wrong".
I'd hope everyone reading this article is investing for at least three years into the future, if not five years, ten years or more. Will waiting another month or two really ruin that ten year investment plan? Do the current Altium Limited (ASX: ALU) or WiseTech Global Ltd (ASX: WTC) valuations make sense considering the rising interest rates? I hope so, or else they may suffer some big falls.
Jumping onto an investment when it has already shot to the moon could be a risky move. Investors buying into the Sydney real estate market last year trying to eke out a few more percentage points seem foolhardy now. Every statistic like household income to debt, the gross property rental yield and many others would suggest the property investor was flipping a weighted coin and betting on the 'un-biased' side. There was little margin of safety.
The same can be said for many share valuations at the moment.
Foolish takeaway
I'm not suggesting you should sell everything and hold cash for the next decade. But, you don't lose anything by being patient and waiting for opportunities. It may only take until the end of reporting season for several quality shares to drop and become much better value, even as their profits continue to rise.
The higher the price, the lower the prospective returns that are on offer for the investor. But, there are still opportunities out there if you can find them.
