If you ask the average person on the street what the key to successful investing is, they might tell you it's 'buy low and sell high'. Although this phrase borders on cliché these days, it's still a worthy concept to keep in mind as you go about investing.
But how much should you really pay for a company that is almost certainly going to continue to succeed well into the future?
Warren Buffett and Charlie Munger – 2 of the most successful investors of all time – often wax lyrical about how 'price is different to value' and 'buy when there's blood on the streets'. In fact, Mr Munger is famous for saying that 'no company, no matter how wonderful, is worth an infinite price'.
That's perhaps why Warren Buffett, who reportedly yearned to own shares of the Coca-Cola Company for decades, only pounced in the aftermath of the 1987 stock market crash (Berkshire Hathaway still owns the same shares today).
But most of us non-billionaires don't have the luxury of waiting decades to nab a good investment.
Indeed, there are many top-notch ASX companies that I would love to see in my own portfolio – the only thing stopping me is the price the shares are being offered at today. CSL Limited (ASX: CSL) is one such company. It's a leading provider of healthcare services around the world and has been booking steadily rising profits for over 25 years, and will probably keep doing so.
Unfortunately, CSL is trading for around 45 times earnings at the moment, and has rarely looked cheap at all in the last few years. I fear that a buying opportunity may not present itself for a while yet.
I'm personally very confident CSL will continue to perform exceptionally, and also have confidence that it's a stock that I can hold for life. So do I just bite the bullet and buy, knowing I might be paying a rather large premium?
A similar question was asked to Warren Buffett in the 1996 Berkshire Hathaway annual meeting. This is some of his response:
I think, if you like the business, and you like the person that's coming to you, and the price sounds reasonable, and you really know the business, I think, probably, the thing to do is to take it and don't worry about how it's quoted… unless you find the prices of a great company really offensive, I think it's better just to own them. I mean, you know, we could attempt to buy and sell some of the things that we own that we think are fine businesses. But they're too hard to find.
So, to sit there and hope that you buy them in the throes of some panic, you know, that you sort of take the attitude of a mortician waiting for a flu epidemic or something, I'm not sure that will be a great technique.
Foolish takeaway
There you have it from the master investor himself. If you are truly convinced that a company you want to buy is top notch and will be a profitable investment over many decades, perhaps it's better to bite the bullet after all.
