Back to basics: How to decide how much to pay for ASX shares?

How to decide how much to pay for ASX shares?

Any answer to that question will be determined by numerous factors: your values, your strategy, your appetite for risk, and your access to funds, to list a few.

Still, if you find that response unsatisfying, there are other answers.

The first, don't pay too much.

The goal for most investors is to make money.

To have a better chance of making money, you must avoid losing money.

So, let's look at some easy ways to lose money on the stock market.

Going in blind

I once got a "hot tip" about a company that was about to strike gold.

That tip came from someone who didn't really know anything about investing in ASX shares.

I was probably about 12 or 13 years old at the time and certainly naive, particularly when it came to investing in stocks.

I put every cent I had in that gold prospector.

They didn't strike gold.

And nor did I.

In fact, I got completely wiped out.

Down but not out

That stupid investing mistake cost me a lot of money.

But I learnt some valuable lessons I still carry with me today.

So, how much should I have paid for shares in that company?

You know the answer: absolutely nothing.

It's great to get a hot tip, particularly from a credible source.

Still, you need to do your research.

If you don't know anything about the company you're investing in, there's a good chance you will lose money.

Egg basket

Another key lesson I took away from that experience: don't invest too much, even if you've done your homework.

Investing in shares involves risks.

It always has, and it always will.

Only invest what you are prepared to lose.

Buy low, sell high

When you've done your research and worked out how much you can afford to invest, ideally you want to buy when shares are cheap.

This is where we get into the nitty-gritty.

I'm an advocate of diversification, and part of my strategy involves investing in value shares.

I also like to invest in growth stocks, dividend shares, and ETFs.

But in the end, regardless of your strategy, if you make enough money on your investment, you bought at the right price.

And you don't really make money until you sell.

So, how to decide how much to pay for ASX shares?

That's up to you.

It depends on your strategy, your appetite for risk, and how much you can afford to invest, among other factors.

But if you keep asking yourself fundamental investing questions and you keep doing your research, the answers will become clearer.