Buying Too Early

[Buffett Jr]

Hi,

I do well out of longer term investments (longer than 6 months) as I seem to be able to buy companies below value.

However, when I buy, generally the stock falls another 10-20% after I've bought before it bounces back up.

Take my two most recent examples of Summerset in August 2014 and more recently Slater and Gordon in August 2015.

How do I train myself to buy after that further 10-20% drop rather than before it? I'd consider myself a very fundamental business analyst type investor rather than looking at charts, triggers, etc.

[stoploss]

Say you want to put 20 K into the stock . Purchase 10 K worth , then wait . If it goes lower either stop out of the first purchase ... It's going down maybe you got something wrong ... Or average in with the other 10k. If it goes up after your first purchase , your analysis is on the money , pay up for the balance with your 10k .

[Harvey Specter]

Which would you prefer.

Buying into a stock and it going down before going back up
Waiting to buy a stock and miss out on a bit of a rise before you purchase

You will never time it perfectly so are you willing to leave a bit on the table for the potential to get it a bit cheaper?

Disc: I remember having a buy order for POT for $4.90(ish) but it never quite got down there. If I had just bought in at $4.95 (might be slightly off but I remember it being within 5c of whatever my bid was), I would now hold a share worth $17!!!

[Buffett Jr]

Which would you prefer.

Buying into a stock and it going down before going back up
Waiting to buy a stock and miss out on a bit of a rise before you purchase

You will never time it perfectly so are you willing to leave a bit on the table for the potential to get it a bit cheaper?

Disc: I remember having a buy order for POT for $4.90(ish) but it never quite got down there. If I had just bought in at $4.95 (might be slightly off but I remember it being within 5c of whatever my bid was), I would now hold a share worth $17!!!

Good point. It's pretty obvious paying a bit more is better than not buying at all, since I generally only find something 1-3 times per year that takes my fancy.

[Buffett Jr]

Say you want to put 20 K into the stock . Purchase 10 K worth , then wait . If it goes lower either stop out of the first purchase ... It's going down maybe you got something wrong ... Or average in with the other 10k. If it goes up after your first purchase , your analysis is on the money , pay up for the balance with your 10k .

Yes, good point. Guess I've always just bought it all on the one day rather than dollar cost averaging over a couple of purchases. I'll try this method next time.

Thing that probably put me off was just the added brokerage cost.

[stoploss]

Yes, good point. Guess I've always just bought it all on the one day rather than dollar cost averaging over a couple of purchases. I'll try this method next time.

Thing that probably put me off was just the added brokerage cost.
Forget about the brokerage , it is a small amount of money at the end of the day . Better to
get the execution right .

[Harvey Specter]

Forget about the brokerage , it is a small amount of money at the end of the day . Better to
get the execution right .Depends how much your buying. If you are splitting a $20k order into 2, then not an issue. If you are splitting a $1k order into 2, then it is more substantial.

Optimum efficiency with both ASB and ANZ is about $15k from memory but in the scheme of things, you aren't going to feel it on a $10k trade if you are buying long term.

[Buffett Jr]

Depends how much your buying. If you are splitting a $20k order into 2, then not an issue. If you are splitting a $1k order into 2, then it is more substantial.

Optimum efficiency with both ASB and ANZ is about $15k from memory but in the scheme of things, you aren't going to feel it on a $10k trade if you are buying long term.

I generally buy in multiples of 5k.

For example 15k for Summerset last year and 10k for Slater and Gordon this year. The rest goes to the mortgage principal.

[Hoop]

Stopless's method is the traditional method...

Patience is a vitue especially for a very term investor..because being a long term investor there is no urgency in buying right this minute..you can wait for months to time an entry....If you have problems in wating then perhaps your persomal mental makeup my not be suited for very long term stuff......So wait and take time to think....

why do I say wait and think???...as you will say "I have already done this!!!!"

Over the many years I have seen people come into this investment type strategy and only rarely do I see them come in at the right time...most come in at the wrong time, ie, when the economy is rosy, and the sharemarket been going up for years and it looks like its going to keep going up for years to come....

So wait, think and calculate...then after the calculations and the long term goal is set..ask yourself, " Have I got the temperament, will I remain feeling comfortable throughout the term, have the courage if the goal turns pear-shaped during the shorter term, have I the discipline and will power to kept to my shorter term objectives to reach my final goal?" Yes..my goal won't be distrupted by known or possible future events..e.g 2 income family becomes 1 when children arrive...or nearing early retirement,,etc...If the answer is no then try a shorter term investment strategy..

Calculating to find goals...Long term investors need to know basic cost accounting methods...I'll do a basic bit here for you.....(using an initial outlay $100,000 and not adding to it and spending the divs)
For a long term investor entering during economic boom period they should be prepared to except that perhaps they may (not always) make little to no increase to their portfolio capital for the next 7 years.. your primary monetary gain only being the dividends..After 7 years your expectations should include capital gain and assume the past history of the market growing at about 7%pa....so after 10 years you now can go back and count the first 7 years as well, so with your initial $100,000 you should expect it to be $196,700 at 10 years..after 15 years expect it to be $275,900.....however remember to expect $100,000 after 7 years
Another option As above but add $10,000 pa to your long term portfolio after 10 years expect $ $196700 + $138,160 = $334.860...after 15years expect $275,900 + $251,290 = $527190

problems along the way effecting portfolio growth
1..Changes to cyclical bears...Starting your long term investment (15 years) into a very old bull market...expect 2 cyclical bear markets wiping off 50% of your capital each time it happens.......Starting your long term investment during or near the end of a recession (doom and gloom) (bear market) ..expect only 1 cyclical bear market wiping off 50% of your capital.
2..Non- performing stocks may have to be culled and replaced.
3..A stock being taken over or an unexpected failure during bear times.
4..Poor Country performance..currency depreciaton..lower long term organic growth..etc

Having the patience to wait for months or a year to decide can double your expected portfolio capital......E.g NZX50 has seen a 6.5 yr old cyclical bull market...well past its expiry date...If you wait and started during the later stages of the next cyclical bear market (say 2016) you can count the first seven years of your compounded portfolio growth ... you can expect it to be 50% more at 15 years as your portfolio contains one less bear cycle and 2 bull cycles

Secular cycles...what are these?....If you are thinking to invest long term you have to be aware of how the investment world has been behaving over this decade or two compared with the 1970's to the 1990's...whats changed??..Have a look at the secular PE ratio trending movements Are they trending up over the decade? Secular bull.... or are they trending down over the decade secular bear.........
Investing long term (15 years) during a Secular bear and you can forget about that basic cost accounting exercise mentioned above....Timing to start your investment at a cyclical bull market high point and selling out after 15years at a cyclical bull market high point during a secular bear market cycle expect to get money back and not much more $100,000 or $100,000 + $150,000 plus dividends.
The good news is the opposite...Timing to start your investment at a cyclical bear market low point and selling out after 15years at a cyclical bull market high point during a secular bull market cycle expect to get up to $750,000+.

Is NZX50 in a secular bull market or secular bear market??...This is the reason why I bitch about the scarcity of NZ data.. I think (Winner69 may help) we are in a secular bear cycle....Australia is unclear as there could be a secular reversal to bull.. USA,,the secular bear been ruling since year 2000..

Secular bears have great negative effect to personal Superannuation and standard Insurance polices...and therefore also to the very long investor (buy and hold strategy)

For a better understanding re: fundamental analysis of Secular bear cycles read all of the ST thread Investing Strategies and secular bear markets (http://www.sharetrader.co.nz/showthread.php?5171-Investing-strategies-and-secular-bear-markets)

[Hoop]

Wow, that's quite something Hoop.
For myself I don't care about the macro picture or shareprice fluctuations and only buy companies that are cheap relative to their long term prospects then sell them when they become expensive.

Yeah...sometimes I don't use the KISS method :D
Also I don't rely on Long term investing anymore...but the thread by Buffet Jnr contains investing for the longer term...

What's your perception of "cheap"...Do you think companies on the NZX50 are cheap atm....many have had higher PE ratios years ago,so are they "cheap or cheaper" now?

[Hoop]

Theoretically a higher PE ratio can be valued as fair value when inflation is in its sweet spot (1 to 2 %)...when inflation (the primary driver) operates outside its sweet spot (up or down) the PE Ratio has to drop to remain its same fair value....this can also be a negative effect to very long investing as the Inflation is in its sweet spot now...and the question has to be asked "will inflation still be in its sweet spot in 15 years time?"

[kiora]

Signs of a sour spot emerging?I've taken some $ out of the market ready for next opportunity :)

[kiora]

Signs of a sour spot emerging?I've taken some $ out of the market ready for next opportunity :)

Sold into strength mostly,didn't catch all the top but near enough.Always nice when it happens.Paying off revolving credit used for special opportunities (TIL & CBL ).Holding these & blueist of blue chips.Will sit tight for a while unless more special opportunities come along.Regrets for 2015 ,missing out on CVT & ATM