Valuations vs price when buying

Hi all

This is a very general query as to how rigid you are (price wise) when buying shares.

Once i have established a value for a particular share and the market price is higher eg 2-5% above your price do you - buy immediately, hold out for your price; or is it random.

The reason i ask is that there have been several instances in the past for me where i've only caught half the boat or not at all and only because of a measley few cents to start with and because i wouldn't up my price. In other instances i've got the price i wanted and was almost relieved to finally get it.

What are your methods and approproach to this issue.

I find that my stop losses are fine as long as i don't get emotional with a company

Bear

These are great questions Bear and one that's sure to rekindle the neverending debate around Fundamental Analysis versus Technical Analysis.

Frankly no matter how good you are at analysing using any method you'll never be right all the time and never get each investment or trade timed perfectly. I've missed out on heaps of "bargains" because I was too tight over a few cents. Ce la vie.

Usually though, if I'm buying on fundamentals then I've got Buffet's "margin of error" to play with so a few cents extra in the share price might be a minor dissapointment but really has little impact on results.

Too me the real acid test of investing is mitigating the losses. Profits stack up pretty quickly when you avoid losing money. So risk analysis is as important as fundamentals and technicals. People are generally very bad at estimating risk and even so called professionals get this part of the equation out of wack.

Perspective can have a huge impact on risk. Take your ADY thread. I hadn't even considered global supply of Lithium but Skinny, ever the economist, picked up on it immediately!

Quibble about 1 and 2 cents if you are swing or day trading. If you are longer term trading(investing) enter market orders -- or limit orders a cent north of ask.

Bear,
If you are a "value" investor, why would you want to buy a share that is above your valuation? Wouldn't you be looking for shares where the curent price is below your valuation?

I wonder if your query is really asking whether, having decided to buy, you should buy at market or enter a bid at less than the offer. I generally buy and sell at market. I steer well clear of illiquid stocks with big bid/ask spreads, so for me there is usually only a cent or so in it either way. Buying at market ensures that your order is executed. I got sick and tired of missing out when buying into rising stocks just for the sake of trying to save a lousy cent. I do all my NZ buying and selling just before the Close, so I do not have time to faff around - I want In (Or Out!) there and then!

I believe that you already know the answer here Bear. You find that your stop losses are fine as long as you don't get emotional with a company. Excellent. Simply apply the same detached, dispassionate approach to your entries and exits.

For my part I only buy stocks that are in an uptrend.If you have made the decision to buy I think you just get on with it.

It may be 2 to 5% higher by the end of the week-while you sit around waiting for it to come back to your price.If you have researched it thoroughly,it's in an uptrend,and you plan to hold LT, 2 to 5% is a bit irrelevant.

thanks folks for your replies ..

On the liquid stocks i find myself buying at tending to buy at market so that i don't miss out

but with illiquid stocks I suppose i'm usually guilty of establishing values somewhere between the quotes and with big bid/ask spreads are where i struggle.

I consider myself an alrounder when considering and establishing valuations, entry/exit points - primarily value investing but also look SP trends and have had some success using contrarian methods or unloved stocks which are undervalued for no apparent reason.

When I first started, every 1c mattered.[:I]

Possibly it is something that everyone does when they first start?!

Over time, I learnt that missing a trade because the price does not hit my target by 1c is much more expensive that missing the whole price movement...

bear

An excellent question and some great answers

I am in the main a short to medium term holder as I trade virtually every day , sometimes several times per day so I treat each trade on its merits
I buy at market if I feel that the price is on the move but if the price is still fluctuating a bit I tend to place my buy bids at a little below the current price achieving success most times
I always research the company to try to avoid the dogs (not always successful on this one though ) and always review the companys chart , usually over six to twelve months , with the last month in more detail

Sometimes it is a fine balance
It is obviously more profitable to get in at the best possible price , but as others have said , trying to squeese every last cent out of a trade can be counter productive in that it is easy to miss out altogether

In the end you have to make an election and run with it , knowing that you will not be successful 100 % of the time
This is the challenge as share investing or trading is not an exact science --- you weigh up the options and act accordingly

It takes time to be able to stand back and assess a position totally unemotionally but I have found that this is essential to maximise success

Yes Stevie.......

Tough to judge.....Buying when the price has gone a little over the top can get you caught out when profit taker move in.

1 to 2 cents differences can burned you. I used to set my bid price and sometimes lower in even further when the SP drop. But that is an expensive lesson because then you missed out completely and become timid chasing the stock.

Take AMP for me.....Look to buy when they announce their 3rd quarter cash flow together with an intended capital return in May 05. It was $6.18. I should grab it at $6.18 because I thought it was cheap and a div yield of around $4.7% is nice for AMP. Instead I set the bid at $6.16. It never got there. The next day it jumped in the $6.20's and I was timid thinking I should have got it at the $6.18 mark. COSTLY....