“Valuation matters because it will affect how well you perform as an investor
over time. Buy even a high quality company at too high of a price and your total
returns will suffer, and you will also receive less yield on your money than you
otherwise should have had you purchased at a more attractive price.” Dividend Mantra
There are two things that really, really matter in investing; Quality and Value. Look around at your companies that are innovative and continue to deliver exceptional service/product with rising revenue and profit you notice one thing; quality doesn’t come cheap. You will usually pay a premium for these companies. There are many that I would love to own, but they rarely present at the price I would favor.
The quote above is from Dividend Mantra’s recent post which can be found here. I agree 100% with what he is saying and I think most of you would. Value is found at times of uncertainty and fear. I think the market is in for a correction because of what people think may or may not happen. Why worry? As Dividend Mantra says it is only noise and to the long-term investor really is of no concern. Yes, cuts may be made to government budgets and taxes on investments might be increased. Has anything changed? Investors have always had to adapt to the policies of companies and governments. I have no reason to doubt they will not do the same in the future.
The value you seek comes during times like these. The only question is how will you act? Do you let fear dictate your actions or do you follow a logical plan and buy when prices our deflated on short-term news? I like the latter approach and I’m thankful I have some capital available to take advantage of it.
I mentioned here that I would add to my shares of NSC if they dropped to 60. I did that today. I added 50 shares to my current holdings. Those shares were purchased at 59.84 giving me an average share price of 60.78. I don’t know what will happen next week or next year, but I do know that getting these shares of NSC at these prices due to recent earnings weakness and political results is far better than purchasing when they are rising.
What are you doing and why??
The Stoic Investor 
Stoic,
Hey, thanks for including me in your post! I appreciate the kind words and glad you enjoyed the recent posts.
When opportunity knocks, I certainly let it in. Some people can look at opportunity dead in the face and confuse him with the boogey man. That compels these poor souls to sell shares in high quality companies when they should be buying. But, that’s okay. That serves those with a long view very well indeed!
I’m with you on buying NSC at these prices! It’s not just at a 52-week low, but at multi-year lows. Knock, knock.
Best wishes!
Thanks DM. I like using quotes at the beginning of a post to set the mood. Yours is the first blog quote I’ve used. It’s a compliment to how much I enjoy and respect your blogging.
Nice buy. I initiated a position in NSC today. I’m also looking at selling a put on the stock.
ADY, Thanks for stopping by! I have yet to become comfortable with options to try it. One day though…
Hi Stoic,
You raised a very debatable topic. I do not have a clear approach to this, still refining my own strategy based on experience.
Take an example of Visa. A great company that was on the rise for some time. When it was trading at $110 it was expensive. And so it was at $125. It still is expensive at $140. Yet I am advocating its a buy given the company fundamentals. Waiting to buy this stock on the cheap will likely lead to a missed opportunity. Nothing is for certain, of course, but I doubt V will be diving any time soon.
On the other hand lets take MCD. It is a mature stable business with plenty of competition. Sure it went down a bit and represents a better buy today at $86 than it was at $95 a few months ago. But is it a great bargain? Doubt it. From the two examples above you can see that my point is to occasionally pay more than fair value for a stock I find really appealing. Kind of Charlie Munger’s take on things.
Another argument against buying on dips is that you never know when a small dip will lead to a dive. Take 2008 crash for example. Had you averaged down early you would have been out of cash and would not have bought anything at all at the best available prices. I am guilty of the same. It is never easy to spot a real downtrend and distinguish it from just a regular dip. It may be far more profitable to let dips go and buy only on large unprecedented drops. That’s when large discounts are available.
Finally, it is proven that people are on average wrong by 25-30% when predicting just about anything (re: Daniel Khaneman “Thinking Fast and Slow”). Just when I feel that the stock can’t go any lower it dives by another 25%. It happened to me so many times, its not even funny. Couple of hundred thousand were lost in such bets by yours truly. There is surely plenty to learn before I call myself a good investor, but lessons like these did not go unnoticed. I am vary of small dips now. Catching a falling knife is not fun.
AverageCFA
AverageCFA, I like your comment so much I’m going to write a post about it. Stay tuned…
So, it’s a couple of years later…NSC is up 30% or more…NICE!