Is it better to buy a stock at the right price, e.g. when it is undervalued, or buy a good stock at a reasonable price? - Seedly
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Anonymous

Asked on 08 Sep 2019

Is it better to buy a stock at the right price, e.g. when it is undervalued, or buy a good stock at a reasonable price?

What are your thoughts?

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A very debatable question, and there's no right or wrong here. I would instead say that you should buy a good stock at a reasonable price, to get one foot in, but accumulate more if it becomes more undervalued, provided that the stock remains a good stock. Build your positions over time, Rome was not built overnight.

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Ivan Ong
Ivan Ong

10 Sep 2019

I totally agree
Thank You!
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Daryl Liao, Fti
Daryl Liao, Fti
Level 7. Grand Master
Answered on 06 Dec 2019

Hey there,

As most people have answered that it's likely the wonderful company at a fair price. Thought it'd add some colours to this.

Alot of times companies are cheap for a reason. The underlying business economic value gradually eroded with each passing day. this becomes an investment that's a race against time.

Time is the friend of a quality company as the management has time to execute and produce results.

Buying cigar butt style companies is like betting on the reversion to mean, that they will go back to the old days of glory. So the million dollar question seems to be, can they?​​​

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Bjorn Ng
Bjorn Ng
Level 9. God of Wisdom
Updated on 05 Dec 2019

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Warren Buffett

Never settle for less, only go for the best stocks. Because the best stocks will continue to rise throughout the years to come!​​​

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Eric Ong
Eric Ong

06 Dec 2019

I totally agree
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Jonathan Ang
Jonathan Ang
Level 7. Grand Master
Answered on 06 Dec 2019

For companies that are high in quality and are growing at 20-80% in revenues or earnings, I would be more than happy to pay at fair value.

Strange isn't it?

Link that explains what I'm saying: https://www.valueinvestingworld.com/2013/06/charlie-munger-on-high-quality.html

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Bibiana
Bibiana
Level 7. Grand Master
Answered on 06 Dec 2019

The main focus is the business, not the price.

There are many cheap undervalued companies that have stayed undervalued for many years, why is that so? This is essentially called a "value trap".

I would rather pay a fair price for an excellent business (one that has VERY strong competitive advantage) than cheap undervalued companies with weak business models.

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Eric Ong
Eric Ong, Project Analyst at 8Bit Global
Level 6. Master
Answered on 06 Dec 2019

Totally Agree with @Bjorn Ng.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Warren Buffett

Sometimes, the "undervalued" companies would always "Undervalue" and there is a reason for it.

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Wallace Chai
Wallace Chai
Level 9. God of Wisdom
Answered on 06 Dec 2019

Hi there,

For me, i follow what warren buffet says. Buying a high quality stock at fair price is far better than buying good quality at cheap price. We must only choose good quality stocks and above! Often times, high quality stocks doesn't usually undervalue! Just grab tham at fair value and not over paying. You will do greater than many others. If you wait for high quality stocks to be undervalue, it might not come. So invest in tranches is important.

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Junus Eu
Junus Eu
Level 9. God of Wisdom
Answered on 05 Dec 2019

At the end of the day, price appreciation is key.

What are your investment time frame like?

An undervalued stock could stay undervalued for years.

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It depends on your investment objective.

If the business model entice me much enough, then I will consider buying it at a reasonable price and hold for the long-term. This is because I will rather buy at a high price than to miss the wave.

If the business model is average, then I will set an alert to buy it when it is undervalued. In case it doesn't go to the alert price, I won't be upset since the business doesn't excite me too much to take immediate action.

Here is everything about me and what I do best.

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Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 05 Dec 2019

First and Foremost, Buy quality stocks that you understand & comfortable holding long-term.

Next, If you feel you bought at reasonable price, nice. If you think you bought it undervalued, great give yourself a pat.

Meantime, No need to split hairs over entry prices. cos whether the entry price is truly reasonable/cheap can only be determined with hindsight 20/20

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Zen Rogue Xuan
Zen Rogue Xuan
Level 6. Master
Updated on 18 Sep 2019

When would be a good time to buy the stock? I answered a similar question here(https://seedly.sg/questions/what-does-the-buying-and-selling-volume-indicate-and-when-is-a-good-time-to-buy-that-stock-based-on-these-volumes), and will now elaborate on it.

This is one of the questions people have been asking themselves since the dawn of money. Why buy something if its price falls in the future? Or don't buy, and watch as the price goes up, then regret not buying it cheaper? Famously narrated by Aristotle in part XI of Book 1 of his ‘Politics’, Thales of Miletus, the 6th century BC Greek philosopher, went to the olive-presses owners in Chios and Miletus to strike a bargain for the exclusive use of the presses after the harvest. Because the harvest was in the future, and nobody was sure if the harvest would be plentiful or not due to natural disasters like drought or fire, from the olive press owners’ point of view, they were protecting themselves against a poor harvest, by earning at least some money upfront, regardless of how things turned out. The harvest was excellent and there was heavy demand for the presses. Since Thales held the contract, he was able to enjoy a monopoly by renting them out at a huge profit. Thales was brilliant as he had shrewdly calculated that a poor harvest would not lose him much in terms of lost deposits, whereas the upside of a good harvest was enormous. “Thus he showed the world that philosophers can easily be rich if they like, but that their ambition is of another sort”, wrote Aristotle. In effect, Thales had exercised the first known options contract, more than 2500 years ago.

Today, we would term it as buying a ‘call option’, the option to buy something at some designated price at some future date for a fixed fee (or ‘premium’). Put another way, it is an agreement that gives the purchaser the right (but not the obligation) to buy a commodity, stock, bond or other instruments at a specified price (the ‘strike price’) at the end of, or within a specified time period. When the price exceeds the strike price, the option is said to be ‘in the money’. Alternatively, there is also sell a "put" option, which will give the buyer the right to sell the underlying asset at an agreed-upon strike price before the expiry date. The party that sells the option is called the writer of the option. The option holder pays the option writer a fee — called the option price or premium. In exchange for this fee, the option writer is obligated to fulfil the terms of the contract, should the option holder choose to exercise the option. Properly used, options are an excellent vehicle to manage your risk. See how you can hedge your portfolio using options at my answer in https://seedly.sg/questions/how-do-i-hedge-my-portfolio-with-options-futures

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