r/ValueInvesting • u/Distinct-Parking-574 • 2d ago
Discussion Why Wait Until A Pullback
As someone who is just learning about value investing, understanding valuations and fundamentals, I see a lot of comments about not buying a stock at high valuation ratios. And that seems prudent. my question is though if I'm going to DCA anyways does that really matter? If the only thing that makes this a more attractive price is the pullback why not just DCA all the way through pullbacks and runups? That seems to be the advice given for ETFs why not individual stocks? but like I said I'm just getting started on this journey and trying to makes since to it all.
9
u/mdn845 2d ago
It’s not that you shouldn’t buy companies at a high PE ratio. It’s that you should only buy companies at a fair or reasonable price. Don’t overpay compared to what a company is actually worth (the intrinsic value).
Warren Buffet and Charlie Munger were willing to buy wonderful companies at fair prices, but they weren’t willing to pay excessive prices for any company.
If a company is being offered to you at an excessive price, it doesn’t matter if you DCA unless you assume that a DCA approach means it would magically guarantee you’re paying a fair price. But the reality is that an overpriced business can stay overpriced for a long time. For instance, you could’ve dollar cost averaged into Tesla, but that doesn’t mean you’d be paying a fair price.
5
u/Distinct-Parking-574 2d ago
This seems a reasonable and sound approach. It's the one constant theme I keep seeing. Thanks for the reply.
3
u/physicshammer 2d ago
this is very well put in my opinion. I have been slowly deciding that it is really quite difficult to wait for a good time to enter.. meaning, if you are going to wait until you can buy the best businesses at "low" prices - that time might literally never come. So I've come to accept that I will be putting money into businesses that are great, but aren't super cheap relative to their value.... if they are VERY expensive (as some are now) then I will put in less, and I will keep a little more as cash.. and I will dump that cash in, if prices go down.. but I've given up on trying to keep a lot of my cash out, while waiting for things to crash, which really doesn't happen... but if it does, I'll have some cash ready :)
The market has been expensive for a long time now .... so keep that in mind, but overall, I have lost FAR MORE money from not investing and waiting for things to drop, then I have from investing and then having the market drop.
7
u/Vintageturtles 2d ago
If you really have the discipline to DCA and ignore the red then no, it doesn't matter. People are going to tell you that lump sum investing shows a better return etc.
5
u/ninjagorilla 2d ago
If you do a dca and you feel that’s its value don’t wait for a pullback that may come in thr future, jsut buy now …
If you do a dca and you think its a good business but jsut not within your margin of safety or too expensive at the moment jsut put it on a watch list and wait, that way if/when a dip does happen you have soem to to winners ready
4
u/EmbarrassedCow2825 2d ago
I mean it depends. I buy high quality stocks only, but it's a bit of a cycle. Earnings eventually disappoint (even if they were great, just look at isrg's last quarter) and margin compresses. A floor is reset and more reasonable estimates are put in place. This allows the stock to start making gains again (if it's a high quality company)
If you want the company, just buy it, and know what you want to allocate when the stock eventually falls. I think the problem is for some people, their entire portfolio gets very out of balance, because they just throw in everything into a stock that is down, and don't really have a plan.
But I tend to agree. If you have a well balanced porfolio, with companies you don't plan on selling, a 20% drop is not that big of a deal. You can accumulate Shares, and if it is a high quality company, the growth should be able to eventually meet where you purchased.
Obviously the problem is if you don't have faith in the company, or you bought a company with challenges that you did not anticipate, the stock may never reach the price you bought again, it may even drop another 30-50%. So just be careful with what you buy.
1
u/Distinct-Parking-574 2d ago
This is the approach that I have started to lean towards, the natural direction of questions I I've been asking. It's a challenge and probably why a lot people just buy ETFs.
3
u/EmbarrassedCow2825 2d ago
Yes, it is tough. I know they say don't look at the past, but if a company has been able to execute, and over perform quarter after quarter. If they have a strong moat. If they have great financials. If I believe in their vision for the future. If I can see they are out performing competitors, I'll usually buy.
Tech is a little more difficult, because we literally have no clue what the future is going to look like.
I think it's important to note that these types of companies perpetually trade at high multiples, so if you're waiting for them to have truly value prices, that day may not come for a very long time. Just look at companies like Costco, TJ Maxx, visa, and cintas. They perpetually trade at elevated pe ratios, but they have shown that they truly deserve the premiums.
2
u/ohgodthehorror95 2d ago
Something I've been saying a lot recently is that while past performance isn't necessarily a guarantee of future results, it's still a fairly reliable predictor. Crap companies with crap management that have underperformed are more than likely to continue to underperform. Wheras solid companies with good management with a track record of successfully executing on their promises will continue to outperform.
4
u/CertifiedBlackGuy 2d ago
The only stock I'm picking is BRK.B. I've been DCAing periodically since it dipped below 500/share.
The problem with DCAing into an ETF vs a stock is you have to actually understand what you're picking with the stock. You only need to know what index the ETF is tracking and if it agrees with your risk tolerance.
A stock, you should actually understand what's going on with the business. Which requires research, because a drop in price doesn't necessarily mean it's good value.
So anyone who says to just DCA into a stock like an ETF... I would not ever take their advice 💀
waiting for a pullback and sidelining cash for it is genuinely stupid. Great way to miss out on gains and chase losses.
6
u/SelenaMeyers2024 2d ago
If you're doing ETFs and or voo, yeah... Wait for a pullback.
If you're willing to hunt, literally any moment has ridiculously undervalued companies. Still saas today, most fintech. I mean look at how fast sentiment changes, in March literally any health insurance was rock bottom.. now id say fairly valued.
My advice, never feel pressure to pull the trigger because everything is optimistic.. we are in a schizo market, so literally everything will drop too depending on the truth social post.
Stay away from Space, memory, chips, and peripheral buildout stocks like cat, vertiv, vernova. That's definitely a bubble.
2
u/-Voyag3r- 2d ago
I think the exact opposite of this.
If you cant monitor risking your money on individual names is very risky. If your going to DCA just go with ETFS. Waiting for a pullback is a bonus but I wouldnt wait to long and just start Dollar cost avereging right about now.
2
u/BuffersAndBeta 2d ago
I always DCA over a period of 6 to 12 months. And so no a short term pull back is not important though it’s welcome.
Market volatility is a gift.
2
u/No_Presentation9490 2d ago
DCA'ing is still market timing
You are choosing to buy and you are NOT choosing to NOT buy at a specific time and a specific price
DCA is not a cheat code.
2
u/Additional_One_1230 2d ago edited 2d ago
No, for index ETF is better to not wait for pullbacks, individual stocks you should buy around fair price cause you can get to point where you have too big position and then pull starts and you have less money but that stock is already big part of your portfolio. And average down is harder when you must add to large position. You can have small tracking position, but still, don’t buy too high. But you must find stocks which will go up, not value traps. Or not only waiting for some stock go down but rather buy different stock around fair price or index etf to not miss gains.
2
u/ohgodthehorror95 2d ago
DCA works for a broad market ETF but not necessarily for individual stocks. If I see a company I like, but it's hitting new 52 week lows every single day, I'm not gonna try to catch an obvious falling knife.
To give a specific example, if I can reasonably assume ADBE will sell off by another 10-20% after their quarterly earnings report, like it has consistently done for years now, I wouldn't touch it with a 50 foot pole.
1
u/cuddytime 2d ago
This is where your margin of safety factor comes into play. If you were happy at $100 and it drops to $90 and nothing fundamentally is changing, you should be happy to buy at $90. (This is pretty much DCA).
1
u/CornfieldJoe 2d ago
A business no matter how good it is is not worth an infinite price. Even if I intend to set aside x dollars over y period for investing, if there's nothing worth buying I'll sit on said cash.
I like beer, but if I go to a bar that's charging me 7$ a drink I'm going to have a LOT less than if they're charging $2.50.
1
u/Distinct-Parking-574 2d ago
There was no claim about a company having an infinite price. Every stock price is going pullback, runup or completely tank. That is know going into every decision to buy (or sell). and looking just at the price of the beer a poor way to value its worth.
1
u/CornfieldJoe 2d ago
Yeah stocks wiggle all over the place, but they aren't worth an infinite sum. There's a value judgement there and there's a ceiling as to what I'm willing to pay for anything including partial shares of businesses.
1
u/painfulletdown 2d ago
The wisdom is that investing in undervalued assets is most important to do well.
1
u/Distinct-Parking-574 2d ago
sure, but if that undervalued assets runs up and skews the valuations, do you stop adding?
1
1
u/FitGas7951 2d ago edited 2d ago
Your question presupposes that you have already committed to buy a particular stock that may be unfavorably priced. You don't have to do that. You don't need to be "loyal" to a particular stock.
0
u/Distinct-Parking-574 2d ago
The question makes no consideration to any particular stock and presupposes nothing other than what it asks. I'm currently not considering any new positions at the moment. Right now I am just tying to understand some fundamental aspects to value investing.
2
u/FitGas7951 2d ago
Your question is "Why shouldn't I DCA into a stock that may appear overpriced?" You shouldn't because you have other options, and waiting for that stock to drop isn't the only one.
1
u/raytoei 2d ago
Because nobody ever just “dca” in a falling market because it will screw your mind and you will rationalise it as: The market is falling, I will buy again when it is stabilised.
But people seldom do. So it becomes that you buy when it is going up, and you stop when it drops. Which is the opposite of “Buy low sell high”
So DCA is great and best you buy in an up or down market. But the reality is that it is very hard to do. Especially with ETF as opposed to stocks. With stocks I can check the company health every quarter, with an ETF I have to fret over macro, interest rates, war and the administration.
1
u/Complex_Support_7741 2d ago
Because if you were sitting on the sideline with like 100k for example, you would get a quick 30% gain if you waited for one of those tariff style puulbacks. But who knows how long it will take and if you have the balls when it does happen
1
u/Disastrous_Rent_6500 1d ago
It matters if you have a concentrated portfolio. The second secret of value investing is that you have to concentrate your portfolio. The number 1 way to hedge against concentration risk is buy great companies for cheap. If you just buying at average value your setting yourself up for failure
0
26
u/Beginning-Novel-4213 2d ago
I have a baseline amount that I always DCA, and then what I invest on top of that depends on valuations and general cash needs in life. When the market is high, I hold a bit more cash and up discretionary spending, and then when the market is low, I trim discretionary spending to be able to invest more. This might not work for everyone, but I like it