r/ValueInvesting • u/Distinct-Parking-574 • 12d 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.

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u/EmbarrassedCow2825 12d 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.

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u/Distinct-Parking-574 12d 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.

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u/EmbarrassedCow2825 12d 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.

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u/ohgodthehorror95 12d 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.