Investor Warren Buffett says: “No matter how successful a company is, don’t overpay for its stock.”
After months of research, you think you’ve found it: the star company whose shares are worth any price. You’re ready to plunk down your money and own a piece of the company’s success. The cost of the stock is of no significance to you; after all, you’re confident that these shares will more than prove their worth.
But Buffett says otherwise. The investing mogul cautions against paying a high price on any stock, no matter how successful the company may be. Instead, he suggests waiting until the market turns a bit and drives down the price on your chosen company. Then, and only then, should you purchase those stocks.
Don’t think you’ll remember every company you’d like to invest in? Make it simple by keeping a list of every business that piques your interest. Any company that seems to be a true industry leader or that you have a good feeling about goes on your list. Add to your list whenever you need to, allowing it to grow as long as necessary. Then, be sure to keep a close eye on the market trends and the prices of stocks. This way, as soon as a company on your list drops in price, you can cash in on the opportunity to own a piece of the business by purchasing shares.
Exercising patience of this kind will help you net impressive capital gains.
Similarly, Buffett warns against overpaying for mutual funds, high recurring fund expenses and “advice” from commission-driven salespeople.
The rule is smart and simple: Never overpay on stocks.