# Why buy high?



## Saintor (May 18, 2019)

Newbie here. I use NBC Brokerage website, the majority of my assets are in funds and am doing my little experiments

On their site, there is a feature named 'Value Analyzer' by Trading Central . It tells you where the stock is under or over-evaluated and the projection of return in the next 5 years. I did a quick search on internet, and here is one representative;



Avatrade said:


> As a third-party source of analysis and information Trading Central is unsurpassed and well-known to be reliable. In fact, because of the quality of the data it provides it has been added as a certified member of three Independent Research Providers associations: Investorside Research, Euro IRP and Asia IRP.


Case in evidence, I was going to buy BCE (thanks to the 5% dividends) and then, this tool tells me that it is massively over-evaluated and its projected return over the next 5 years is -15% per year! At the other side of the spectrum, according to them, one them, LNF, is under-evaluated; its projected annual return would be a whopping 48% (!) in the next 5 years.

Their list of under-evaluated Canadian companies is nothing compared to American ones, much more appealing.

I understand that those advisors are not to be trusted by default, still... the question was why buy HIGH at the first place? I watched a video about Buffett/Munger (what a guy) and their constant message is about buying low (read:under-evaluated).


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## james4beach (Nov 15, 2012)

Saintor said:


> I understand that those advisors are not to be trusted by default, still... the question was why buy HIGH at the first place? I watched a video about Buffett/Munger (what a guy) and their constant message is about buying low (read:under-evaluated).


Definitely, it can be good to buy low, if for example the company is under-valued by the market, or if they have very good long-term prospects but are currently in a rough patch.

However in practice I think many people get into a lot of trouble trying to "buy low" because they end up buying terrible companies which are deteriorating. In many cases, companies have low valuations because they stink!

If you like the idea of buying under-valued companies, you should look into *systematic value investing* which can actually be done with low fee index ETFs. Some examples of funds which do this are VTV (Vanguard Value) and IJS (iShares Small Cap Value)

The systematic approach is a better way to do this, because they would look at under-valuation using metrics. However, the problem is that even with all this work, it's very debatable whether those "value stocks" will outperform a broad benchmark like the S&P 500 over the long term.

That Vanguard Value ETF for example has actually underperformed the S&P 500 since inception, 17 years ago.
iShares IJS on the other hand, has outperformed the S&P 500 since inception, 21 years ago.


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## Beaver101 (Nov 14, 2011)

Saintor said:


> Newbie here. I use NBC Brokerage website, the majority of my assets are in funds and am doing my little experiments
> 
> On their site, there is a feature named 'Value Analyzer' by Trading Central . It tells you where the stock is under or over-evaluated and the projection of return in the next 5 years. I did a quick search on internet, and here is one representative;
> 
> ...


 ... simple answer: sell higher! A friend of mine's does that. Mind you, gotta have an extremely strong stomach for that especially it doesn't go higher after buying high.

Btw, is NBC a discount brokerage with the National Bank (of Canada)?


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## Ponderling (Mar 1, 2013)

There are times to buy in at highs, like when the business has made an acquisition, or secured a new strategic client etc, so that the prospect of higher future profits than the past are a reasonable expectation.


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## Rusty O'Toole (Feb 1, 2012)

There is an old, old story about a Rothschild who was asked how to make money in the stock market. He said " I have a simple method that never fails. I never buy at the bottom and I always sell too soon. I find as long as I do that I can't help making money." If you never buy at the bottom you are going to be buying as the stock hits a new high, on the way to even higher highs.
Having said that, you want to buy as soon after the bottom is in as you can.


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## sags (May 15, 2010)

The market is never wrong, because it is the market where you have to buy and sell your stocks.

The market might not make any sense. It might be totally insane......but it is the market you deal in.

People sometimes forget that bit. Just ask Cathie Wood about her funds that she says are "severely undervalued" when she states "investors are wrong".

Well.......maybe she is 100% correct and the investors are all wrong, but it really doesn't matter because her fund is down 65%.......right or wrong.

Buy good quality companies and hold them forever. That is how Berkshire Hathaway investors got rich.


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## TomB16 (Jun 8, 2014)

Saintor said:


> I understand that those advisors are not to be trusted by default, still... the question was why buy HIGH at the first place? I watched a video about Buffett/Munger (what a guy) and their constant message is about buying low (read:under-evaluated).


Saintor, there are a ton of videos on YouTube that directly misrepresent Buffett/Munger. You seem to have fallen into their incorrect message.

I suggest looking for longer interviews which are not spliced together sound bytes separated by a 3rd party explaining what they are saying. The explanations are *always* a misrepresentation. Listen to the men themselves. They speak directly and their message is clear without any interpretation.

In fact, this is a direct quote from a Berkshire shareholder letter: “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - W. Buffett


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## Tostig (Nov 18, 2020)

sags said:


> ...
> People sometimes forget that bit. Just ask Cathie Wood about her funds that she says are "severely undervalued" when she states "investors are wrong".
> 
> Well.......maybe she is 100% correct and the investors are all wrong, but it really doesn't matter because her fund is down 65%.......right or wrong.
> ...


That scene in The Big Short where Michael Burry tells the people at Goldman Sachs that everybody is wrong. Well, it took him three years to be proven right.


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## TomB16 (Jun 8, 2014)

The entire foundation of value investing is to find cases where the market is wrong.

If I thought the market was always right, I would be an index investor and simply try to capture the entire market.

Oddly, both approaches work.

Broad index investing works almost all the time while value investing often does not work. Unfortunately for me, I am a value investor. lol!


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## MrMatt (Dec 21, 2011)

sags said:


> The market is never wrong, because it is the market where you have to buy and sell your stocks.


Nope, the market is almost always wrong, but so is almost everyone anyway.

If you think it's too high, don't buy.

Or index and ignore all that valuation stuff. << this is a documented winning strategy (or at least "not losing" strategy)


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## Saintor (May 18, 2019)

TomB16 said:


> Saintor, there are a ton of videos on YouTube that directly misrepresent Buffett/Munger. You seem to have fallen into their incorrect message.
> 
> I suggest looking for longer interviews which are not spliced together sound bytes separated by a 3rd party explaining what they are saying. The explanations are *always* a misrepresentation. Listen to the men themselves. They speak directly and their message is clear without any interpretation.
> 
> In fact, this is a direct quote from a Berkshire shareholder letter: “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” - W. Buffett


"At a fair price" is the problem IMO. Most "wonderful companies" appear to be over-evaluated, thanks to speculation and I wouldn't be surprised if they would agree. I must be missing something. BTW, I watched a lot their videos. Munger is quite a character.


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## Ponderling (Mar 1, 2013)

In times of turbulence I think of Mr. Market as a hypochondriac manic depressive of his meds. When things go bad they almost always go worse than bad for a fe hours of days before calmer heads step in and recognize the likely good buying opportunity.

i jumped to add more MG at 78 after 6 russia plants idled. 

I bought into SHOP recently at 1100. That one might take quite while to see if I am right.


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## Saintor (May 18, 2019)

Ponderling said:


> i jumped to add more MG at 78 after 6 russia plants idled.


What would be the connection? MG= Magna, right?


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## TomB16 (Jun 8, 2014)

Saintor said:


> "At a fair price" is the problem IMO. Most "wonderful companies" appear to be over-evaluated, thanks to speculation and I wouldn't be surprised if they would agree.


They absolutely do agree with your assessment. They have said it is extremely difficult to find good value in the current market.




Saintor said:


> I must be missing something. BTW, I watched a lot their videos. Munger is quite a character.


Munger has all the tact of a Trump supporter at a town hall meeting.


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## TomB16 (Jun 8, 2014)

It's real hard to come to the market with a bunch of money, right now. For an index investor, the right thing to do is put the money in, at the earliest moment. For a value investor, it is substantially more difficult.

We added a bit to a couple of positions in the last 10 days. Occasionally, a long term limit order will fill.

We are newly retired and cash heavy. We still have 6 years of cash sitting around. My goal is to have three years. The six year number is going up far faster than we spend it. At least, for now. Plus, we have more R-E to sell this year. We are going to be awash in cash, by the end of the year. Something will have to be done with that money to prevent inflationary erosion.

It's easier to bolster existing positions than it is to start from scratch. We could take a pretty wild hit on most of our positions and still exclusively see green in our brokerage interface. That makes it easy to be pragmatic.

Values exist, even now. They are just more difficult to find.

If you find something you like, you could always post a limit buy order at your value number and just leave it open for a couple of months. In times like these, anything could happen.


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## Ponderling (Mar 1, 2013)

Saintor said:


> What would be the connection? MG= Magna, right?


yep.


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## james4beach (Nov 15, 2012)

TomB16 said:


> The entire foundation of value investing is to find cases where the market is wrong.


And what's interesting, if you look at the research into value investing, is that the "value premium" (extra returns found through beaten down stocks) is highly unreliable.

There are periods as long as 30 or 40 years with no benefit seen from investing in value stocks. This has been pretty well established by the big shots in this field such as Paul Merriman based on the research by the famous Fama & French.

So whether it's worth trying to invest in "value" is an open question. Maybe if your time horizon is 50 years, yeah sure.

But let's say we're talking about the next 20 years. You could either invest in an index, or in value stocks. You can flip a coin as far as which method will come out ahead.


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## hboy54 (Sep 16, 2016)

I do fine with value stocks, but actual stocks, not a value stock index fund. Over the years, I have purchased TECK under $5, HCG unde $7, MX around $8, Norbord (bought out) under $10, all the BTE I purchased in and around 2020 at average $0.43, hell even the small amount of BMO I own from 2020 has a cost of around $62. I could give other examples.

To people paying attention and sufficiently brave, value situations show up with great regularity. The problem is mostly with "sufficiently brave". The average brain doesn't process risk in a way that allows them to grab these opportunities.


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## MrMatt (Dec 21, 2011)

james4beach said:


> And what's interesting, if you look at the research into value investing, is that the "value premium" (extra returns found through beaten down stocks) is highly unreliable.
> 
> There are periods as long as 30 or 40 years with no benefit seen from investing in value stocks. This has been pretty well established by the big shots in this field such as Paul Merriman based on the research by the famous Fama & French.
> 
> ...


The market can be wrong to a HUGE degree for a LONG time.

If you're able to exploit that repeatedly, good for you, but it's very unlikely.

While there are obvious market errors (Gamestop), they are, at the portfolio level, insigificant.


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