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When To Buy Shares

What is it about a “SALE” – almost any “SALE” you care to mention – that can bring out the worst in some people? I experienced a bit of it first-hand, just the other day.

So, there I was wandering around a famous Japanese department store on Orchard Road last weekend, when I was unceremoniously manoeuvred aside by an impatient shopper.

Yes, you guessed it – it was “SALE” time at Takashimiya.

Scrum down

Apparently, I was at the receiving end of a hand-off from a shopper, who could have put many international rugby players to shame. I then watched in disbelief as the shopper side-stepped a throng of people, just to touchdown at the handbag section, ahead of other bargain-hunters.

Why do people do that?

At any other time of the year, most of us could wander leisurely around the store. But not at “SALE” time.

Such is the behaviour of shoppers, who, it seems, can smell a bargain from ten-paces. It can turn normally mild-mannered consumers into gannets.

Bagging a bargain

The key to bargain-hunting, it would appear, is to recognise a good deal when we see one. After all, who wants to pay full price, say, for a designer handbag, when we can pick it up for a fraction of the normal selling price?

The same should apply to hunting for stock-market bargains. But, for some reason, it doesn’t.

When share prices are high, investors want a piece of the action. But when shares are on sale, the opposite happens – people are not that interested, anymore.

Why is that?

This has baffled many seasoned investors. Peter Lynch, for instance, once said: “People invariably feel better after the market gains 600 points and stocks are overvalued and worse after it drops 600 points and the bargains abound.”

Warren Buffett quipped: “The dumbest reason in the world to buy a stock is because it is going up.” But there are many people who do precisely that.

Buy high?

Instead of investing when stocks are cheap, they would much rather wait until shares are expensive, before they whip out their wallets. It is quite irrational.

Perhaps they are waiting for a “sign” from the market, before they commit their cash.

But as Peter Lynch pointed out: “There’s never been a market timer on the Forbes rich list. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.

But no one has.

Truth is it is very hard to do well from investing, unless we are prepared to think independently. That means working out for ourselves what an asset is capable of producing over its lifetime.

If we can do that successfully, then it could be the first important step we take to stop fixating over the price we pay for a stock. That is not an easy feat to achieve, though.

A routine

But unless we can train ourselves to buy shares in good companies at a good price for the long term, and keep them whilst they are good companies, we are never going to make money from investing.

About a month ago, the Straits Times Index (SGX: ^STI) was at levels not seen for nearly three years. How many, I wonder, had the courage to buy? At the time just about every blue-chip stock – from resources stocks to property shares – was selling at a discount.

Today, Jardine Cycle & Carriage (SGX: C07) is 17% higher; SingTel (SGX: Z74) is up 10% and Sembcorp Marine (SGX: S51) is 12% more expensive.

Our routine for investing should be straightforward – almost to the point of being boring.

We should constantly look for companies that are undervalued. You are likely to find them in industries or markets that are out favour.

So start looking now. Set up a watch list today of the good stocks that you would like to own. And when the window of opportunity opens, just take it.

In the words of Warren Buffett: “The way to wealth is as plain as the road to the supermarket. It depends on two words, industry and frugality.”

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.