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why cheap still matters when investing long twerm

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Valued Contributor
you make money three ways from buying a stock ..

increase in earnings pushes price higher
increase in dividends pushes price higher and gives cash flow
re-rating of PE from 'cheap' to 'expensive'

now if you buy when expensive you give up one of the three legs that make profit, that's a big deal
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Frequent Contributor
Hi Simon Been reading a book "How to make money in stocks" by William J. O'ne. He suggests you only buy stocks when they peak. The idea being cheap stocks are cheap for a reason. CML and APN are examples of shares that have looked expensive but just keep going. Your thoughts ?
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Valued Contributor
sure that be momentum investing, above more value style .. momentum works great but in above I looking at buying and holding ideally forever .. yes cheap is cheap for a reason, retailers due to moving way expensive have pulled back and consumer under pressure .. but the quality rises again .. important they are not cyclical stocks
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Frequent Contributor
Thanks Simon, I get it so the difference is in the objective of the investment. Stupid questions, what is actually meant by cyclical stocks ?
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Super Contributor
Timing is also important. Buy when the shares is trading at long term support (should extend more that 12 months) and trading below the 200 EMA and ALL the bad news has been priced in.
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Super Contributor
Im not convinced by this, the 3 points as you as you have laid them out, would need to be in balance, this argument comes down to value vs momentum (ie growth), in value the third component would be the greatest of the three, where momentum, the first 2 wld be the greatest, doesnÂ’t explain if one is better than the other, surely the sum of all three would be all you are interested in?
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Super Contributor
first, one needs to determine what "cheap" is..the woolies blanket analogy during the 75% sale explains it...and rememebr you buying it in the summer when when nobody sees any value in it...
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Super Contributor
Timing is also important. Buy when the shares is trading at long term support (should extend more that 12 months) and trading below the 200 EMA and ALL the bad news has been priced in.
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Valued Contributor
that is assuming you can see into the future re all the bad news
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Super Contributor
current share price reflect current bad news.
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