If you’re a member of one of The Motley Fool’s investing services, you’ve probably found yourself in this situation: the latest recommendations came out, but you didn’t buy the stock right away. Maybe you were on vacation, maybe you didn’t have the cash on hand, maybe you just wanted to take some time to do your own research (which, by the way, we recommend).
But then a week, a month, or even a year down the road, you’re thinking about buying … but the stock price has climbed. You’re no longer sure you’re getting the best deal possible.
So, should you still buy a stock if it’s above the recommendation price?
The short answer is, It depends.
The slightly longer — and hopefully more helpful — answer is that it comes down to your investing service and your investing style (which hopefully are aligned).
Those services and people who fall more on the “value” side of the spectrum are going to conduct valuations that get them to a share price that they feel a particular stock is worth. Inside Value includes a Buy Around Price with each of its recommendations, for example.
Those on the “growth” end would argue that unless the stock price has absolutely skyrocketed in the time since it was recommended, the investment case probably hasn’t substantially changed. And even if it has skyrocketed, that’s not necessarily a reason to pass.
Overall, both sides encourage people to think in terms of years, not days, and in terms of dollars and not pennies. Beware of being exceedingly strict with the boundaries of your stock-purchasing decisions or waiting for the perfect price.
“As soon as Netflix drops down to $15 a share,” the thinking of an investor in 2005 might have gone, “that’s when I’ll buy.”
If our imaginary investor had bit the bullet and purchased shares of Netflix at $16.50 per share, we’re pretty confident he wouldn’t be bemoaning that extra $1.50 he paid per share as the stock climbed to $500 and beyond.
Our advice is to look at the company, read any and all updates from the team that recommended it, and decide if you think it’s going to be an increasingly great company and stock for the next decade or more. Then act with an eye toward the long term.