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Is It Bad to Buy a Stock Right After a Big Price Jump?

By Motley Fool Staff – May 8, 2019 at 12:00AM

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If you adjust your investing mindset to match your long-term goals, you’ll worry less about short-term price moves.

When the share price of a stock on your watch list takes a healthy leap upward, it's natural to feel like you've missed the boat. "I should have pulled the trigger and bought last month, or last week," you may say to yourself. "Now, it's too late." But is it really?

In this mailbag segment from the Rule Breaker Investing podcast, a listener whose hesitation cost him a piece of Disney's (DIS -2.60%) double-digit percentage rise in April wants to know what to do now. Buy immediately? Wait and hope for a pullback? Give up and move on? To help answer that question, host and Motley Fool co-founder David Gardner has brought back frequent guest Bill Mann, the Fool's global director of small-cap research.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on April 24, 2019.

David Gardner: Let me share one more mailbag item with you, Bill, get your quick input on this one. This comes from Kevin Marcotte. Kevin writes, "Hi, David. Love your podcast along with the many others from The Motley Fool, all helping entertain, educate me on daily commutes from work. I'm also a proud member of the Stock Advisor Canada service. Hope to continue as a member for a long time.

"As you guessed from the title," which was FOMO, basically, "my question for you this month is one that comes with some anxiety. About two weeks ago, I'd saved enough money, I was ready to purchase my latest stock, Disney. Life quickly got in the way. Time slipped by, all while my savings sat in cash waiting to be deployed. I had mixed emotions when I heard Disney's latest plans during its investor day about its details on its new Disney+ movie rental service. I was happy to see the stock soaring over 11% on the news. However, I felt very foolish for forgetting to purchase the stock earlier that week. Now I'm sitting here feeling like I missed out on the pop and the opportunity to purchase the stock has passed."

Bill Mann: My simple question is this: Would you have bought the stock in order to gain 11%? Is that your end goal? Maybe we should come up with a new acronym or a portmanteau. We'll call it ReBi, recency bias. Yes, the stock went up very quickly in the last two weeks on the heels of this announcement. I suspect that there will be challenges behind this announcement as they roll it out. I think you're going to get plenty of opportunities. But if Disney is the company that you wanted to own 11% ago, it's still the company that you want to own today.

Gardner: That is so well put! Kevin closes by saying, "Maybe I'll let the stock ride out the news a bit before ultimately buying anyway? Buy it right away, knowing I believe that long-term the company is going to beat the market. I realize this may be small in the long term." And I think with that line, he's showing, Bill, that he has the Foolish mentality ultimately. I love your concept of, would you have bought that stock just for that 11% gain? I don't think many of us would. I know all of us here at The Motley Fool focus on the businesses themselves, not the stock price movements. Always thinking about three-plus years. We wouldn't ever do it that way.

​Mann:​ Absolutely not!

Gardner: So are you saying to Kevin, just go out and buy it now?

Mann: Here's what I would say. If you really do actually feel bad that the stock has moved, maybe especially if you've gone and gotten your free trades from your broker, buy a little bit. Get a stake in the ground. You can buy more over time. Don't worry about the fact that you have missed what's happened over the last two weeks. No more ReBi. Let's just get into the mindset of buying for the long term. You will be just fine. Disney is about as good a vehicle as you can get to get there.

Gardner: Thank you, Bill!

Mann: You're welcome, David! Thanks for having me!

Bill Mann has no position in any of the stocks mentioned. David Gardner owns shares of Walt Disney. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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