One of the eternal investing questions is whether or not to buy a stock after significant gains. The conventional wisdom says investors should wait for a better price point, but that's not always the best advice. This is particularly true in the case of small, high-growth companies, which can continue to climb for years, if not decades.
On this clip from Motley Fool Live, recorded on Feb. 3, "The Wrap" host Jason Hall and Fool.com contributors Brian Stoffel and Danny Vena lay out the case for buying, even after a strong price surge.
Jason Hall: "Looking to start a new position in BOMN," so that's Boston Omaha (BOC -7.66%). But it's spiked something like 20% in the past two days. It has gone on a great run. AJ's question is, "When the stock spikes like this on a company where I have conviction and want to buy, is it better to wait and see if I get better entry points? When is it worth waiting versus buying right away?" The timeless, eternal question here. Brian, I'd love to hear your thoughts on this.
Brian Stoffel: Well, what I would do is ask some questions. The first question I'd ask is why is it up 20%?
Probably because earnings came up, Boston Omaha isn't a company I follow but I'm going to assume that's what it is. If that's the case, read through the earnings and see if you think that a move like that is justified.
I will say this. When the stock market continues to go up and up and up, which almost always does over the long run. Here's a really quick, I'm going to use this later, but I'll pull it up right now. Here's what the S&P 500 has done since 1989. What you're talking about is a move like where this purple line moves a little bit.
If you're a long-term stock investor, then it doesn't matter. It really doesn't matter if you are someone who can hold for the long run. If you're not, that's important to get straight with yourself right now.
But one of my favorite stories ever, David Gardner, when I was getting my training at The Motley Fool, he told the story of how he became a Rule Breaker and it was that he and Jeff Fischer. When they're really young in their 20s, we're looking at Yahoo! This is back when Yahoo! is a big deal. They were like, "If it dips to $22.30, we'll buy-in." and it went down to $24 and they didn't buy. A year later, it was at $200.
That's when he was like, "Man, that was dumb." [laughs] In the long run, those little bits, even 20 percent which might feel like a lot right now. If you hold for 10 years when you're talking about 10 baggers, it will be pennies to you.
Jason Hall: Two things here. Peter Lynch has said that more money has been lost, investors have lost more money waiting for the next downturn than every downturn combined has ever cost. Always waiting for the dip, that's the way it works. Warren Buffett has talked about one of his biggest investing mistakes was not buying Walmart in the late 1980s over three-eighths of a percent in price.
Danny Vena: Ouch!
Jason Hall: Exactly, that's the thing.