There is a number of different ways of looking at the stock price of a stock. I look at relative price because I am usually interested in buying for a very long time. I want to buy a stock that is at least relatively reasonable, especially on a historical basis. I would like cheap, of course, but generally good dividend growth stocks are seldom cheap.
On the other hand, I have found that paying a relatively high price for a stock can really affect long term returns if you are into a stock for the very long term. However, at any given time there seems to be some great stocks selling at reasonable prices.
To say is stock is relatively expensive is not saying anything against a company. It just means that perhaps now is now the time to buy. However, I do not sell a stock that I want for the long term just because it is relatively expensive. A company's stock would have to get into a very high stupid price for me to sell.
Generally speaking, stocks tend to be relatively over and underpriced. I know by theory, stocks are supposed to be fairly priced, but this is not generally so. Also, stocks tend to stay relatively over or underpriced for much longer periods that you think.
If you are looking for a stock to buy and hold over a short term, you would look at the stock price differently. You are more interested in how high the stock can go in the current environment. If you are looking for a momentum buy, you would want to a stock that is going up, that has been rising quite nicely and is expected to continue to rise.
This is riskier than the way I invest, but there are often lots of money to be made in a rising market. The problem only comes when there is a market correction. Of course, if the market correction is a mild one, says 10%, it may not be much of a problem. If it is a big one, like over 30%, this can cause investors problems.
On my other blog I am today writing about Exco Technologies Ltd. (TSX-XTC, OTC-EXCOF) ... continue...
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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