From Dividend Growth Stock Investing:
When it comes to buying stocks, one of the most important pieces of advice is to not overpay. The price you pay for the companies you buy can make or break your investment. Even a bad company could turn out to be a great investment if you buy it at a great price, while even the greatest of companies may turn out to be an awful investment if you invest when it is priced way too high.
Typically, I have new capital ready to invest each month. When I am ready to decide what company I would like to purchase, I have a two-step process. First, I review the companies that make up my stock watch list, as these are the companies I have decided I would like to own. I look over my watch list to get a rough idea of what companies might be currently trading at the lowest valuation.
Once I have an idea of a few companies from my list that I believe are currently trading at low or fair values, I will do a deeper stock analysis of those companies and calculate out future expected returns of a current investment. Once I've gone through this process, I then decide which company or which companies I will currently buy depending on how much current cash I have available for a purchase.
A question that sometimes gets asked is how I determine which stocks I believe to currently be trading at decent values that I will then look further into. The answer is pretty simple...
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