When to buy a Great Business that is Overvalued?

Dear friends,

I have shared on a number of ways to valuate a business and the textbook answer is to buy businesses when they are undervalued.

But what if we found a business we really like and it is overvalued at the point of time we are looking at it?

Of course again, the “correct answer” is to wait for the price to drop and when Mr Market give us a good chance to buy…

In this post, allow me to be a little controversial and say that we can choose to buy that great business even when it is overvalued.

What?? Isn’t that a lack of discipline?

Well, i got this idea when Chong Ser Jing, told me that Thomas Engle, a very seasoned investor shared that he likes to buy a great business even when it is overvalued. He will then wait for better entries after that.

When i heard this, I was intrigued and this was wise sharing from an investor from the streets. Someone full of experience. Why do i say so?

Because based on my experience, I have many times found great businesses that were overvalued at that point of time i was looking at them. I will then place them under my radar for a while then guess what happens? I will forget about them and before I know it, i would look back some time later and found that I missed great entry points.

But if i had just bought a very small amount of the stock and have it in my brokerage, I would still be reminded of them and will be able to passively be notified of the stock prices.

But what if the prices never come down? Then i would have bought these small amount of stocks which is increasing in price… meaning to say i am still profitable!

That being said, do take into account of the brokerage charges as these are real costs to an investor.

Lastly, just want to share an interviewed done by Sudhan with Thomas Engle.

Coffee with FFN and Thomas Engle

Hope you enjoy this post and i look forward to your comments!

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Mind Kinesis Research Team

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