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Subject:  Re: Evaluating a Stock with a "Higher" Date:  8/3/2008  9:01 PM
Author:  mklein9 Number:  3667 of 3816

So if you goal is long term buy-and-hold, then it doesn't matter at all what the price is. Just buy any time and hold. Even if you bought when the price was a bit high or low, within a couple years, this difference will be quickly erased.

Data will help here:

Having bought GE in 1973 would have shown a loss of 50% within a year, and no gain until 1980. By 1990, after 17 years, you would have been at about a 12% CAGR, finally acceptable. Note that these returns include dividends.

Having bought GE in 2000, you would be sitting on over a 40% loss today. That would be pretty disheartening after 8 years, right?

On the other hand, if you had bought GE in 1974, by 1987 when it had completed a long rising run and was above its average growth rate, you would have achieved a gain of 12x, or 1100%, a CAGR of 21% per year. That is pretty impressive.

In other words, I would never ignore valuation, if at all possible. Buy great companies when they are unusually low priced.

Dollar-cost-averaging is not a bad approach as a default, leave-it-alone strategy. But if you follow that strategy, you must do two things absolutely:

1) you must be buying into great companies that have decades of good performance ahead of them, not a biotech or solar energy startup

2) you must dollar cost average regularly, on a set schedule, over a very long time period

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