Expensive company Investment?

Prism

There also might be better things to spend your money on. Maybe company A is wonderful, you have been watching it for a while and it has recently had a price dip. However company B which you already hold you believe is even better so you keep your cash where it already is.

tebbins

Mark2016 said:

I understand that some companies can be cheap/expensive and I know about PE and  PEG ratios,, but I don't understand the correlation between an expensive company whose share price has dropped.

There is no 'correlation' there. The relationship is:
ABC plc earned £100m profit over the last 12 months

Its share price is £10, there are 200m shares, £10 x 200m means the company is worth £2bn. Alternatively, earnings are £100m there are 200m shares therefore earnings per share are 50p.
The PE or price earnings ratio is:
The price per share £10 / earnings per share = 20 = the market cap £2bn / earnings of £100m
If the share price goes down 10% to £18, the market cap goes down 10% to £1.8bn, but earnings haven't changed, then the PE has gone down 10% from 20 to 18.
If earnings have fallen 10% to 45p/share, but the price went up to £11/share, then the PE went went from 20 to 11/0.45 = 24.44

It's like the speed = distance / time formula.
PE = price / earnings.

The point this article is making is "so what the share price has fallen a bit, it's still expensive".

Edit: you don't buy something because it's dipped, you buy something you want to buy at a price you think is below or equal to what you think it is worth, and you carry on buying, and if it dips, great.

solidpro

Funny I never saw Charlie Sheen in Wall Street looking for stock advice on MSE..... Seems like they'd all be at it.

Carillion had a dip, cheaper than it had been. Would that have been cheap 3 weeks before implosion?

Albermarle

Funny I never saw Charlie Sheen in Wall Street looking for stock advice on MSE

How do you know, he might be hiding behind his forum username 

csgohan4

You can over analyze and the share price still doesn't behave how you want it. Look at TSLA, who imagined it would drop 30% in a matter of days earlier in the year? Or how about ABNB and how it has dropped >40% of it's highs. 

Individual shares is still gambling imo, you really do not know truly where it will go. Sure it might be up, but the journey on the up might give you sleepless nights. 

While index funds do and will drop, they will usually bounce back, because they are not leveraged on 1 company and hence the risk is mitigated a little, but not completely. 

It is a gambler's mentality to think, if I had invested at this time I would have got back x10 in value and looking for the next one to take a punt.  Take AMC, if you invested prior to xmas you would have got back >x40  it's value. Who would have thought, a debt ridden company, with big producers opting for streaming it's share price would rocket. Sure the Reddit crowd may have helped. Sometimes share prices do things we cannot anticipate all the time. 

If I could do it again, I would not invest in shares.