This past week, I realized that I made a fairly novice mistake with my dividend growth investing. This mistake didn’t cost me to lose any money. However, I realized that I was worrying about something when in the grand scheme of things it was pointless to be worrying.
Last week, I made the decision that I was ready to make my first purchase of Visa (V) shares. I’ve been watching/interested the company for awhile and finally decided I was going to pull the trigger and add some shares to my portfolio.
I like Visa a lot. More and more people are switching from using cash to using credit cards to pay for everything they purchase. In my own house we use credit cards for everything. We are collecting points to use for air travel and as long as we pay our bills in full each month, we incur no additional interest charges or fees.
It is my belief that credit and debit card usage will continue to grow and become more popular worldwide. Visa is a dividend growth company set up to be one of the leaders in this electronic payment society.
Currently, Visa trades with a P/E ratio around 25. This is normally higher than I am willing to pay for any of my companies. However, Visa also offers high growth opportunities as they have had 5 year net income and earnings per share growth both over 20% compounded annually. I decided I was going to take the chance and pay a little higher valuation for Visa than I would normally be willing to accept on other companies.
So last Monday, I was ready to pull the trigger. But when I logged onto my brokerage account, I saw that Visa was up around 0.50% for the day. For some reason, it is difficult for me to psychologically make a purchase when a stock is having an up day. I decided I would wait until the next day when I figured the stock would come back down.
But Visa stock didn’t come back down. Instead, the stock continued to go up in price. I felt like I missed out. Last week, Visa stock climbed every day of the week for a total gain of 3.1%.
I failed to ever pull the trigger. I continued waiting around thinking that the stock would have a down day soon and I would get a better entry price.
And now, I still sit here without having any shares of Visa stock in my dividend growth portfolio.
Why This is Stupid
I was talking to my wife about not actually making the Visa purchase and I came to a realization.
This is absolutely stupid!
For some reason I psychologically have trouble purchasing a stock when it has an up day. But in the grand scheme of things, it really isn’t going to make a big difference on my overall wealth.
I am a long term investor. I am purchasing stocks for the 20, 30 and even 40 year time frame! Do you think that over a 40 year time frame it is really going to matter if I paid a couple percentage points higher for a stock?
The answer is absolutely no!
When you are ready to make a purchase, just go ahead and make the buy! If you have decided that the current valuation of a company is good enough for you, then an increase by a couple percent shouldn’t change that valuation enough to all of a sudden make the stock overpriced and not worth buying.
Especially when you look at it from the viewpoint of a long term investor. Truthfully, the longer you own a stock the less important the price you purchased it for becomes.
No, you can’t go around buying stocks no matter the valuation. You don’t want to buy stocks at ridiculous valuations. But, time is the friend of the long term investor and time can help make up for small mistakes. If you pay too much for a stock, time is your friend and as time goes by that price you paid will become less important.
As long as you are picking companies that are growing their profits, growing their earnings per share and growing their dividends, then your entry price will soon become irrelevant. This is because as companies grow their earnings per share, the company will become worth more and the price of the stock will naturally increase. Over 20, 30 or even 40 years this stock price will increase by a lot. You could be looking at 100%, 200% or even 500% increases in company values.
When you are expecting your companies to increase by large values over long time frames, it becomes less and less important that you paid maybe half a percent more than you possibly could have for a stock.
My mistake was that I worried too much about purchasing shares of Visa at a slightly higher price than I could have just the day before. My bigger mistake was allowing the slightly increasing price to keep me from making my purchase.
Over the long run, it would have made no difference in the overall success of this investment. If I’ve done my research right, if I know Visa is a good company that will continue to grow profits, if I am comfortable with current valuation of the company, then I should be fine picking up shares of Visa even after the 3% increase I watched the company go through last week.
When I’m ready to make a buy, I’m not going to worry about what the stock is doing. I’m not going to let a market increase or decrease affect my decision of buying. I’m going to go ahead and pull the trigger.
When the market opens today, I’m going to pull that trigger. I’m going to be adding Visa as my newest holding in my dividend growth portfolio.