When last buying price becomes an anchor, most of us face this dilemma. You may consider below thought experiment as a tool to decide:
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Business with Moat+ Long Runway + Proven Franchise: A good fit for one’s LT wealth goals.
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Expected that stock price would compound at the rate of 18%. Looks good. Initial position taken at 19K.
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The price would become 43K, 99K, 227K, 520K and 1191K for horizons of 5, 10, 15, 20, 25 Yrs. respectively (at least in the spreadsheet
) , using the originally assumed compounding rate of 18%. -
Shall one buy more if price becomes 22K? Imagine that the price (hypnotized by the might of the spreadsheet
) would follow trajectory expected after buying at19K. -
A buy at 22K provides a compounding rate of 15~17% for a horizon of 5+ Yrs instead of the compounding rate of 18% , if all was bought at 19K.
So, it’s all about holding horizon and expected growth rates compared to the other best alternative !!!
Data for Ref:
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