What the Masters Would Say
This is one of the most universal dilemmas in investing, and the honest truth is humble: nobody knows where the bottom is. Not hedge fund managers, not economists, not television commentators, and certainly not anonymous social media commentators who claim otherwise.
Trying to catch the absolute lowest price is a form of market timing that even the most sophisticated professional investors cannot do consistently. Seth Klarman, who has generated exceptional returns for decades, reframes the question helpfully: stop trying to buy at the bottom and focus on buying at a price that offers an attractive risk-adjusted return. A stock does not need to be at its absolute lowest point to be a good investment -- it just needs to be significantly below what you believe it is worth.
Warren Buffett reinforces this with his famous baseball analogy: in investing, there are no called strikes. You do not have to swing at every pitch. If a stock has an attractive valuation right now, you do not need to wait for it to get even cheaper. Conversely, if it is not clearly undervalued, there is nothing wrong with sitting on cash and waiting for a better opportunity.
Howard Marks teaches that good decisions can produce bad outcomes in the short run, and bad decisions can produce good outcomes in the short run. What matters is the quality of your process, not whether you happened to buy at the exact lowest point.
Benjamin Graham recommended a systematic approach that removes emotion entirely: determine your target allocation and invest at regular intervals regardless of market conditions. This approach, known as dollar-cost averaging, ensures that you buy more shares when prices are low and fewer shares when prices are high, naturally improving your average purchase price over time.
Here is a practical approach that eliminates guesswork entirely:
Your Action Plan
2. Buy the first portion at current prices if the valuation is attractive.
3. Set price levels for subsequent purchases -- for example, buy the next portion if the stock falls another 10-15%.
4. Accept that if the stock goes up immediately, you still have a profitable position, just a smaller one.
5. Evaluate the business fundamentals, not the stock chart, when making each buy decision.
The Bottom Line
Dollar-cost averaging is not a sign of indecision -- it is a disciplined strategy that reduces regret and improves average entry prices.
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Principles That Apply
"Most investors are primarily oriented toward return. We are primarily oriented toward risk. Return will take care of itself if we manage risk well."Read Full Principle →
"The stock market is a no-called-strike game. You don't have to swing at everything — you can wait for your pitch."Read Full Principle →
"First-level thinking says, 'It's a good company; let's buy the stock.' Second-level thinking says..."Read Full Principle →
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