Stock buying decisions are not always easy. Here are some tips

Traders work on the floor of the New York Stock Exchange on July 21, 2026 in New York City. Photo by Spencer Platt/Getty Images files

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In my last two columns, I looked at reasons to sell or hold a stock. This week, let’s focus more on buying. Most investors find buying stocks much easier than selling. After all, there are dozens of brokers and commentators telling you what to buy, research reports are highly skewed toward buying, and long term, buying and holding has produced solid investment returns throughout history.

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Still, buying is never easy. It is putting your hard-earned money at risk and stocks can go down, sometimes a lot. Most investors lament that they seem to always buy stocks just before they decline. Let’s take a look at some points to consider when you are buying.

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Don’t miss the forest for the trees

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If you think you have found a company with the potential to double and triple in value, it probably does not make a whole lot of sense to quibble over a perfect entry price that is five per cent or 10 per cent lower than it is today. If you are right on the potential, that perfect entry won’t matter much. In fact, while you are waiting for that perfect price, what is likely to happen is that the stock will move higher on you, and then you will be then left with a decision to buy at higher prices or wait longer, only to see the stock run away and miss out on the opportunity entirely. To be clear, we are not saying you should be lazy, or throw caution to the wind on valuation, but simply keep the risk versus reward potential in context.

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Most stocks with big winner potential will look expensive

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For better or worse, most companies that have the potential to be big winners will look expensive when using traditional valuation metrics. The silver lining here is that this is a good thing. How? It is good because the market is also validating what you are seeing. The market is saying, “Hey, this company has really big potential. That means we are going to pay a premium to have access to the potential returns here.” From here, the hard questions begin, such as how much of that opportunity is being priced in, but the fact the market is seeing what you are seeing is not necessarily a bad thing. In fact, some of our biggest losers at 5i Research have been names that we see as having big return potential alongside a cheap valuation. In these cases, the market disagrees with what you are seeing via the cheap valuation. Often, an investor expects the low valuation will also offer downside protection, but when it becomes clear the thesis is broken, the low valuation does not offer the protection you might expect. This is not always the case, but if you think you have found a big winner that is also objectively cheap, take a moment to pinch yourself and zoom out to verify the thesis.

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Traditional valuation metrics are sometimes less helpful

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Typically, when looking at high-growth stocks, using metrics such as a simple price-to-earnings (P/E) ratio or price-to-sales (P/S) ratio are not going to be of much help. These are either looking back a single year or looking forward just one year. However, stocks with big winner potential are going to be stories that are in terms of years, not months. In turn, it makes sense that a P/E ratio will look a bit nonsensical because it is only capturing earnings one year out, while the opportunity is likely three years out before it starts to be apparent in the fundamentals. Unfortunately, there is no easy answer to get around this. An investor needs to gain an understanding of what the opportunity might look like in the future, how likely it might be that the company captures it and what that might look like in terms of revenues or earnings.

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Don’t let momentum scare you from buying

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When we talk to investors, they are often surprised when we tell them that some of our best ideas have come from watching the daily new highs in the stock market. In other words, we are often more likely to buy something that has already risen, rather than catch a falling knife (a stock in decline). This ties in somewhat with the idea of expensive stocks, but there is more to it. First, with 5,700 stocks to choose from, we can’t know them all. Sometimes, it takes a rising stock to get our attention. Second, momentum has a nice way of feeding upon itself. Whether it is FOMO (fear of missing out), or multiple expansion as a company gets larger, or the media picking up the story of a fast-rising stock and spreading the word to more investors, a rising stock has a way of maintaining its positive momentum. One thing we will never say is, “The stock has already gone up too much.’ Instead, we will try to find out why it has risen.