Iíve come to a bit of a road block and want some clarification.
Iím working out on excel whether it would be better to invest into a stock now or wait until it gets cheaper/earnings increase to make it better value. The quick calculation Iíve done is comparing if I buy a stock now and hold it for 7 years or if I theoretically wait and buy it in two years.
Iím assuming EPS, dividends grow at 10% p/a for the entire 7 years and that I will only buy if I can get a 15% p/a on the stock investment.
However, Iíve worked out if I wait the two years, even though in year 2, I will begin making 15% p/a on the investment, when averaged over the entire 7 years the return per year reduces to 10.5% p/a because it was sitting in cash earning nothing for 2 of those years.
Iím a bit confused as how to best effectively use cash in my portfolio. I want it there so it is accessible to be able to buy bargain stocks, but then I donít want it sitting there for years at a time bringing down the overall return of my entire portfolio.
I guess the argument is whether to be fully invested or just buy when the stocks become cheap.