Should you buy ASX shares at all-time highs?

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Ladder climbing to higher target

Although the S&P/ASX200 (ASX: XJO) index – the accepted measure of the broader ASX share market – has yet to reach back to the new all-time high it hit in July, everything seems to still be humming along nicely and new ASX shares seem to be hitting individual highs every day. Just in the last day (as my Foolish colleague James Mickleboro reported) Austal Limited (ASX: ASB), Baby Bunting Group Ltd (ASX: BBN) and iSignthis Ltd (ASX: ISX) either hit 52-week or all-time highs.

But this begs the question, should you be buying shares when they are at either their highest point in a year, or even ever? Well, a value investor might tell you in no uncertain terms ‘no, never, not under any circumstances’. But I think the answer is more complex.

Partial to a bit of value investing myself, I don’t think it’s a good idea to buy in at the top, generally speaking. After all, the golden rules of investing are ‘buy low, sell high’ and ‘don’t lose money’. Jumping in at a 52-week high would usually constitute ‘buying high’ and gives you a higher chance of ‘losing money’, especially if there is some kind of market correction.

Take everyone’s favourite growth share Afterpay Touch Group Ltd (ASX: APT). Sure, it’s near its all-time high that it only made this week. But I don’t believe the company’s fundamentals are solid enough to justify its current valuation. If there were a stock market crash tomorrow, I wouldn’t want to be holding this company and I think waiting for a dip would be a better strategy if you wanted in on Afterpay.

But there are companies that are growing so quickly and in such a robust way that they are rarely too far away from their highs. CSL Ltd (ASX: CSL) is one that comes to mind. If you look at the CSL share price, it is very hard to find a good ‘buy the dip’ opportunity, even in hindsight.

CSL Ltd Chart and Price Data 5y 2019

The company is perpetually looking expensive, but it’s because CSL has been able to grow so effectively for so many years. I even owned this stock once, but foolishly sold it after booking a big gain (a gain that would have doubled if I had held on).

If you were hoping to own CSL, I don’t think it matters too much when you buy because of its rock-solid business model. For one thing, it’s actually profitable (and handsomely so). For another, it’s in an industry that will never be out of need.

Foolish Takeaway

Some shares can justify a buy at high prices, but not all! It’s durability and growth of earning that is the most important thing to consider. Also keep in mind, even if you’ve already bought in at a high price, you can always load up on some more shares if there’s ever a dip!

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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