Share valuation is not an exact science. Your valuation will never be exactly right, but by setting yourself some limits, you can reduce the risks that come from overpaying for shares.
However, there is some evidence to suggest that paying what might seem to be a moderately expensive price (slightly more than the suggested maximum) for a quality business can still pay off in the long run. The caveat here is that you have to be prepared to own shares for a very long time. Perhaps forever.
The way people invest is changing.
Many people are not building a portfolio of shares during their working lives to cash in when they retire. An increasing number will have a portfolio that may remain invested for the rest of their lives. For them, a portfolio of high-quality shares of durable companies may help provide them with a comfortable standard of living, with the initial price paid for the shares not being too big a consideration.
Shares of high-quality businesses are scarce
We have to remember that the shares of high-quality businesses are scarce. This scarcity has a value and might mean that investors undervalue the long-term value of them.
The ability of high-quality companies to earn high returns on capital for a long time can create fabulous wealth for their shareholders. This is essentially how investors such as Warren Buffett have built their fortune.
Can quality be more important than price? YES!
High-quality companies with high and stable returns on capital have created substantial wealth over the decades.
Few if any of the shares could have been bought for really cheap prices.
In many of the cases, the enduring quality and continued growth of the company could be seen to have been more important than the initial price paid for them.
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