Category: Stock Market

Are you looking for ASX income stocks to buy this month? If you are, it could be worth looking at the two in this article.

That’s because they have recently been named as buys by Morgans and tipped to offer attractive dividend yields.

Here’s what the broker is saying about them:

Cedar Woods Properties Limited (ASX: CWP)

Morgans thinks that this property company could be an ASX income stock to buy. In fact, the broker rates the company high enough to have it on its best ideas list with an add rating and $5.60 price target on its shares.

It believes company’s shares are undervalued and deserve to trade on higher multiples. It said:

CWP is a volume business and the demand for lots looks to be improving, with margins to invariably follow. CWP’s exposure to lower priced stock in higher growth markets sees further potential to drive earnings. On this basis, we see every reason for CWP to trade at NTA and potentially at a premium, were the housing cycle to gain steam through FY25/26.

As for dividends, Morgans is forecasting dividends per share of 18 cents in FY 2024 and then 20 cents in FY 2025. Based on the current Cedar Woods Properties share price of $4.48, this will mean dividend yields of 4% and 4.5%, respectively.

Dexus Industria REIT (ASX: DXI)

Another ASX income stock that Morgans rates highly is Dexus Industria. It is a real estate investment trust with a focus on industrial warehouses.

The broker currently has an add rating and $3.18 price target on its shares.

Morgans thinks that Dexus Industria is well-placed thanks to strong demand for industrial property and its development pipeline. It explains:

The portfolio is valued at $1.6bn across +90 properties with 89% of the portfolio weighted towards industrial assets (WACR 5.38%). The portfolio’s WALE is around 6 years and occupancy 97.5%. Across the portfolio 50% of leases are linked to CPI with the balance on fixed increases between 3-3.5%. While we expect cap rates to expand further in the near term, DXI’s industrial portfolio remains robust with the outlook positive for rental growth. The development pipeline also provides near and medium-term upside potential and post asset sales there is balance sheet capacity to execute.

In respect to income, the broker is forecasting dividends per share of 16.4 cents in FY 2024 and then 16.6 cents in FY 2025. Based on the current Dexus Industria share price of $2.97, this will mean dividend yields of 5.5% and 5.6%, respectively.

The post 2 excellent ASX income stocks to buy this month appeared first on The Motley Fool Australia.

More reading

• Best ASX real estate shares to buy right now
• 2 of the best ASX dividend stocks for income investors to buy in June
• 2 ASX dividend stocks to buy in June
• Broker says these ASX dividend shares are top buys
• Morgans says these ASX stocks can rise 20% (and pay big dividends!)

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Despite the Australian share market currently trading within sight of its record high, not all ASX shares are faring so well right now.

In fact, there are a large number of ASX shares that are currently at or around their 52-week lows.

And while not all of these are buys and some deserve to be down there, a couple that could be in the buy zone are listed below. Here’s what analysts at Morgans are saying about them:

Karoon Energy Ltd (ASX: KAR)

The Karoon Energy share price dropped to a 52-week of $1.71 today.

The team at Morgans is likely to see this as a buying opportunity. It has the ASX energy share on its best ideas list at present. It commented:

Unique as a reasonable scale pure conventional oil producer, benefitting directly from rising oil prices. Karoon has significant net cash and is fully funded through a doubling of production over the next 12 months. There are also potential catalysts just around the corner with Karoon flagging at its recent result that it plans to shortly update the market with more detail on its growth plans, Bauna’s outlook, and its ESG approach.

Morgans has an add rating and $2.80 price target on its shares. This implies potential upside of over 60% for investors.

Tyro Payments Ltd (ASX: TYR)

The Tyro Payments share price sank to a 52-week low of 77 cents on Tuesday before ultimately ending the day at 77.5 cents.

In recent years Tyro has built a significant presence in the Australian payments industry. In fact, with around 70,000 merchants on its network, it is only behind the big four banks in respect to number of terminals in the market.

And while investors don’t appear enamoured with the ASX share right now, a good number of brokers are positive on Tyro and see it as a buy. One of those is Morgans, which has it on its best ideas list. It said:

TYR sold off heavily in 2023 affected by the broad pull back in technology stocks and overall concerns regarding its earnings trajectory. However, we believe FY24 will show significantly improved business momentum, importantly driven by a much greater focus on lifting overall profitability. TYR still trades at a significant discount to valuation.

Morgans has an add rating and $1.47 price target on its shares. This suggests that the ASX share could double in value over the next 12 months.

The post 2 ASX shares to buy that are near 52-week lows appeared first on The Motley Fool Australia.

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The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

ASX investors love a good initial public offering (IPO). And we just might get to see one of the biggest ASX IPOs in years when Mexican fast food chain Guzman y Gomez floats on the Australian stock exchange later this month on 20 June. But should ASX investors buy Guzman y Gomez shares as soon as they can?

IPOs are exciting, there’s no question about it. It’s interesting to see how the public markets value a company when the shares float for the first time. Plus, it’s always worth getting the popcorn out to watch the usual share price rollercoaster upon a stock’s ASX debut.

As we touched on yesterday, Guzman y Gomez is hoping to raise around $242.5 million by floating 11.1 million shares priced at $22 each.

By selling these Guzman y Gomez shares, the company is planning on funding an aggressive expansion across Australia. If Guzman indeed succeeds at this IPO pricing, it will see the company command a market capitalisation of $2.2 billion.

As a comparison point, Kentucky Fried Chicken (KFC) operator Collins Foods Ltd (ASX: CKF) currently has a market cap of $1.07 billion.

Unlike many ASX IPOs, retail ASX investors won’t have the opportunity to buy shares directly before the IPO. Instead, we’ll have to wait until Guzman y Gomez shares are trading on the secondary markets (under the ticker ‘GYG’) before we can pick up shares for ourselves.

However, Guzman reportedly already has “considerable support” from existing institutional investors like Aware Super, Firetrail Investments and Hyperion Asset Management. These early and institutional investors, as well as Guzman’s board and management, are still expected to own around 62% of the company post-IPO.

Should ASX investors buy Guzman y Gomez shares at IPO?

So we know when and how all ASX investors will soon be able to buy Guzman y Gomez shares. But let’s talk about whether they should.

Well, one ASX expert has already been sold on Guzman y Gomez shares and will be upping his stake once the company IPOs. As we mentioned above, Firetrail Investments was an early backer of Guzman. But its chief Patrick Hodgens recently told the Australian Financial Review (AFR) that he can’t wait to double down:

It has a great brand, excellent unit economics, large store rollout plan, strong board, one of the most profitable franchisee opportunities in Australia… And at the same time, no net debt. It’s a great starting point.

Hodgens told the AFR that Firetrail looks at a dozen pre-IPO companies every year, but normally chooses just one to invest in. This year, that one is Guzman y Gomez. Hodgens also stated that he likes Guzman’s co-CEO model, as well as the company’s shift to drive-throughs and strip stores.

However, not everyone is as excited about this IPO.

The AFR’s Chanticleer argues that Guzman at $22 a share is “priced for high growth” as it represents “32.5-times earnings on an enterprise value to pro forma FY25 EBITDA basis”. It goes on to state that “that’s a rich multiple”. Here’s why:

In Australia, we normally see IPOs priced on a multiple of earnings per share or net profit basis, but in GYG’s case it expects only $3.4 million net profit in FY24 and $6 million next year (on a pro forma basis) – that’s about a 370-times FY25 pro forma profit number.

Foolish takeaway

Every ASX IPO usually has both cheerleaders and detractors and the float of Guzman y Gomez shares is no different, it seems. Regardless of the arguments on both sides, we’ll have to wait until the shares hit the ASX to truly find out which story investors are buying.

The post Should you buy Guzman y Gomez shares when they list on the ASX? appeared first on The Motley Fool Australia.

More reading

• This ASX 200 superstar is down 13% in 2 days. Time to pounce?
• ‘Undervalued’: 3 ASX 300 shares to buy following significant share price falls
• Up 40% in a year, why this ASX All Ords stock just hit a new 52-week high
• Why is the Woodside share price tumbling on Tuesday?
• Insiders are buying these 6 ASX All Ords shares

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

June has certainly not started well for S&P/ASX 200 Index (ASX: XJO) darling Lovisa Holdings Ltd (ASX: LOV).

At market close last Friday, 31 May, shares in the ASX 200 fashion jewellery retailer closed trading for $33.91 apiece.

That put the Lovisa share price up more than 64% in only 12 months. Atop that supersized share price gain, Lovisa also paid out 81 cents per share in partly franked dividends over the year. This sees the stock currently trading on a trailing yield of 2.8%.

But things took a turn for the worse yesterday, with the Lovisa share price crashing 10.4% to close at $30.40.

And the selling continues today, albeit at a more modest pace.

In afternoon trade on Tuesday, the Lovisa share price is down 3.1% at $29.45, putting the stock down 13.2% since Friday’s closing bell.

I told you June was off to a rough start!

However, longer-term shareholders should still be sitting on some outsized gains.

Despite the fire sale, shares in the ASX 200 retailer remain up 42.7% over 12 months.

Why is the Lovisa share price getting smashed?

ASX 200 investors were overheating their sell buttons yesterday after Lovisa announced that CEO Victor Herrero will be stepping down on 31 May next year.

Herrero will be replaced by John Cheston, currently the CEO of Smiggle.

“John is a highly successful global retailer and will join Lovisa at a very exciting time as we continue our global growth,” Lovisa chairman Brett Blundy said.

Clearly, though, investors have their doubts.

“The outgoing CEO has been instrumental in Lovisa’s global expansion,” Motley Fool analyst James Mickleboro noted.

Mickleboro added:

While a lot of the hard work has certainly been done since his [Herrero’s] arrival in 2021, there’s still a lot more to come. The market may be concerned that his exit now puts at risk the successful execution of this expansion.

Which brings us back to our headline question.

Time to pounce on this ASX 200 superstar?

Following Lovisa’s announcement yesterday, a number of brokers downgraded their outlook for the ASX 200 jewellery retailer.

Among them:

• Barrenjoey cut Lovisa to a neutral rating with a $29.80 price target
• Citi cut Lovisa to a neutral rating with a $31.65 price target
• Morgan Stanley cut Lovisa to an equal-weight rating with a $30.25 price target
• Canaccord cut Lovisa to a hold rating with a $29.00 price target

Now, what you might have noticed is that while the ASX 200 company was broadly downgraded following the past two days of selling, the price targets from three of these brokers are already higher than the current $29.45 a share.

Indeed, Citi is forecasting a potential upside of 7.5% from current levels.

Atop these brokers, Wilsons Advisory analyst Tom Camilleri also expressed concern over Lovisa’s ongoing growth, particularly in China where Herrero has experience with store roll-outs.

In its half-year results for the six months to 31 December, Lovisa reported opening 74 outlets during the half year, taking the total to 854. That included the company’s first store in Guangzhou, China, and Ho Chi Minh City, Vietnam.

As for the outlook for the ASX 200 retail stock going forward, Camilleri added:

On a more fundamental level, Lovisa still has one of the most profitable and scalable physical retail formats globally, which should continue to be rewarded with a premium multiple.

And keeping in mind that Lovisa’s last interim dividend of 50 cents per share marked an all-time high payout, I’d say the two-day 13% sell-down could present a great opportunity to get in at an attractive long-term price.

The post This ASX 200 superstar is down 13% in 2 days. Time to pounce? appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Some experts have revealed where they see value within the S&P/ASX 300 Index (ASX: XKO) share landscape.

Share prices are always changing, so when valuations adjust, it can open up opportunities if something moves from being fair value to good value.

In a piece on The Bull, analysts have rated some stocks as a buy, so I’ll discuss three below.

Worley Ltd (ASX: WOR)

Worley described itself as a global professional services company of energy, chemicals and resources experts. The company partners with customers to deliver projects and “create value over the life of their assets”. It says it’s “moving towards more sustainable energy sources, while helping to provide the energy, chemicals and resources now.”

It was rated as a buy by Peter Day from Sequoia Wealth Management, who said the company’s factored sales pipeline was up 14% in the financial year to 31 March 2024. Sustainable-related work represented 82% of the factored sales pipeline.

The ASX 300 share’s plans include growing profit margins through automation and generative artificial intelligence and targeting market share gains with its technology solutions pipeline.

Telstra Group Ltd (ASX: TLS)

The ASX telco share is the leading provider of mobile services in Telstra. It also has a growing presence in cable infrastructure, enterprise, NBN services for households and telco services for Pacific Island nations.

Jabin Hallihan from Auburn Capital has called Telstra shares a buy following the decline since early February. Hallihan noted that Telstra recently reaffirmed its 2024 earnings guidance and revealed it’s expecting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $8.4 billion and $8.7 billion in FY25.

Management’s plans have “shifted to re-setting and reducing costs” in markets where growth has slowed. The expert also noted that the number of postpaid mobile subscribers is approaching 9 million.

Hallihan says fair value is around $4.50 per share, according to Auburn Capital. That’s around 30% higher than today’s value.

Australian Clinical Labs Ltd (ASX: ACL)

This ASX 300 share is a provider of Australian pathology services to clients including doctors, specialists, patients, hospitals, and corporate clients. The company has over 70 laboratories. It’s one of the country’s largest private hospital pathology businesses, and the SunDoctors brand specialises in detecting skin cancer and providing treatment.

Jabin Hallihan from Auburn Capital also rated this company as a buy. He noted Australian Clinical Labs recently affirmed that underlying earnings before interest and tax is expected to be “at the lower range of between $60 million and $65 million” in FY24.

In the opinion of Hallihan and the Auburn team, the company is “undervalued” after the significant fall of the Australian Clinical Labs share price – it’s down 32% in the past 12 months, as shown on the chart below.

The post ‘Undervalued’: 3 ASX 300 shares to buy following significant share price falls appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

It’s been a bit of a rough Tuesday for the All Ordinaries Index (ASX: XAO) and most ASX All Ords shares so far today. At the time of writing, the All Ords Index has dropped by 0.25% and is hovering just above 8,000 points. But let’s talk about one stock that’s going the other way and just hit a new 52-week high.

That ASX All Ords stock is none other than coal share Whitehaven Coal Ltd (ASX: WHC).

Whitehaven stock closed at $8.25 a share yesterday and opened at that same price this morning. But since then, it has only been up for this ASX All Ords stock. At present, Whitehaven shares are trading at $8.40 each, up a healthy 1.76% for the day thus far.

It was even better for Whitehaven shares earlier this morning. Just after market open, this All Ords stock climbed all the way up to $8.45 a share – a new 52-week high for Whitehaven.

Today’s gain continues a long streak of wins for Whitehaven shares. As it now stands, this ASX All Ords stock is now up 8.2% year to date in 2024 so far, as well as up a whopping 40.9% over the past 12 months.

Check that out for yourself below:

Why is this ASX All Ords stock at a new 52-week high today?

Today’s new highs for Whiehaven are not easily explained. There haven’t been any fresh developments, news or announcements out of Whitehaven itself for quite a while.

However, that doesn’t mean a lot of things haven’t been going right for the company.

Back in April, Whitehaven completed the acquisition of two metallurgical coal mines for US$3.2 billion, instantly transforming the company into a significant metallurgical coal producer.

As my Fool colleague Bronwyn covered at the time, this resulted in a number of ASX experts casting a positive light on the ASX All Ords stock. ASX broker UBS gave Whitehaven a buy rating, as well as a 12-month share price target of $8.70, as a result.

Michael Gable of Fairmont Equities piled on, stating that Whitehaven stock “looks cheap” following the mine acquisitions.

There was some good news for Whitehaven shares last month too. On 16 May, the All Ords stock revealed that the Federal court had dismissed an attempted challenge of its Narrabri Stage 3 Extension Project. This project is expected to extend the Narrabri coal mine’s life from 2031 to 2044.

So it appears that these positive developments for Whitehaven are resulting in investors taking a second look at the stock and liking what they see. Let’s see if Whitehaven can hit any more highs going forward.

At the current Whitehaven share price, this ASX All Ords coal stock has a market capitalisation of $7.03 billion, with a dividend yield of 5.84%.

The post Up 40% in a year, why this ASX All Ords stock just hit a new 52-week high appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Woodside Energy Group Ltd (ASX: WDS) share price is taking a tumble today.

Shares in the S&P/ASX 200 Index (ASX: XJO) oil and gas stock closed yesterday trading for $27.93. In afternoon trade on Tuesday, shares are swapping hands for $27.46 apiece, down 1.7%.

That sees the Aussie energy giant significantly underperforming the ASX 200 today, with the benchmark index down 0.1% at this same time.

Here’s what’s happening.

Woodside share price catching OPEC headwinds

The Woodside share price is under pressure today following a sizeable retrace in global oil prices.

International benchmark Brent crude slipped 0.8% overnight to trade for US$77.82 per barrel. Only one week ago, on 28 May, that same barrel was trading for US$84.22, equating to a 7.6% weekly decline.

It’s a similar story with West Texas Intermediate crude oil. At US$73.69 per barrel, WTI is down 0.7% overnight and down 7.7% over the week.

While the sinking oil price will come as good news to motorists filling their tanks, it’s weighing on the Woodside share price today.

And shareholders look to have the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to thank.

As you’re likely aware, OEPC+ members have been limiting their monthly outputs to help prevent a supply glut from sending the oil price crashing.

At the cartel’s meeting over the weekend, members agreed to extend their existing cuts through the upcoming quarter. But OPEC surprised most analysts by announcing its intent to begin returning some of that missing production commencing in October.

Production cuts are then expected to be entirely phased out a year later.

Commenting on OPEC’s decision sending the oil price and the Woodside share price lower, Taylor Nugent, a senior economist at National Australia Bank Ltd (ASX: NAB) said (quoted by The Australian Financial Review), “Most commodity analysts had expected the production cuts to be maintained till the end of the year.”

Ryan McKay, a commodity strategist at TD Securities added (quoted by Bloomberg):

The market is coming to terms with the wind-down of the voluntary cuts starting in October. The easing of supply risk premia has already been weighing on prices and spreads, and the OPEC agreement has done little to turn that tide.

With today’s intraday losses factored in, the Woodside share price is now down just over 21% in 12 months.

Which might well present a bargain over the medium to longer term.

As Christopher Watt, an investment advisor at Bell Potter Securities noted last week, “The recent share price pullback in this energy giant presents an attractive entry point for investors, in our view.”

The post Why is the Woodside share price tumbling on Tuesday? appeared first on The Motley Fool Australia.

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• Buy the dip: Woodside share price now at ‘attractive entry point’

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

It can be useful for investors to keep an eye on which shares have experienced meaningful insider buying.

This is because insider buying is often regarded as a bullish indicator, as few people know a company and its intrinsic value better than its directors. If they are buying, it could be a sign that they are confident in the direction the company is heading and see value in its shares.

With that in mind, listed below are a few ASX All Ords shares that have reported insider buying recently. They are as follows:

AUB Group Ltd (ASX: AUB)

An insider has been buying this insurance broker’s shares in recent sessions. According to a change of director’s interests notice, Melanie Laing picked up 1,714 shares through an on-market trade of 31 May. Laing paid a total consideration of $49,980.65, which equates to an average of $29.16 per share.

Boss Energy Ltd (ASX: BOE)

This uranium producer has reported some meaningful insider buying. Its non-executive director, Jan Honeyman, bought 21,739 shares through an on-market trade on 30 May. Ms Honeyman paid an average of $4.60 per share, which equates to a total consideration of $99,999.40. This almost doubled the director’s stake in the company.

Eagers Automotive Ltd (ASX: APE)

This auto retailer’s director, Nick Politis, has been making large investments in its shares in recent months. This continued last week on 30 May when Politis snapped up a further 100,000 shares in the ASX All Ords share for an average of $10.11 per share. This equates to a total consideration of just over $1 million. A day earlier, fellow director David Blackhall bought 45,000 shares through an on-market trade.

Lendlease Group (ASX: LLC)

The CEO of this beaten down property development company has been buying shares. A notice shows that Anthony Lombardo snapped up 15,000 shares through an on-market trade on 30 May. He paid an average of $6.0196 per share, which represents a total consideration of approximately $90,000.

Peter Warren Automotive Holdings Ltd (ASX: PWR)

Another beaten down ASX All Ords share that has reported insider buying is Peter Warren Automotive. Its executive director Paul Warren made a series of trades between 28 May and 30 May. This saw him snap up a total of 541,000 shares for a total consideration in the region of $1 million.

Smartgroup Corporation Ltd (ASX: SIQ)

This salary packaging and fleet management company’s non-executive director, Ian Watt, has been buying its shares. Watt bought 10,000 shares through an on-market trade on 30 May for a total consideration of $79,900. This represents an average price of $7.99 per share.

The post Insiders are buying these 6 ASX All Ords shares appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Smartgroup. The Motley Fool Australia has recommended Aub Group and Eagers Automotive Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

“The share market is a scam!” “It’s rigged!” “Only the experts win at this.” I’ve heard all kinds of dismissive conclusions from people who tried buying shares and decided it’s not for them. It almost always boils down to one common mistake — a factor that, if properly considered, can pave the way to successful long-term investing.

How do I know if investing is worth it? It’s really quite simple. Take a look at the chart below.

Any investment in the S&P/ASX 200 Index (ASX: XJO) before February 2024 has grown in value. Yes, that means some investments made between February and today would be in the red. But that perfectly illustrates the market in itself.

The share market rewards the patient.

Yet, so many let this one dangerous approach derail the compounding train before it leaves the station.

Eyes bigger than one’s stomach

Ever heard of the saying ‘Never go grocery shopping when you’re hungry’? The same can be said for buying shares.

Our brains like to exaggerate. It’s how all-you-eat buffets make money — taking the arbitrage between what a customer thinks they can eat (and are willing to pay for) and what they can actually eat. More often than not, the eyes are bigger than the stomach.

To save yourself money and a bellyache, it’s important to know how hungry you are truly.

It turns out there’s a form of appetite in the investing world, too. It’s called risk appetite, sometimes referred to as risk tolerance. And instead of it being how many burgers you can stomach, it’s how much money you can lose without getting queasy.

Risk appetite works both ways, not just the ‘upside risk’. As you creep up along the risk curve, the prospect of losing money is real. Yet, many fixate on the ‘higher expected returns’ part and neglect the negative implications.

I hear stories repeatedly about people buying a speculative ASX small-cap because they think it ‘might’ return tenfold. Twelve months later, nursing a 90% loss, the same people swear off buying shares.

However, investing was never the problem. It was the lack of consideration given to their risk appetite.

Buying shares is like building a meal plan

What can you afford to consume based on your own personal circumstances?

Everyone faces a different situation. To milk the nutrition analogy further, someone with medical issues may need to consume less sugar than someone with a clean health bill. Some simply can’t stomach dairy due to intolerances.

Now imagine sugar and dairy are your speculative and growth investments. They may not fit into someone’s investment diet, and that’s fine! There are more ways to earn a return with defensive shares or blue chips.

What matters is asking yourself the question honestly before buying shares.

You don’t want to be halfway through the metaphorical investment cheesecake when you discover you are dairy intolerant.

The post Buying shares? Don’t fall prey to this commonly disastrous mistake appeared first on The Motley Fool Australia.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.