First Time Sale, page-11

Hi Faraday,

Firstly, let me say you've done extremely well for your first investment!!! I lost 60% in 6 months on my first purchase, and learnt an expensive lesson (luckily I only put done $500!). Here are my thoughts for you, based on my (admittedly limited) 5 years of investing experience so far.

I definitely think you'll do well to just look for good quality companies like CAR and REA. The key is patience and holding your nerve.
CAR is priced at such high multiples because it's such a dominant company, it's basically a monopoly (does anyone actually use carsguide exclusively to buy/sell their car???), and has a lot of growth priced into it. They're also involved in other areas of car purchasing, such as finance (with Stratton and their stake in RateSetter). I think they're strategy of international expansion is spot on. They've got the know how and cash flow to support it until it matures, and they're going into markets where the internet penetration isn't at the stage that Australia is, and there is less competition. The opportunity is massive in these markets. (I wish I had bought when it was under $10, it's one of my favourite companies on the ASX but I got too greedy and wanted it to go down to $9.25. Another lesson there!)

Like MOSSuMS has said, debt can be good for a company to accelerate earnings. You just need to have some limits on how much is too much. For me it's a net debt/equity ratio (net gearing) less than 120%, and interest coverage of at least 3 times. I also like to make sure that cash flow is fairly consistent with reported profits. CAR satisfies these criteria.

Also remember that the share price only reflects what the majority's opinion of the stock is at the time, not necessarily what it's worth. Think of it as an opportunity to buy (of course you must do your research first so you are confident you're not buying a dud). You lock in your profits when you buy, not when you sell. If you think the company is still a quality company, then there should be no reason to sell it.

Lastly, I always try to remember that if you're a long term investor (seems like you are), the majority of your returns come from dividends, not rises in the share price. I'll let you do the research on how much it is, you might be surprised Remember that dividends (should) rise over time as well.

Well done on starting your investment journey. As you get more experience you'll find that you react less and less to share price fluctuations. I'm confident you'll do well over the long run. Good idea on educating yourself about the market as much as you can. It will actually be a good thing that you don't have bundles of spare cash at the moment, because when you do get enough you'll be so much more knowledgeable.

Good luck mate, I think you'll do well in the long run. You've done well on your first investment, so hopefully that's a good omen

P.S. If you can afford a good investment advice service (which if you can afford to invest then you should be able to), then they're worth their weight in gold, especially when you're just starting out. They will pay for themselves in the knowledge that you gain in the long run, and ideally better returns. Just don't follow them blindly, make sure they have a good track record (most do 30 day money back periods so you can spend the first month checking out their performance first). Take them for what they are, which is advice. You still need to make and take responsibility for your own decisions.