For many investors, every investment involves a two-part decision. First they decide what to buy, then they decide what price they’ll pay. Most are looking for bargain stocks, and want to buy, say, 5% to 10% below current prices.

These investors often explain that they are simply looking to buy bargain stocks the way a smart consumer buys a car. But they overlook a key difference. Car prices do vary and some buyers do pay less than others, because they have better bargaining skills and more time to spend shopping around. But the stock market is more “efficient” than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.

Underbidding on bargain stocks can filter out your best picks — and fill your portfolio with losers

Two-part investing exposes you to a double risk. That’s because seemingly attractive bargain stocks sometimes drop for months or even years, before a hidden flaw comes to the surface and explains their weakness. For that matter, little-noticed stocks sometimes rise for months before the reason for their strength becomes apparent. In a lifetime of investing, you’ll choose both kinds of stocks.

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If you always try to buy below the market, you’ll always get a “fill” on stocks with hidden flaws. They’ll always come down into your buying range, but they’ll keep on falling. But you’ll never get to buy the other kind of stock — they’ll always seem too expensive, though they’ll go on to get even more expensive. And you need a few of these ever-more expensive stocks, to offset the losses from those that get cheaper and cheaper.

Focusing on investment quality is the key to finding bargain stocks with gains ahead

There’s no easy answer to the buy-now-or-wait dilemma. At times it may pay to hold off — for instance, a company’s stock will often rise when it announces a stock split, then fall after the split takes effect.

In the end, if a stock is truly worth investing in, you should be willing to buy it at current prices, even if that means you run the risk of having to sit through a 5% to 10% setback. Before it puts on its next 5% to 10% setback, after all, it may first go up 50% to 100%.

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