At the current Commonwealth Bank of Australia (ASX: CBA) share price, I'm avoiding it.
Why are you avoiding CBA shares?
I think the Commonwealth Bank share price is expensive. To understand why I avoid expensive shares, read on.
Investing Long-Term
Investing for the long-term has its perks, that much is certain.
Indeed, if you can focus your attention on a 10-year investment horizon, the typical concern of when and by how much the market will crash quickly goes away. It can also supercharge your investing returns as the glory of compounding takes a hold.
For example, let's imagine you bought CBA shares in late 2007 — right before the Global Financial Crisis (GFC) — at $60.
As you can see in the chart, the Commonwealth Bank share price subsequently plunged below $30 in around 12 months. Ouch!
But if you had a 10-year investment horizon and held onto the shares until today you would be sitting on a share price gain of 38%. Better still, you would have received another 54% in dividends plus tax-effective franking credits!
Why are you telling me this?
I think Commonwealth Bank of Australia shares are too expensive at today's price. But, as that example shows, if you buy a great business you might still make a lot of money if you hold on for the long-term.
But now let's say that instead of buying CBA shares in December 2007, you bought in December 2008 — at a share price of around $30. That would have been a bargain.
Today, you would have made a 167% share price return and an additional 104% return in the form fully franked dividends. That's much better.
The same could be said of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ), albeit to a lesser extent.
Foolish Takeaway
I'm a firm believer that you can make money buying shares in great companies at almost any price. However, if you want to beat or outperform the market over time — and generate the best returns possible (or be the best investor you can be) — you need to buy shares at a price lower than what you believe they are worth — in CBA's case, this would have occurred during the GFC.
That's what the best investors — like Warren Buffett — do.
