Image source: Getty Images
This week will see the annual deadline for stocks and Shares ISA contributions. That should focus investors' attention!
But while I can't add new money to this year's ISA after the end of the current year (when the new year allowance will come into effect), I also don't need to invest the money straight away. I could park it in my stocks and Shares ISA to get the tax benefits of such a move and then invest it at a later date when I'm ready.
Please note that tax treatment depends on each client's individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any type of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
In fact, even if I didn't have investment ideas right now, that's what I would do. After all, there are plenty of stocks I would happily buy, just not today.
Let me explain why.
Price and value
As famous investor Warren Buffett says, price is what you pay and value is what you get.
A common mistake people make when they start investing is confusing a good deal with a good investment. Apple It's clearly a good business, with a huge customer base, a premium brand and attractive profit margins.
It's also been a brilliant investment for Buffett over the past eight years.
But it is a good investment for me. now It depends partly on what I pay for it. Apple stock has comfortably more than tripled over the past five years.
Good for Buffett. But what about me? The stock now trades with a price-to-earnings (P/E) ratio of 27. That doesn't sound like a compelling value to me.
The United Kingdom shares the Buffett-style business model
Looking closer, I don't see any chance of me buying either Scientific Judges (LSE: JDG) ahead of next week's ISA deadline.
Its P/E ratio of 72 is too high for my taste.
Source: TradingView
However the business I think it's wonderful. It operates a bit like Buffett's own conglomerate, Berkshire Hathaway. When purchasing companies, judges can offer centralized services such as financing, allowing acquired companies to focus on what they do best.
In the case of judges, it involves making instruments such as laboratory measuring tools. Because accuracy is crucial, customers are willing to pay premium prices.
The company has been increasing its sales rapidly.
Source: TradingView
But by taking a disciplined approach to acquisition prices, its profits have also skyrocketed. This chart shows earnings per share.
Source: TradingView
Even better for income investors, that has enabled very strong dividend growth.
Source: TradingView
There are risks.
Other companies could try to imitate Judges' success, raising acquisition costs and hurting profitability. The quality of low-cost manufacturing countries could improve, harming the pricing power of judges.
For now, though, Judges seems like a brilliant deal to me.
Long-term patient investment
So why would I put money into my stocks and Shares ISA ahead of the looming deadline with a view to possibly buying shares like Judges in the future, but not now?
In a word: assessment. Judges is a brilliant company but too expensive for my taste.
Therefore, it is on my shopping list for times when the P/E ratio suddenly drops, as shown in the chart above.
For now, I'll be looking at it without buying it yet.
