Friday, November 9, 2007

Don't Buy All At Once!

It's weeks like these that remind me not to buy a stock all at once, and to focus on the long term and not to panic driven short term. You can get burned badly, especially when the market takes a dive right after you buy. Here is the proper way to buy a stock...

Let's say you have $1000 to invest in a stock that is trading at $100 per share, you should put in half or less of your investment and then if it drops to $90... it's a gift! Now you can purchase those same shares at a discount to what you paid earlier for them. If you would have put all your money in at once you would be down a quick 10%... ouch!

Now, of course this can work in the opposite fashion as well were a stock goes from $100 to $110, but all you are doing there is not making as much money as you could have if you would have thrown it all in at once. Buying in increments is the safest and most intelligent way to build a position in a stock. This rule will help you become a better more disciplined investor. Another thing that buying in increments can do for you is to lower your cost basis. Cost basis is basically your break-even price on a stock. Think of it this way, if you buy that same $100 stock and it drops to $90 like above, you can buy it again at $90 and bam! You just lowered your cost basis to $95. This means when the stock goes back up to $95 you have already broke even on your investment. This can be a great thing to consider when you have your stock takes a big unjustified hit, you just invest again at a lower cost and in turn lower your cost basis. This makes it easier for your stock to get back to the green, even if your stock never climbs back to the price you first bought it for!

Tough week, but I think things will begin to turn around next week... Remember when the market has a correction like this it brings out some fantastic buying opportunities. Stocks I think will do well next week are Goog, VDSI (calling a bottom), CECE (reports on Monday), and BA $94.21!

Good luck to all... and stay tuned to stock picky for more stock picks and tips!

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