Buy Strategies Can Be Powerful: How to Buy a Company’s Stock Over Time
“Looking before you leap” is an idiom that means you shouldn’t act without first being aware of and thinking about possible dangers and consequences. Far too many novice investors think hesitation is good, except they never act. On the other end of the spectrum are those who dive “all in” immediately. Both are foolish ways to invest.
When it comes to investing, it is not prudent to assume today’s price is the lowest price you will ever pay for an investment. Recent events have borne that out in a painful way for many investors. One of the reasons I don’t have 100% of our assets in stocks is that I want to have cash available to buy investments when others are fearful.
Today’s post will illustrate the approach I often use when I am buying shares of a company I want to own. In this example I am using a company in the financials sector that is engaged in life and health insurance. The company is Unum Group (UNM). The company was founded in 1848 and has over 10,000 employees. UNM’s headquarters is in Chattanooga, Tennessee.
UNM is attractive from a dividend and dividend growth perspective. The next three images show some of the reasons I like UNM.
My first purchase of UNM shares was in May 2018. I bought 100 shares at $38.55 per share. For the balance of 2018 and all of 2019 I was content to just collect the dividend. I did not reinvest the dividend in more UNM shares. Then, by January 2020, the price per share had fallen dramatically. I wanted more shares, but I just did a nibble of 50 shares instead of adding another 100. By February 2020 the share price had dropped to $23.53 so I bought another 50 shares. Obviously, I did not know if the price would reverse or continue down. But buying gradually gives me the opportunity to reduce my cost/share for the entire position.
When the price continued down to $15.52, I bought another 100 shares. That purchase cost less than half of what my first 100 shares cost. Bear in mind that I view this as a quality company with a long future. I would not be buying more shares of a company like Carnival Cruise Lines (CCL) just because the price was lower. CCL is not going to have an easy recovery. I did have shares of CCL and I sold them.
Four days later the price of UNM shares was holding in the $15 range, so I decided to snap up another 100 shares at $15.37 per share. I now hold a total of 400 shares, and my average cost basis is $23.93. Why does this matter? Because if the shares return to $24/share, I will break even. But wait, I will have collected profits on this investment often overlooked when comparing the current price to the cost. I can afford to wait a long time for the recovery of the share price if UNM continues to pay the dividend. The dividends are not reflected in my cost. To date I have received over $200 dividends, and most of those where when I only owned 100 shares.
The image above shows my UNM activity including buys and dividends received to date.
It is highly likely that I will receive $456 in the next twelve months of holding 400 shares of UNM. While others fret and don’t know what to do, I just hold the investment and collect the dividends. In fact, if the share price drops some more, I will be sorely tempted to buy more shares.
Over time UNM has had its ups and downs. Two graphs follow. One just shows the graph of the price per share and the other shows when dividends were paid.
You should be skeptical of even my recommendations. I have invested in losers so UNM could eventually become a bad investment. At present, however, it looks like I am in good company based on this image from Fidelity Investments.
Before I end this post, there are other important “look before you leap” concepts even more crucial than just picking a winning investment and avoiding losers. Investments in the stock market have no guarantees. Investments of your soul can be guaranteed if the one who did the work and the one doing the work isn’t you.
The Bible is full of “looking before you leap.” It tells us we will reap what we sow. In Luke 16:11 Jesus says, “If then you have not been faithful in the unrighteous wealth, who will entrust to you the true riches?” Jesus knew the way you behaved in one area of life would significantly impact all of life. One of the most dramatic contrasts in the scriptures is found in Mark 8:36. “For what does it profit a man to gain the whole world and forfeit his soul?” Be careful about what you think is a profit.
Jesus even used “counting the cost” in talking to his disciples about the cost of discipleship. He wanted them to follow Him, but He didn’t want them to follow not understanding what it would cost. He said this in Luke 14:28-33, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, 30 saying, ‘This man began to build and was not able to finish.’ Or what king, going out to encounter another king in war, will not sit down first and deliberate whether he is able with ten thousand to meet him who comes against him with twenty thousand? And if not, while the other is yet a great way off, he sends a delegation and asks for terms of peace. So therefore, any one of you who does not renounce all that he has cannot be my disciple.”
If you want to talk about soul investment, I am always ready to have a conversation with you. My goal would be to share what God has already said in the scriptures. That is where Jesus said we should look.