Buy when the Price is Going Up

One of the best times to buy a stock or an ETF is when the price is increasing. Please note that I said “one” which means I think there are other good times to buy. I often buy when the price of an asset is on the upswing. But I also like to buy when the price is going down. The problem with both approaches is the same. If the price is going up, we don’t know when it will stop going up or when it will go down. If the price is going down, we don’t know when (or if) it will stop going down nor do we know when the low has been reached.

Using the Little-By-Little Approach

MRK Buys from November 2019 to February 2011

Proverbs 13:11 says, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” Although this was not written when there was a stock market, the general principle can be applied to many different aspects of life. This proverb talks about patience and avoiding rash decisions looking for a quick buck. I like to use that approach when I am buying investments.

Buy When the Price is Going Down

MRK’s stock price continues to decline. It might continue to decline. These are my buy prices.

If I liked the potential of an investment when the price was $85 per share, and the price drops to $80 per share, what should I do? The first thing is to review my rationale for the purchase at $85 per share. If my reason(s) for the investment have not changed, then I can buy more at $80. Then the price drops to $75 per share and I go through my logic again. If nothing has changed, and I want to increase my overall holdings, I buy more shares. Is $75 the lowest price? Maybe it is, and maybe it isn’t. That is why I make buys over time, and I don’t have to buy the same number of shares each time. It sometimes helps to set a target for a particular holding.

Will I Buy More?

MRK total investment is about $40K

MRK, I believe, is a solid long-term investment. But I won’t continue to add shares and grow the position to more than 2% of my total investments in my IRA. Therefore, at 500 shares, I am ready to press the pause button. That isn’t to say that I won’t add more shares. If the price dropped to $70 per share, my percentage of MRK might drop to 1.85%. At that point I might add more shares. Furthermore, I should be receiving $1,300 per year in dividends from MRK. I would not hesitate to use some of those dollars to buy more MRK. This is similar to dividend reinvestment, only better. I get to pick the day, the number of shares, and the price I am willing to pay.

Always know the Payout Ratio, 5-year growth rate and the number of years of dividend increases.

Full Disclosure

I own 500 shares of MRK as a long-term investment and for dividend growth. Bear in mind that my traditional IRA is the only account where I hold MRK. I have a ROTH IRA that has other healthcare stocks like PFE and ABBV.

LINK: Charles Mizrahi

Buy on the Way Down – but slowly