Buy Low and Other Thoughts
The best time to buy anything is when there is more supply than there is demand. When the supply increases on avocados and shoppers aren’t buying, the price of the produce drops. Avocados only last so long, so the store wants to move them rather than dumpster them.
Investors should think like shoppers in the grocery aisle. You don’t want to be chasing something everyone else is chasing. Yes, it is cool to own Tesla TSLA shares, but at what cost? Now that TSLA shares have been dropping in price, it means the demand for the shares is less than the supply. Not too long ago a Tesla share was $850. Today it is around $650. Those who were shopping at $850 might now be questioning their logic. If the company is valuable at $850, then it must really be valuable at $650. (I don’t think so!)
When I Buy
The best time to buy more shares is, in my opinion, when one of the following opportunities arises: 1) When the stock market has a down day. If the market is down by 1.0% or more, I start shopping around. 2) When one of my holdings has a dramatically down day. If something I like is down by 2-5%, then I look for the reason(s). If it is general panic based on some short-term news, I consider buying more.
One way to see this is to look at a tool that Fidelity provides. It shows the top three and bottom three MOVING investments in any account (or all accounts) at any point in time. 3) When a dividend increase is anticipated. If a company increases their dividend annually, then buying shares before the anticipated announcement date can be opportunistic. This is not hard to determine. The information about when and how much the historical dividend increase has been is available on Fidelity Investments and Seeking Alpha.
How I Buy
I resist the urge to buy 100 shares at a time. Generally, I buy shares in groups of 5, 10, or 25 shares for each purchase, depending on the price of the shares. If I have $1,000 to invest, then I would buy 25 shares of a stock that is $40 per share. If the price of the shares is $100, I might only by five or ten shares with my $1,000.
There are times of day when it is probably best to avoid buying shares. Unless you are an advanced trader, you probably should buy shares during the first 30 minutes the markets are open. Generally, it is also best to avoid the last 30 minutes. Because I can do pre-market and post-market close trades, I always think twice about the early and late trades of the day. Traders get crazy during the pre-market and early market trading. Don’t join them in their craziness unless you see an incredible bargain.