“Shop as if you were buying a car”
“I don’t know about you,” said Tom, our most seasoned investor, “but when I was ready to start buying stocks, I really surprised myself.
“Here I had mapped everything out, poured over George Armstrong’s advisory, disciplined myself to buy a variety of stocks (we didn’t say ‘diversify’ then).
“But when the time came to actually place the orders, I practically needed a straight jacket. I wanted it all, now. It must be how a gambling binge feels.
“Luckily, I stopped after I’d placed a few orders. I took a deep breath and said ‘Whoa! Slow down. Look carefully. Look for the best prices.’
“I told myself to spend as much time on every purchase as if I were buying a car. After that, I made much better buys and got much better prices.”
“Four time-tested ‘golden rules’ for buying”
As a beginning investor, the number of stocks you buy at first will naturally be based on the disposable income you have ready to make your purchases.
If you’re buying stocks for the long term, you don’t have to load up your portfolio right away. Presumably, the stocks you begin with aren’t going to flame out overnight.
Presumably, too, you’ve firmly planted in your own mind the idea that you’re not going to sell the minute one of your stocks takes a dip.
So buy shares in several stocks you’re comfortable with. They don’t all have to be conservative. If you’re convinced that a speculative stock is ripe for buying, snap it up while the price is right.
Whether you’re a new investor or an old hand, there are certain guidelines that will help you make sound buys.
We’ve broken them down into four time-tested “golden rules”:
“Bad news on Friday, good buys on Monday”
Rule 1) Look for bargains. For each stock in your portfolio select three, four or five attractive companies that fit the profile you want. Take the one that’s at the best price, just as if you were at the super-save store Saturday morning.
Rule 2) Sell on Friday and buy on Monday. If there’s any bad news at the end of the week, those 48 hours over the weekend build up nervous anxiety in the investment community. It’s no coincidence that the 1987 crash goes under the name “Black Monday”. Smart investors made a lot of money picking up bargains that very afternoon, once the morning sell-off had occurred.
You don’t have to take any big risks — if things look gloomy on a Friday, look quietly around for bargains on the following Monday afternoon. There’s nothing wrong with acting on Tuesday, Wednesday or Thursday, of course. Just avoid selling when everyone else is and look for buys after a sell-off.
Rule 3) Make sure you have cash on hand. In order to take advantage of rule (2) and other such buying opportunities, make sure you always have cash on hand to be able to scoop up shares when prices are good. You don’t have to wait for a major blow-out, like 1987. Market corrections occur almost every year.
Rule 4) Keep track of interest rates. When rates go down, stocks do well. But when interest rates go up, share prices suffer. This is a time when many investors sell and take profits.
But whatever you decide to do with the shares you already own, you should also look out for good buys. The downdraft will lower the price of some good stocks which are fundamentally sound and sure to rebound.
The above was excerpted from The Little Book of Investment Knowledge. To get your own free copy of this book, click on this link: www.investmentreporter.com
The Investment Reporter, MPL Communications Inc.
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