Yes, I do it. Not every day, not necessarily every week. But I am more prone to open my wallet when stocks decline rather than when they advance.
Down Is Up?
Simple daily gyrations of the market mean almost nothing. But when major declines occur, it is time to pay attention. At least for me.
As previously mentioned, I maintain a list of my holdings and included is a price at which I feel each stock is simply too cheap to ignore. I looked back historically, and found when each holding had substantially declined at a price not likely to be easily repeated. This low price is a “target” price at which I might pick up bargains.
As part of my regular tracking of the market, I have an automated process that measures how far each stock’s current price is to the target low price. When that difference narrows significantly, I know it could be time to pounce and buy.
And Yet
It has been said that sometimes prices are low for a reason. Yes, individual stocks react to the business conditions of that company. So it is prudent to not ignore each company’s current conditions. And yet overall market and economic conditions irrespective of individual companies sometimes deteriorate. Or fear sometimes overtakes rational thought.
Watch Out Below
I have found a good thing to remind myself that when stocks decline, and I am tempted to buy at low prices, that further declines are not only possible, but also very likely. When buying at the absolute bottom is an ego-booting fantasy, it very rarely occurs, even to the best of us. So I need to somehow gauge a current low price from future even-further low prices. One has mixed emotions to watch a stock decline, then buy at what is a good low price, and in subsequent days watch the price decline even further. This situation brings up two thoughts. First, I am buying at a lower price than it was before the decline. Secondly, in a few years my price will be seen as incredibly fortuitous. These two thoughts likely are probably much more common than I would admit.
I do also keep in mind my “dividends to share count” calculation. That is a value I calculate that tells me that at the current dividend rate how many shares the next issued dividend will buy. Each time I purchase additional shares, the increased amount of subsequent dividends for that stock will buy more shares. When starting dividend investing, my goal was one share per year. Later my goal became at least one share per quarter. As time progressed, I aimed for several shares per quarter for most of the stocks I won. This progression of course depends on the dividend yield of the stock and its price. For some stocks, this is progression of increasing share count came easily. For others, I am yet to reach even the first goal. For some stocks, high stock prices have hindered my “acquisition binge.” For others, if the company prospects are not appealing, I may decide not pursue those “dividends to share count” goals.
Here We Are
Nothing is a straight line, especially in investing. Not letting fear and greed overrule thinking remains appropriate. Taking advantage of opportunities is a given.
Where are you when prices decline? You can let me know here.
The photo shows the back flap of an envelope sent from the county Tax Assessor with annual Notice of Assessment. “Make time for yourself: Attend to medical appointments you missed; Get outdoors with loved ones; Get enough sleep; Eat healthy meals; Practice mindfulness and self care; Get your COVID-19 vaccine and boosters.” 2022.
The post About Buying In A Declining Market appeared first in Smile If You Dare.