They don’t ring the bell at those times, do they.
Wouldn’t it be great to know the market bottom, and wouldn’t it be great to know the market top. But it doesn’t work that way. Market bottoms and market tops are only obvious in retrospect. sometimes many months later.
Therefore
And as a result, how close do we need to be to consider ourselves included in our own personal “smart money” club?
Now and Then
At times, when a price of a stock declines close to but not below my target price, I begin to wonder: should I wait or should I buy then? After all, my target for the stock is simply a number I chose based on my personal assessment of the stock’s history. The stock does not know about this target number. I could have chosen something a little higher or a little lower. But I like having a target to contrast and measure against the actual price. My target gives me a solid perception of how far away it is from the actual.
When a stock’s price is tens of dollars or more away from its current price, I rest easy knowing it is not within normal buying range, and I can relax and wait. Usually this is just fine.
But when a stock declines to within a few dollars, or even a few cents, above the target, my attention begins to increase. Of course, as previously mentioned, there is nothing preventing the price to fall below, or even significantly below my chosen target. In fact, this has happened various times. While the target is something I chose because I considered it low enough to be a bargain, my assumption is just that, an assumption. I have no special insight into a stock’s pricing future.
When a stock falls to a point just above my chosen target, and I wonder if I should take the plunge, I also know that the price could thereafter increase and not get back near to the target. If that happens, I have missed the opportunity I had previously arranged for myself. This too has happened at various times.
And Then
That self-admonition that just because a stock decline hits my target price does not mean it won’t fall further also applies at a price significantly below my target. There have been times when a stock declines to my target, and I may buy some shares. Then the stock continues to decline. Sometimes ever further.
In addition to this experience demonstrating how arbitrary my chosen target numbers are, I also am aware that my assets are limited as well. So certainly I cannot continue buying just because I see a stock as “low.”
And Now
I am at a place now where I (usually) do not feel emotionally compelled to buy. When I was starting out as a new dividend investor, I often felt I needed to deploy capital just because I wanted to get moving towards an increasing amount of dividend income. And I also was less aware of valuation when I started. So I often bought at what seemed reasonable prices, without preparing for price declines. As previously discussed, since I am not aiming to “sell high,” I was also not so focused on “buying low.” My goal was and is to accumulate dividend-paying assets.
These days my dividend income progresses through the art of compounding. Dividend reinvestment allows my shares to increase, which increases future dividends as they accumulate. My aim to increase my portfolio depends now more on price than other considerations. So I am content to watch, and wait. So when the price of a stock that I am watching decreases to my target, I then have the choice to make. That choice is a happy choice.
Where are you on price declines? You can let me know here.
The illsutration is a Tarot card from 1789, published in a book by Pierre-François Basan, and ascribed to a M. Etteilla. Courtesy Bibliothèque nationale de France.
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