There are many theories on when is the best time to buy.
We have touched on these questions previously. When To Buy For Maximum Gains and Why I Consider Buying In A Declining Market Can Often Be A Good Thing .
Often we hear to buy on the dips. And I have done so.
But another method is sometimes used: Buy when prices are increasing.
Why would an investor choose one method over another?
And why shouldn’t an investor just stick to a simple method of “buy when you have the money” such as in dollar cost averaging?
These questions all point to a combination of investing philosophy and personal practicality.
The “buy when a stock’s price is increasing” method is something I encountered in a video interview of David Gardner, one of the founders of the Motley Fool. He was discussing how he manages his portfolio. It certainly sounds like an optimistic outlook in the quest for capital appreciation.
The buy the dip method is for those wishing for lower entry prices.
Of course, not all stock price declines are equal.
Sometimes stock prices decline because that is the nature of stock prices: they fluctuate. Sometimes there is a reason, sometimes not.
And sometimes stock prices decline because the company’s business is in decline, either temporarily or more fundamentally. The challenge is to find out whether the decline is a harbinger of more bad news, or is there a path to recovery.
What Goes On Here
I tend to buy on the dips because of the nature of my investing method. I invest for income from dividends, not for anticipated capital gains. As a result, when a stock price declines, I tend to buy because I will get more shares than when the price increases. Since I most often use dividend reinvestment, buying more shares means more dividends when issued.
Just because a stock declines does not mean I automatically buy. Staying solvent is the name of the game.
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