Many people buy stocks with the hope that they have captured the absolute lowest price and that the price of the stock will go up right after they have bought it. The emotional part of me hopes that this is the case too when I buy stocks but the logical part of me knows that it is rather impossible to perfectly time the market.
Most of the time I buy in whenever there is a correction and the price of the stock I have in mind has already dropped by a significant amount. But more often then not, I am unable to catch the perfect bottom and the price of the stock sometimes continues to drop further. For this reason, I always keep a significant portion of my cash in order to average down on my purchase in such situations. The worst thing that can happen is that you have already put in all your cash in the initial purchase and end up not having cash to average down on your stocks.
It is true that technical analysis, which is the art of plotting graphs and trend charts to read market movement, can serve as a guide in timing the market but it should not be taken as science. I believe that it should be used merely as a guide because the interpretation of these information varies from person to person. Technical analysis can help you catch the stock price near the bottom, but more often then not, never the absolute bottom. Therefore, to reiterate, it is essential to buy into any stock slowly, so that you still have cash for averaging down.
But what if the price of the stock really goes up after I have purchased the stock? Doesn’t that mean I have lost out on the opportunity cost that my reserve cash could have made me? Such things do happen, but I do not encounter them often. If the price goes up immediately after I have purchased the stock, I will just leave the money in my bank and wait for more opportunities to acquire more of the stock.
It is important not to be anxious and re-enter the market at a higher price for fear of “missing the boat” as this will defeat the entire purpose of buying into the stock slowly. Be patient, and treat investing as a long term activity so that you will not be concerned about fluctuations in the market on a day to day basis. Only by doing so can you continuously average down and purchase stocks at a low price.
To read more stock investing tips and advice written in non technical and simple terms for the ease of understanding for the layman and beginners, visit http://www.stockinvestingcentral.com
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