Buy and Sell
Buy Low, Sell High. This is obviously a good idea. In practice, it does not sound as easy as it sounds. How do you know that tomorrow's prices will not drop 10% or 30% of the things? If you buy all the cash today and drop another 50% tomorrow, there is no amount of self-kicking that can ease the pain.
Take Leucadia as an example. It first announced its shares in AmeriCredit (NYSE: ACF) in early January 2008. As of May, it averaged about $ 13 per share to buy about 26% of the outstanding shares. When Fitch confirmed AmeriCredit's negative outlook, its stock quickly fell into free fall and did not stop until it lost about 37% of its market value. All along, Leucadia has been waiting to see. Recently, Leucadia eventually acquired the last 4% of the outstanding shares ($ 7.63 per share), according to AmeriCredit's agreement, to maximize the available stock it can own
No one can expect that Decreased significantly. So, begging the question, "How do you know if you are buying at the bottom?"
The truth is nobody knows. "When stocks are attractive, you buy them, of course, they can go low, I buy the stock for $ 12, rose to $ 2, but then rose to $ 30 and did not know when it was going to be," said Fidelity Magellan Fund Broker Peter Lynch. You can find the bottom. "
The best defense against this devastating fall is to make sure you have a great margin of safety. Of course, even with a large margin of safety, you may still face a huge drop after the purchase. However, if you are confident of your analysis, you can rest assured that the decline is only a temporary loss of paper.
Given that we do not know the bottom, how much should we invest in that we have enough margin of safety? Should we go all out? Should we stop some just in case it goes down further? Look at the Leucadia deal, there seems to be no formula to determine when you reach a price point when the number of investment. I believe Ian Cumming wants him to buy all his stock at a discount of 37%. Obviously, he did not expect the price will fall so much. If he knew that he would wait
Institutional investors such as Leucadia and Berkshire usually buy shares in blocks rather than once. The amount of stock purchased will cause the price to jump. When you buy a $ 50 million stake, a 1% increase in price will cost you an extra $ 500,000.
For individual investors, the lack of such purchasing power is actually a blessing in disguise. We deal with a very small amount, almost does not affect the price. So, we do not have to buy big. However, can you buy in blocks to help reduce the average cost?
Buy a large piece is a double-edged sword. If the price falls, it can only lower the average cost. If the price moves in the other direction, it will eventually increase the average cost. Also, do not forget the commissions for friction costs. The biggest risk of buying in a block is that you may not realize that the price is already at the bottom. As the tide rises, it may continue to rise and will never return to the lowest price point. 25 years later, you will spend the rest of your life for your friend How would you be a billionaire and you bought this stock for all $ 10,000 you have.
Buying stocks is a tough decision. Spend all your cash, and if the price falls further, you risk having no cash outlay. Too little to spend, you risk losing the chance to withdraw from the Forbes 400 richest man Buffett
Looking at the sides of the coin, the risks seem to be well balanced. The fact is that if it does, the former is less painful. In fact, Buffett committed the latter's mistake, that this is his investment in one of the biggest mistakes. He admits that when Wal-Mart was sold at discounted prices in 1999, his thumb sucked. He estimates that the mistake cost him $ 8 billion. If you miss the ride, the pain may be worse because of price increases. On the other hand, if you buy as much as possible, how much the price may fall.
So, in order to avoid the pain of the future, I would rather use the hands of all the cash to buy the opportunity itself. When the price goes down further (yes, this happens many times for me.) I usually find that I have some cash on hand because, like everyone else, my income generates some incoming cash flow. So I buy more
Am I completely out of here? What is your strategy for buying stocks?