Have Realistic Expectations

wealthymattersForget about buying a stock, a fund, or an index at the bottom or selling at the top. Yes, somebody does, but that elusive somebody will never be you. The truth is that after you buy a stock it will go lower — not sometimes, but always. And when you sell a stock, it will always go higher. It’s not bad luck or bad timing. It’s simply unrealistic to expect that, competing with thousands of other players, you’re going to be smart or lucky enough to get the very top or bottom tick.

If you know ahead of time that it’s going to go lower after you buy it, why not wait? The reason is because if you do and the stock goes lower, you’ll want to wait some more. But then, at some point, it’ll turn around and you’ll be left on the sidelines. The best you can do is to buy in a reasonable buying range, know that it’s going to tick lower after you buy it, but also know that you have a position in the stock and will benefit when it goes up. Don’t be disappointed when this happens. It happens to everybody. It’s part of the game.

Also worth remembering: In more cases than not, stocks go down faster than they go up. The likely reason for this, at least in part, is that the emotions that trigger selling are felt more intensely than those that motivate buying. It’s usually more urgent to get off the train than to get on.-Dick Davis

An Important Distinction

wealthymattersThere is an important distinction between prospects for a company and prospects for the stock of that company. One can be good and the other can be bad. All the good things management says about the company may already be reflected in the high price of the stock which may, in fact, be due for a fall……. It behooves investors to be aware of this and to remember that the stock of even the best company with the best prospects should be bought only if it’s reasonably priced.-Dick Davis


wealthymattersIn most cases, when you buy is more important than what you buy. You can make money on the most marginal company if you buy it at the right time; you can lose money in the bluest of blue chips if you buy it at the wrong time.

The right time is when a stock is selling reasonably near the low end of its trading range or at an historically low price/earnings multiple, or when any other trustworthy guideline indicates a sharp reduction in risk. This low entry level provides a safety net dangerously missing at higher prices.

The wrong time to buy for the long-term investor is when a stock is selling near the high end of its trading range or at an historically high price/earnings multiple. – Dick Davis

Dick Davis On Stock Investing

wealthymatters.com1.Bad markets are always followed by good markets.

2.Times of peak investor withdrawal from the markets (capitulation) represent excellent buying periods.

3.No one can buy at the bottom or at the low.

4.There is no reason to buy all of a position in a stock at one time. Partial commitments make good sense in volatile markets.

5.A dollar-cost-averaging approach, strictly adhered to, eliminates the need for market timing and, in fact, works better in declining markets.

6.The odds of a stock participating in a future bull market are greater if it is a seasoned, quality issue than if it is not. Read more of this post

%d bloggers like this: