Market Strategy Part II

Continuing with the investment strategy I am hoping to help you learn and understand. Normally, I would have made the next investment in Facebook (the stock I had chosen to follow for this example, on or around the ! nd of "arch, but instead, I chose to hold off seeing if the price would drop. If you remember the previous installment, the price basically increased and now I have a drop in the price to show you how it works. #fter waiting the price has fallen to $%&.'% per share from $&&.() a share in February representing a $*+.*( decrease or an *%.!, drop in value. -his is when this all gets very exciting. #s I said several times in the previous article, ."/-I/N #--#C0.1 -/ 2/34 "/N.2 5I66 7I66 2/3 .8.42 -I". IN -0. "#47.-9 2es, you have taken a loss if you panic because the price has fallen and you sell now. Currently, the loss is only on paper: you haven;t actually reali<ed the loss. -o paraphrase 1onald -rump, you make money in a bad market=yes, you do make money in a good market but not as much and as fast as you will in a bad market. 0opefully, with this downturn and the continuation of this example, you will see why. >tocks do go up and down because of cyclical reasons, business missteps, and mostly due to emotions such as greed and fear. 0owever, if you look at the stock over the years since its inception, with all of the dips and peaks you will notice that the overall trend is that the price is increasing at approximately ?,. 5hen the market or price goes down, here is the opportunity to increase that rate dramatically. -his is possible because you are able to pick up more shares at a bargain price which brings your average price per share down. #nother thing to remember is that in the stock market, what really is important is the number of shares. "ore shares you have then higher your dividend payments and the more votes you gain in the company. /ne of the ma@or reasons I like this method of investing is that it gives you the opportunity to average out your expenses. It is incredibly difficult to pinpoint lows and highs. 2ou can decipher cyclical changes in the company you are following: with most businesses there are times during the year when the price is high and low. 0owever, you never know for sure how low or how high: if you could, you don;t need to listen to this method. 5ith this method, instead of saving up a bundle and dropping it all on one transaction hoping it is low which is a lot like playing the lottery, you invest portions of it over time while getting a feel for the stock you are investing in and though you may not get the exact bottom price, you will be pretty close or close enough to drag your C/>down. 6et;s get back to the example. In our first strategy example we had been investing a constant $*++.++ each month. #s of the last transaction we had made, we had %.A&' shares valued at $A%(.!' which we had purchased for $A++.++. 5ith the current price our shares are now worth $A+).%?. 5e are still showing a gain of $).%? or a *.%A, gain. #B#IN, -0. -0INB -/ 4."."C.4 I> -0#- -0I> I> /N62 # 6/>- IN 8#63. /N D#D.4. 5e are trying to invest and build up our value right now. 2es, it would be a concern if we were retiring and wanted to cash in our stock soon, C3- 5. #4.N;-.

>o, for this month, we are making another purchase of shares for $*++.++ which will give us *.'&! more shares. -his will bring our grand total to '.*!( shares of Facebook. -he current value with this purchase is $)+).%' and our total cost to date is $)++.++ which represents a *.*), gain. #gain, we are @ust starting out and we want the price to be low while we are purchasing. I might point out too that though the stock has recently recorded a E*%.!!, change we are showing a *.*), gain. 6ooking at our second strategy we are shooting for a goal of a $*++.++ increase in value each month. 6ast month after making our purchase we had a value of $A++.++ which was our goal. 0owever, taking into consideration the current value per share of $%&.'% and the fact that we have ).)?! shares, the value of our shares in this example is $!%).A%. 5e had purchased what had been $A++.++ worth of stock for only $!)A.A+ so we are still looking at a ).%), return on the money we have invested so far with a stock that had @ust dropped *%.!!,. 0owever, since our goal this month is $)++.++, we must invest $*)%.&% to hit our goal. -his transaction will give us !.%&' shares bringing our total shares to '.+)( shares with a value of $)++.++ which we have purchased for $A??.(% representing a !.?), return on the investment so far. #nother thing I like about these two strategies is that the emphasis is on buying more shares while the price is low and fewer shares when the price is high. 2ou may have noticed that the returns are higher and the average cost is lower in the second example: this is due to buying more shares at a lower price bringing the average cost per share down. -his is why I tend to prefer the second method to the first, however, the first is far easier for most to keep track of: you @ust continue to invest $*++.++ each month while the second example;s amount will vary from month to month. 6ater on, another thing I like to do is to have stock in several companies at the same time=this is very expensive to maintain the same strategies above or you can do a variation. In an earlier time, I had stock from *% different companies, using the second strategy, I would look at the stocks, comparing their current price to their respective %! week high and low and see which one was closest to their low=that is the one I would invest in for that month. #nother thing you can do with multiple stocks is that you could acFuire stocks with different cyclic downturns and highs. -his is very tricky. 2ou cash in most of your stock that is in its high and invest it in the one that is in its low cycle and then reverse the operation when they switch. For exampleG 5alE"art;s cyclical low is in Hanuary through "arch, 0arleyE1avidson;s high is in this period as people are gearing up for biking season. -ake (+, of your 0arleyE1avidson >tock, cash it, and buy 5alE"art >tock at its annual low. -hen in /ctober through 1ecember is 5alE"art;s cyclical high as people are going nuts for Clack Friday and the holidays, meanwhile this same period is the cyclical low for 0arleyE1avidson as people are putting away their bikes and gear for the winter. 2ou cash in (+, of 5alE"art;s stock at its cyclical high and purchase all the 0arleyE 1avidson stock at its annual low. 0owever, this is down the road for now. 4ight now, we are @ust getting started. Bood luck and good hunting.