Improve Your Sanity by Easing Into and Out of Positions
I dipped my toes into the stock market many years ago. I took the amount of money I set aside and dumped one fifth of it into each of the five stocks I picked. It was a lot of money for me. The next day the stocks were all down. Way down.
This bugged me. A lot.
Over the year as commissions have become smaller I’ve found a method for investing (and selling) that is much more satisfying to me psychologically.
Say I pick a stock that I think I want to have about $2000 dollars worth of in my portfolio. Instead of hitting the buy button and typing in $2000. I might only buy $500-$700 at first. If it tanks the next day and my belief remains the same I call it a super-duper sale and add on some more. If it goes up dramatically over the next 3 months maybe I end up selling for a profit instead of buying more.
This is not a continuous investment strategy as I don’t aim to buy into a stock over a long period of time, but instead be more comfortable that random events will have a little less impact on me.
A few things to take note of:
- Don’t overdo this. Commissions can eat you alive. I target commissions totaling less than 1% of my investment, although I make exceptions up to 2%.
- Some argue that because the market mostly goes up this is approach leaves gains on the table. I have to say I don’t see a clear cut way to prove or disprove this point. I will say that this technique is about making me a happier investor, and for me it works.
Good luck! -Scott