“You have to buy stocks the way you would a nice suit. Pick a high-quality, well-established brand — then wait for it to go on sale.” – my Opa.
Everyone knows investing in the stock market is about buying low & selling high, though intuition tends to make us act the opposite: if stock prices are down, we feel motivated to sell because we’re losing money and if they’re going up, we feel motivated to buy more because they seem to be money-makers.
I take my Opa’s advice. I actually wish I had more money to put more to use under his direction, but sadly I still don’t have a lot of cash to play with. Nevertheless I implement his strategy by watching big name companies, and waiting for a good price to buy. I watch the shares of many companies you might be familiar with:
Coca-cola, Pepsi, McDonald’s, Proctor & Gamble, Johnson & Johnson, Black & Decker, Kimberly Clark, Target, Mattel, Disney, Microsoft, Apple, Google, Telus, AT&T, Shaw, Netflix, and well, the list goes on. Some of these I already own, some of these I’ve bought & sold, some of these I’m waiting to go on “sale”, others I’m just watching and waiting for a collapse (or a revival) out of pure curiosity.
I keep some labor intensive spreadsheets when I’m bored, but generally I just check up on stock prices of these companies on my iPhone to see how they’re doing. After you watch a company for a few months and see the fluctuations in price, you start to recognize when is a good time to buy in. One of the main reasons I contribute to my brokerage account monthly is just so there’s ALWAYS some money in there so I can grab a good stock at a good price should the opportunity arise.
I haven’t been investing very long, but I’m amused to see my mock portfolio strategy has intensified rather than died off now that I’m using real money. For some reason I expected I would only watch the stocks I own, but I find I’m more interested in the market than ever.
Do you invest in the stock market? Do you have a strategy or follow any advice? Furthermore, is my Opa awesome or what?
I have my non emergency savings in this fund http://www.bloomberg.com/quote/DKPFREM:NO
It crashed a few months after I started saving in it but been coming back up since. In total my investment has gone up 0.04% since I started and I hope for some more increase of course :-)
I love the stock market. I have been managing my 401 for almost two years now and probably will the rest of my life. What I like to do is pretty much the same as what your grandpa said, find good companies and wait til they go on sale. I love buying cheap, but that also doesnt stop me from buying higher if that is the trend. I try to make money both ways, on the upside and the downside, although it is harder to do in a 401 (I can’t go short in my 401) its still possible with bear ETF’s. Good luck with all your investments, its awesome to see others taking control of their retirements.
I take a similar investing philosophy as your grandfather too. Because of this, one of the first individual stocks that I chose was Cisco (which had been falling for a long time, and I eventually bought around $16.50). Its fundamentals were a lot better than what it was trading for, and I’ve made a nice little profit on it so far.
I’ll just add that The Intelligent Investor, by Benjamin Graham, contains all that you’ll ever need to know about buying stocks. It’s Warren Buffett’s favourite book on investing.
To avoid reading this tome in its entirety, you can also just listen to Warren’s advice. Only buy dividend-paying stocks. Buy when the yield is high and the P/E ratio is low (when Mr. Market comes calling with a deal that your Gpa talked about). Find companies that have a solid competitive advantage or a “moat” as it’s colloquially called; the funniest method for finding a ‘competitive moat’ I’ve heard is to buy companies that you hate but that you still deal with — if you hate them and still deal with them, they must have one hell of a competitive advantage.
While you should always buy established companies (not penny stocks), this doesn’t mean that you should only invest in large capitalization value firms like Coke, Exxon, etc. I bought some Winnepeg Free Press at $4.50 at the beginning of February. I don’t care what happens to the price; capital gains are taxed higher and they’re always fluctuating. Focus on the dividends; that’s the long term value of a stock. This type of investing separates value investors from speculators (same distinction can be made in the real estate market, too!).
I will check out that book thanks!
I do buy primarily dividend stocks right now. It’s been a great way to build the foundation of my portfolio.
I invest in target retirement funds. 2 of them lol. and some other mutual funds that i don’t actively rebalance, etc. I play around with weseed.com which is a great way to “invest” fake money into the real stock market at real prices. Check it out if you are really thinking about investing in individual stocks.
Love your Opa’s quote!
I’m also biding my time, waiting to free up some cash. I need to get my financial feet under me before I can start looking at stocks. Hopefully 2013 will be the year!
You’re opa is correct – but you’re missing the point.
Buying a stock on sale has very little to do with the share value.
It has everything to do with the intristic value of the share price v. actual share price.
A share that drops 50% does not mean it’s on sale, unless it’s intristic value remains a minimum of 2/3rds greater than trading value.
What is a share actually worth to determine if it’s onsale or not? Fundamentals.
Am I missing the point or did you just read this wrong?
Who said anything about stocks dropping 50%? I’m not about to grab shares of a tanking company.
I said “waiting for a good price to buy”. In order to know a good price to buy, you have to be familiar with the the company and do your research of the stock.Often the best time to buy is when the share price is increasing: ie. Apple last year.
When I started out investing, I did many of the same things you did. However, that was also in the late 90′s and early 2000′s. I got burned by owning individual stocks, and have only used ETFs and funds since then. My finance professors often said the only free lunch was diversification. Granted, you can by a bunch of dividend paying, good name companies, but that still only offers some protection as many of these are very highly correlated with the general market. I do love the advice of your grandpa to wait until they are on sale though! Research done over at CrestmontResearch.com has some great (and very large) matrixes of what the 10 year returns are based on current P/E ratios and similar metrics. Waiting really does pay off!
I love his advice. I’m not investing in the stock market as yet but I intend to in the future.
Your Opa is fantastic! All I have right now are mutual funds but when I’m ready to get into the stock market I think I’ll start off gradually, as the stock market and taxes are two things that still really confuse me about personal finance!
Ever gave a thought about why one would want to become rich at all. Do rich people take more money with them upon death? Are poor people always sad and gloomy and the rich always glad and jolly?