Have you heard of the story of a brilliant mechanic?
He was hired by a nuclear power plant manager to fix their nuclear reactor. After checking the gauges and meters, he went to one of equipment and put an x on one of the modules. When the module was changed, the nuclear reactor worked perfectly.
When asked for a bill, he quoted for $10,000. The plant manager asked for a breakdown. He asked the mechanic to provide him with the bill breakdown.
Here is his breakdown.
Chalk – $1.00
Ability to put x on the defective module – $9,999.00
What does the story has to do with stock investment?
You see opening an account and funding your account is the easy step. Knowing what to buy, when to buy, how much to buy and when to sell would determine whether you multiply or lost your money down the road.
It’s the strategy for stock investing that matters most.
Investors who use this strategy has one clear goal – to buy when the price is at the bottom and to sell as the stock price is at the ceiling.
Sounds a good plan. The only catch is that how do you know if the price is at the bottom or at the ceiling.
There are 2 school of thoughts in timing the market.
The first one is fundamental analysis.
Fundamental investors are also known as value investors.
What they do is check the profit of the company, financial statement, debt, capital, product inventory, company sales and revenue, company expenses and company performance compared to peers in the same industry.
When according to their computation the value of the company is cheaper than its actual value in stock market, they buy the stocks.
The second school of thought is technical analysis.
Technical investors don’t care about the financial standing of the company. What they care is the stock price trend of the company.
As they track the stock price in different time duration (5 years, 12 months, 30 days or 7 days), they look for possible pattern or clue based on the trend whether the stock is going up or going down.
I’ve been investing using market timing before. Challenge is it is time consuming. It is also difficult to predict the market. And since you buy and sell regularly, a big chunk of your earnings go to commission.
It is fun and exhilarating. But it is also stressful. This is the kind of investing that makes you stay awake at night.
I recommend that you stay away from using market timing unless you are a professional trader with years of education in stock investing.
This is the strategy for ordinary people. Since you acknowledge that predicting the stock price is not easy, you decide to buy regularly to average the risk.
If the stock price goes down, you buy to get stocks at bargain. When the stock price goes up, you still buy. The key to make this work is to buy solid and reputable companies regularly. And you need to do cost averaging with a long term perspective.
As long as 10 years or even more.
COL financial has a section dedicated to help investors who want to do cost averaging. They have a list of recommended companies that you can select that you will buy regularly. You can check EIP (Easy Investment Program) here.
This strategy is the same as cost averaging but it has a twist. You still buy regularly. You select strong and reputable companies. But you buys strategically.
You only buy when the price of the stocks of the company is lower than buy below price. You also sell the company when the stock price hits the sell above price. And the profit you get from the sales, you will use that to buy another company with stock price below the buy below price.
This strategy is being used by Truly Rich Club members. TRC members have access to updated SAM table with list of companies with buy below and sell above prices.
Which investment strategy is best for you? You decide.
But as for me and my household, we will praise the Lord. 🙂
Yes, as for me and my household, we love to invest with style using SAM.
Got questions, comments or clarifications? Just add them on the comment section. I’ll do my best to help you.
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