Buying Strategies

Written by The Dividend Guy on December 23, 2006

Through my web travels in the past few months on various message boards and sites, I have been seeing a lot of talk about different buying strategies that people can use when buying shares of a company. I think this is an important topic to cover.

The way I see it, an investor can buy shares in one of two ways:

    1. Lump sum purchase - buying the shares of the company you like all at once with no intention to add to your holdings in the near future.
    2. Buying in smaller increments - building your position in a company over a certain period of time (3 months, 1 year, 2 years - whatever).

I think there is validity to both, however I tend to stick with #2 - buying in smaller increments. I do this because I add to my investment account all the time so I buy shares when I can. I also do this because if I like a company and want to buy it, I often can buy it later for lower than my initial purchase. Stocks fall for many reasons, and sometimes it is simply the market pulling the stock down with it. If I am committed to a company, still like the fundamentals, and am still comfortable owning it, then any drop in price is an opportunity to buy more at a lower price. My experience is that this has enhanced my returns. The trick is ensuring the stock is not dropping for reasons of poor management and financial performance.

In summary, do what you can and buy shares in good solid companies when the money is available. Do not be afraid to buy shares a few times as the share price jumps around.


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2 Comments so far

  1. Tim December 27, 2006 10:52 am

    A timing item to consider: When the stock goes ex-dividend it will drop by the amount of dividend. Buying on or soon after the ex date will lower your cost basis.

    Obviously, you don’t get the dividend, so the judgement would depend on whether you are in a taxable or tax-deferred account.

  2. J Grand December 27, 2006 10:50 pm

    Hi,

    As a dividend investor, I wanted to let you know about a web site that I work on that may be of interest to you…

    www.dividenddiscountmodel.com

    Thanks!

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