Taming the Money Sharks: 8 Super-Easy Stock Investment Maxims

Appendix B

Deciding on Buy Prices

Let me now reemphasize that investors must assess their own personal situations and decide on their own risk acceptance levels and investment horizons. Stocks are risky by nature; investors must consider their age, family situation, cash flow needs, and the like and invest accordingly. The discussions that follow are for reference only.

For example, when you decide to invest a sum of money (100%), you may consider buying in via three tranches, the first at 34%, the second at 33%, and the third at 33%. In other words, if you have $10,000 to invest, the tranches would be in amounts of $3,400, $3,300, and $3,300, respectively.

Let us assume that after performing fundamental analysis, you select a stock and a “fair value” would be $72/share; thus you intend to buy at $72 or lower. For this example, large price fluctuations are purposely used to illustrate this “separate tranches” concept.

Referencing Figure B.1, you may wish to use technical analysis (TA) to determine your buy-in prices. If prices fall below the 20 MA line (20-day moving average) say in June, you may allocate $3,400 to buy at $70/share for 48.57 shares.

Assuming the price continues to drop in July and hits the 50 MA line, you may use $3,300 to buy more at $62/share for 53.22 shares.

Figure B.2 shows a really simple example of a $10,000 investment.

Figure B.2 Buy Using Several Tranches ...