Buying Stocks on Sale
Yesterday, the stock market dropped the most since November 2011. So, what was your take? Did it bother you that the value of your stocks dropped significantly or did you consider it an opportunity to buy stocks on sale? Matt makes a great contrast between the attitude of declining prices when it comes to stocks versus the response to declining prices with gasoline.
I look at the fact that my investment horizon is over 25 years. I figure that trying to pick up some shares on a down day is better for me in the long run. I bought several shares of STX last week for $25.82 on average when it was down over 8% in a day due to some poor guidance. I figured that the stock pays a dividend which should help create a floor under any sort of decline. I also figured that I could always sell some covered calls to decrease my basis if need be.
Yesterday Bought More AKS
Yesterday, I was able to purchase another 100 shares of AK Steel for $6.95. The plan is to sell some covered calls with the $7 strike and a May expiration. I put in the order today to do so at $0.65 per share. It hasn’t sold, but I wouldn’t be surprised if it did over the next two days before the weekend.
If it doesn’t happen and the stock ends up dropping again, I can pick up some more shares below $7. It is not a big deal and will lower the overall basis of the stock. The biggest risk is that AKS has financial difficulties and stops paying a dividend or even goes bankrupt. I don’t think that will happen over the next few months, but I do have to consider that if I increase my position too much, I will want to buy some protective puts.
I had some put options when my position was bigger. They paid off for me as the stock slid from the teens down into single digits. But now my overall exposure hasn’t been that large so I let the puts fall by the wayside. I figured I would save the cost and simply work with selling calls. However, it may be worth reconsidering if I want to purchase more shares over the next few days.
The other consideration is the fact that earnings will be coming out later this month. That can always be a big trigger for volatility and moves one way or the other. A big move down is bad and could hurt. The May $6 strike puts cost $0.15 each. It is probably worth it to buy some tomorrow and prepare to sell some calls as well.
Overall, the market has made a decent run over the past few months. I am not surprised that it is time for a breather. Summer is coming and earnings season is expected to be disappointing. Even though yesterday was a big down day and today saw a bit of a rebound, I would probably use the down days to add to positions but only a little bit at a time. That is what I will be doing.
So, are you buying any stocks?
I always try to buy on the down days each month. Like you I look at it as opportunity to increase my positions at sale prices. This month not sure as owe 3 whopping tax bills and business has slowed to the point that I’m sweating making my break even point this month. So may be waiting till the end of the month to see what to do.
Jeff @mymultiplestreams recently posted..What if You Can’t Pay your taxes?
That sounds like a good idea. Hope this month ends up halfway decent for you. I hate the big tax bills myself.
Broad market index ETFs for me. I did rebalance, however, during this recent 4% correction we just had.
BusyExecutiveMoneyBlog recently posted..April Random Financial Musings (plus Carnivals)
Sounds good to me.
It takes solid nerves to buy on a down market, especially when it’s several days in a row as it feels the world is ending. But this is the way to do it and with your investment timeline, I believe you should be more than fine.
BeatingTheIndex recently posted..Canadian Interest Rates Forecast 2012
Yeah, I don’t plan on having to use retirement account principal in my life, ever.
The markets still aren’t cheap enough for me to deploy capital. I think we’re really close to fair value, and I’m a little concerned about continued earnings beats. Oh yeah, and Bernanke…the market’s addiction to quantitative easing is a little concerning.
There are always a few values out there. It’s just that they’re a little costlier today than they were in Autumn. Man, stock prices were awesome just 6 months ago.
JT recently posted..Best Buy is not a Value Investment
I would also be concerned about earnings. The companies have probably squeezed as much savings as they can out of the system. They need revenue growth which just isn’t going to happen in too many categories with the current environment.
Just bought my first straddle Friday. Best Buy.
Call – $23, Jan 2013 expiration
Put – $20, Jan 2014 expiration
Will post about it soon.
Drew @ Epicfinances.com recently posted..Apparently the Best Way to Make Money is Imagination–Caine’s Arcade
Can’t wait to read about it, that’s for sure. I love options.
One day I will get into all this – financial mathematics is fascinating because it is all about modelling a market of hope and expectation rather than some physics. So spotting the natural frequencies and amplitudes must be a key.
Of course I would want to do it automatically….
But meanwhile I stay on the sidelines and try to learn….
Interesting.
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Don’t stay on the sidelines learning too long otherwise you will end up 20 years into the future having done nothing.
My 401(k) plan just invests my contributions in a money market fund. I then log in and invest the money as I want. I looked at the drop as a great buying opportunity and bought in with the cash I had. I usually buy at least once per month so that I don’t have a lot of cash sitting around earning me nothing, but lately I’ve invested less looking for a pullback in order to pick up some extra shares.
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I would think that there might be a pull back with the summer months coming up. It is typically a season of weakness in the market.