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A friend just messaged me and says he has $100,000 to invest but is afraid to start buying stocks because he thinks we might get a 10-20% drop.
This is what I told him to do
This is what I told him to do
Plenty of investors have been predicting a big drop since April and look how much upside they’ve missed.
Bottom line, I’m not smart enough to predict a bottom and neither are you.
Bottom line, I’m not smart enough to predict a bottom and neither are you.
Even if you are bearish in the short term you should still be 50% invested because there are still dozens of reasons why these markets could go higher.
In terms of portfolio construction and averaging into positions this is what I suggested to him...
In terms of portfolio construction and averaging into positions this is what I suggested to him...
Let’s assume you have $100,000 and want to own 10 stocks at 10% each.
Now let’s assume $FSLY is one of those stocks so a 10% position would be 100 shares of $FSLY at $100
Now let’s assume $FSLY is one of those stocks so a 10% position would be 100 shares of $FSLY at $100
If you are concerned about a pullback and want to average into positions this is one way to handle it.
Buy 50 shares of $FSLY at $100 then setup the following limit orders:
10 shares at $96
10 shares at $92
10 shares at $88
10 shares at $84
10 shares at $80
Buy 50 shares of $FSLY at $100 then setup the following limit orders:
10 shares at $96
10 shares at $92
10 shares at $88
10 shares at $84
10 shares at $80
There’s nothing wrong with taking the stress and guessing out of building your positions.
Of course there’s no guarantee $FSLY pulls back to $96 which means none of your limit orders get filled but at least you have a 1/2 position which is better than nothing in this scenario.
Of course there’s no guarantee $FSLY pulls back to $96 which means none of your limit orders get filled but at least you have a 1/2 position which is better than nothing in this scenario.
