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

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.

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...

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

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

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.