One of the most important aspects of investing, and one where many new investors make the most mistakes, is when it comes to buying or selling. More specifically the mistake that many make is that they buy all of their stocks at the same time and/or they sell all of their stocks at the same time.
Here’s the thing; trying to find a broker who will take the time to make partial orders is rather difficult. Most don’t like to mess around with partial orders and very few financial advisors will take the time to methodically purchase stocks over a given period of time. What most want to do is get in on a big trade, at a specific level, in a big way and make what they call a “statement buy”. That gives them their position on their sheets or in their portfolio and make them look like a “big shot”. It’s also, as far as we’re concerned, one of the worst (and dumbest) things that they can do.
The top investors will tell you that it’s never a good idea to buy, or sell, everything at once. They will almost always advise that you should stage your buys over time, work your orders as well as you can and do your best to get the best price per share over time. Many people, especially newbie professional traders, like to prove to other traders how “big” they are and, because of that, jump into a stock feet first and buy huge amounts of it at the same time. While this may certainly make a statement, often times that statement is “hey, look at me, I’m new, arrogant and foolish!” Not exactly the statement that you want to make when you are first starting out.
The fact is, if you want to purchase (for example) 50,000 shares of any particular stock, you certainly can but it’s best to do that in increments of 5000 (again, for example) over time, buying them when it appears that their price is the best. What this does is allows you to average out the actual cost of the stock because there will be times when you purchase it that the cost is higher and, conversely, times when the cost is lower. If you purchase everything at once, and you’re extremely lucky, you might make out okay but, for all intents and purposes, luck should never play a hand in your investing decisions. Purchasing over time reduces the risk that you will purchase a stock that’s overpriced and increase the chances that, when you sell it, you’ll make a profit on your investment.
The same thing goes for selling. If you sell over time the chances that you won’t profit as much on your investment is less because if you sell a certain amount one week and the price of the stock goes higher the next, you’ll still have some left over to sell. Basically what you’re doing is using the law of averages to make sure that you don’t buy too high or sell too low. Buying and selling stocks this way might not make the kind of bold, brash statement that some prefer but, in the long run, will usually met you bigger profits. As far as “statements” go, we figure that the best one to make is that you’ve made the most profits because of your due diligence and patient investing tactics.
If you have questions about the stock market, stocks, investing or financial questions in general, we’re always here and always ready to help. Drop us an email, leave us a comment and ask as many questions as you like. We read our mail regularly and we promise to get back to you in a timely fashion with advice and answers.