The other day I was speaking to someone who told me how he bought stocks of companies he liked immediately at one go. I know several people do this. After maybe reading the balance sheet and financial statements, they immediately go and buy in full swing. So if they have decided to allocate 10% of their capital towards a particular stock - they immediately go and buy it all. I usually like buying 1%, ten times over a period of time.
Many of you might think, that it doesn't really matter if you put Rs. 10,000 now in a good company or you put Rs. 1,000 ten times over a period of ten months. However I have learnt, that putting Rs. 1,000 ten times works out to be a much safer strategy and also a much more rewarding one in most cases. Earlier I too would go out an buy stocks at one go, but later realized that most of the time the stock I bought would go lower down. I also learnt that my strategy wasn't balanced and if the stock went any lower, I wouldn't have cash to buy more. This month for instance I gradually bought a bit more of shovels having high growth and another healthy investment.
Over a period of time, I would get a more balanced stock price and would also minimize my risk. Several times people worry if the stock price rises and curse their luck for not having bought more - however at such times we aren't really thinking about the risks associated.
Before you listen to me and follow me. Just do something simple. Look back at stocks you might have bought in the past in one go and think about what your purchase price could have been had you bought small amounts over a period of say ten months. I am curious to know your views on this and want to learn from your experiences.
Another issue of not buying at one go - is that usually investors research a company more when they have invested and the stock price is going down. If you invest a small amount and the stock falls 20%, you will go and do more research. You might find out that the company is still very good and might decide to invest more or alternatively you might decide that the company isn't too good and decide not to invest any more money.
Usually when the stock price is shooting up very few people do any research as everything is good and rosy. These are all human qualities and we all learn with experience.
The mistakes we make on the stock market are the fees we all pay to get this experience. However we can minimize these fees by learning, reading and interacting with people who have already paid these fees to learn. In fact this applies not just to the stock market, but also to life.
My above rule mainly applies to 'investments' and not maybe buying into special situations or trying to buy into a company because it is about to be taken over at a higher price. There my view is more short term and the reason I'm entering it is to benefit from the information I have.
Lately I have also got to meet some very interesting people playing extremely important roles in new growth sectors of the economy. Every time I learn something new, I find out how little I know and how there is an infinite sea of knowledge out there.
How Much Money Do You Put In Stocks?
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