When there is rapid fluctuation in the price of a stock, should you invest today or wait for a dip? I think there are a couple of things you could do (ignoring options).
1/ Buy the stock today
2/ Wait and buy the stock in the future
3/ Buy some other stock
4/ Drip the money into the market
5/ Do something else with the money.
Talking through these will hopefully help answer the question. For this example, let’s assume the question is if one should buy 75 shares of Apple now or wait for a dip.
If we start with 1/ you buy 75 shares today, you pay the price today and tomorrow the stock price may go up or down which may give you buyer’s regret or make you feel good. But essentially you are locking in the price you are offered today.
2/ Wait and buy in the future – well, you don’t know which way the stock is going to go in the short term (unless you have an analysis that is rock solid) so it may be cheaper, it may be more expensive tomorrow. If you have a fixed amount of capital to invest you may get more or less than 75 shares based on the direction of price movement.
3/ If you buy the stock today, you are giving up the opportunity to invest that money in some other stock, perhaps you analysis might suggest that is a more favorable investment so I don’t think this should be discounted
4/ Drip the money into the market by buying some stock today and some more tomorrow until you have your 75 shares… this benefits from the concept of dollar-cost averaging.
Definition: – a strategy to reduce the impact of price volatility (fluctuations) on the investment.
Dollar-Cost Averaging
5/ Do something completely different with the capital other than investing in appl or stocks – a variant on option 3… Perhaps there is a less volatile or more profitable investment option out there.
My suggestion is to look at option 4 if you are worried about price fluctuations and really want to invest in a particular stock. Otherwise, think about doing some careful analysis to determine if the stock is good value at the current price or not.
Leave a Reply