| Let's say you are interested in this one company. | | | | more XYZ at a lower price. If XYZ drops by $ 1, you |
| You read its annual report, like what you see and | | | | already save $ 83 off the bag. What else is there? |
| your calculation indicates that the stock is trading | | | | Dollar Cost Averaging (DCA). With DCA, investors |
| way below its fair value. You are excited. It is time | | | | normally buy a specified dollar of stock at regular |
| to buy! Hang on for a second. There are several | | | | intervals. In this case, you can decide to invest $ 500 |
| techniques of buying stocks out there. Some are | | | | monthly in XYZ stock. If the XYZ stock falls, you |
| better than the other. Let me explore several useful | | | | can buy more shares next month. If XYZ stock rises, |
| ones. | | | | you would buy less. But it is ok. You already made |
| Buy all at limit price. Assume that we have done our | | | | money on XYZ stocks that you bought at a lower |
| research and we want to invest $ 2000 to buy stock | | | | price. |
| XYZ at $ 12/share. We can do this by setting a limit | | | | Which method is the best? There is no clear cut |
| order of $ 12/share to buy 166 shares of XYZ. The | | | | answer on this. Personally, I will never use market |
| advantage for this method is that we will not pay | | | | order when buying a stock. Commission for buying a |
| more than $ 12 for our XYZ share. If you use | | | | limit order is not as expensive as it used to be. My |
| market order, instead of limit order, XYZ might run | | | | favorite methods is by buying half position initially and |
| up to $ 13/share and execute your order at $ 12.50. | | | | then add half more when the share price drops. If |
| Fifty cents may not sound a lot, but in this case, you | | | | you have done your research and you feel that $ 12 |
| just saves $ 83 for using limit order. Any better | | | | per share is a good buy, then why won't you buy |
| methods? Check out this next one. | | | | some more if it goes down to $ 10? Just make sure |
| Buying half at $12. Buying half when it drops. Stock | | | | that the fundamental remains the same when the |
| market is volatile. It goes up and down due to | | | | stock drops. |
| various reasons. In this case, we set a limit order to | | | | While knowing how to initiate your position is |
| buy $ 1000 worth of XYZ at $ 12/share. When XYZ | | | | important, I am more inclined in focusing on how to |
| drops lower, and if you think that the reason that | | | | calculate fair value of a stock. This is where the bulk |
| you initially bought it is still valid, then you can buy | | | | of your investment return comes from. |