THE BEARS ARE KILLING THE BULLS! or Dollar Cost Averaging:how to survive a declining market


Is the stock market cutting you up? Well ignore it, and check out some real cutting by viewing the films of Tsui Hark. How’s that for a transition! 🙂 . Type “Tsui Hark” in the search box to the right to get an overview of the films of this very unique director.

Stocks are in a nice decline. Which is not necessarily a bad thing, if you believe in the companies you hold interest in… in their ability to do well over the long haul. A down market is a good way to minimize your loss by Dollar Cost Averaging down.

What is Dollar Cost Averaging?

Well there are a lot of sites that will explain it a lot better than me, but really quickly it’s the process of buying stocks when they go lower to help maintain the value of your investment.

Example, I buy a 50 shares of company XYZ at $10 a share. I now have invested $500, and have that stock at $10/share. And I’m hoping in the next 2 to 5 years that stock will will double or triple.

However, it’s a really skittish market and the stock you just bought, plummets the next month to $5 a share. Which means your investment is now only worth $250, and $5/share.

At this point you have a couple of options, and they all revolve around multiple factors, but comes down to: do you think the stock is going to rebound.

A. If not and you think its going to keep falling, until it tanks and gets de-listed. Sell your stock and take your loss. $250 is better than 0. 🙂 .

B. However, if you think XYZ is still a good stock, and you still think it will hit that $20 to $30 mark you first forcasted when you bought it, then more than likely you’re going to choose to hold the stock, and weather the downturn.

However going along with B you have a C option. Which is:

C. Hold the stock, and accumulate more stock while the prices are low. This does a couple of things, the most significant being… that buying when the stock is low, lowers your per share price.

Example:

I’m big on XYZ, the drop to $5 I see as a way to buy more stock, and lower my per share price. Cause again I see the stock having a solid base at $10, and doubling or tripling from there in 2 to 5 years.

So I augment my original purchase of 50 shares at $10, by now buying 100 shares at $5.

I now have 150 shares of stock in XYZ. I’ve now invested $1000. And my per share price is now $6.67(rounding up to the next penny). As opposed to $10. So now the stock does not even have to return to the price I originally bought it at for me to break even. The price just has to hit $6.67/share.

So basically that’s how Dollar Cost Averaging works, it allows you to accumulate more stock in a down market, and conversely increase your investment and your potential profit… if and when the market swings up.

It’s a way to make a down market work for you. But it depends on you being correct about the stock going back up, otherwise you could be tossing good money after bad.

But for the most part Dollar Cost Averaging can be an effective way to maintain your investment value in a sporadic or declining market.

Right now I have 3 stocks I’m going to DCA (Dollar Cost Average) while they are down. They are GU, which I’m going to try to buy into at $8. NEON which I’m going to try to get into at $2, and finally SOLF which I’m going to try and get into at $10. A 4th stock, TTM is also a good DCA buy at $16, and will try that one for next month, if prices stay down.

Well that’s a look into the world of DCA. Feel free to recommend your own stocks that your either bullish or bearish on. 🙂 .

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