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Post of the Day
July 19, 1999

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Subject: When to buy?
Author: skarolek

A bunch of great answers. I'm very happy with when and at what price I bought my first shares of CSCO last January. However, one of the answers gives me pause to think. I'd like to open this one up for further thought and discussion. I'm sure you're all up to it ;-)

Save your pennies and buy on the dips.

Let me start by stating that I don't disagree...but I think it might be useful to dig a little deeper.

Q1. How many pennies should I save before I buy?

For me, I've decided that I will buy in chunks no less than $1000 to minimize the commissions I pay ($7.95 per trade at Suretrade in my case) over time. That may or may not be the "best" buying increment. Heck, I remember when the prevailing thought was that (given high commissions and odd-lot surcharges) you couldn't get into a portfolio with less than $10,000. Thank goodness that barrier has been lowered. However, if the money is going to accumulate in a "penny jar", or a checking account (two very likely candidates), it won't be working very hard, or at all, while it accumulates. Does this fact represent an opportunity cost that should prompt me to consider buying in smaller chunks so the money goes to work for me faster?

Q2. What's a dip?

I know this one can generate some discussion. First of all, we Foolishly teach DO NOT TRY TO TIME THE MARKET FOR YOU WILL LOSE. That said, we all know that there will be events in the market that will imact the instantaneous price of our favorite stocks regardless of the fact that the event has nothing to do with the performance of the company behind the stock. Those events sound like dips, and if they happen to coincide with the timing of an accumulation of available cash of critical mass, make great buying opportunities. However, does it make any sense at all to wait for them? Think about the issue raised above, that annoying little fact that our money isn't working very hard while its accumulating critical mass. The longer we wait for a dip, the more opportunity cost we experience, especially if a dip "never" (bad word, I know) comes.

So, now I'm at the point where the strategy becomes:

- decide on a minimum buy critical mass and
- buy every time you reach it to get the most bang4buck

Well, OK, but what about those dips? We've all been there. Gee, if only I had a little extra cash, this would be a great price to get in. I can only come up with one answer that makes sense to me in this context, and that answer is ignore them. Buy mechanically and unemotionally and over time, it just won't matter.

So, from this perspective, the advice changes from:

Save your pennies and buy on the dips.

to

Save your pennies and buy.

I welcome thoughts and comments...

Steve K