The BMW Method
Gimme a BUD, and Hopefully Another...

Format for Printing

Format for printing

Request Reprints


By btmart
July 28, 2005

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

The few recent postings on strike prices for BUD highlight an issue we've been talking about with the model portfolio and in other forums, and I think it deserves some attention in the FAQ...

Buying on the drops.

The BMW method and some worthwhile due diligence are two of the reasons that BMW can make the statement that he's never lost money using the method. But there is a third, I think equally important, facet to the method...

Buying on the drops.

It is faith in the method and faith in the due diligence (that the company isn't going to go belly up) that allows the BMWM investor to keep buying at 10%, 20%, and 40% drops below the initial strike price. Wise man say "kahunas of steel not necessary if you trust the BMWM and trust your due diligence."

Which gets us to BUD. I've read "nibbling" prices of $42-43, while the price closed just north of $44 today. I'll wait to see what tomorrow brings, but I'm probably buying my first installment before the end of the day. We're already at a -2.36 RMS on the 20-year chart. I'm not in love with the Return Factor at only 1.40, but a 40% gain will be nothing to sneeze at when the price averages back to the mean. Why wait for $42? Why didn't you buy at $44 if you're confident in the due diligence? The chart says the stock price is headed to $62 or $63 before it even thinks about looking back.

I'd rather have 100 shares at $44 plus 200 shares at $40 (300 shares, average price of $41.33) instead of only 100 shares at $42. What if you buy at $42, hoping the stock will drop to $38 for your second helping, but it only gets to $39? Are you going to be excited that your pick is headed north or disappointed that you didn't buy more? I've read posts from BMW himself where he's literally overjoyed that a stock keeps tanking. He trusts his method and he trusts his due diligence. What has made his returns ginormous over the years is that he trusts...

Buying on the drops.

If you're waiting for a substantially attractive price to take your first helping, when are you ever going to back up the truck? I don't mean to be simplistic, and I understand the importance of establishing an attractive starting price, but do you believe the stock will go back up or don't you? If you trust your due diligence and the BMWM, then the stock should average back to the mean and provide some handsome returns. Get in earlier rather than later, and give yourself a chance to BUTT.

Maybe the cash in my account (actually I've put it in QQQQ - not a parking space I've heard mentioned here before) is burning a hole in my pocket. Maybe I just want to buy in at $44 and hope the thing will drop to $40 so I can take another helping. Don't wait for the perfect buy-in price. If you trust the BMWM, get your money in the game. With the recent news and price drop, I'm ready to get into some BUD. Like BMW, I'll hope to see red in my account over the next few weeks - that's just going to be another buying opportunity.


Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.