2 Great Reasons to Buy Stocks You Already Own

Investing legend Peter Lynch once said, "The best stock to buy is the one you already own." I believe he said this because if you buy stock in great companies in the first place, these will likely still be great companies at a later date. Therefore, buying more of these stocks makes a lot of sense. But are there more-specific reasons to buy stocks that are already in your portfolio?

In this video from Motley Fool Live, recorded on June 30, Motley Fool contributors Jon Quast and Brian Withers talk with longtime Fool Anand Chokkavelu about stocks they've recently bought more of. In some cases, investors pre-determine to dollar-cost average their positions over time. In other cases, investors buy more of a stock as their conviction in the company grows.

Jon Quast: For me, adding to a stock that I already owned was Airbnb (ABNB 1.17%), that's most recently in May. Why did I add to Airbnb? Very simple. As I was going into Airbnb, decided that I wanted to dollar-cost average my position. As I researched Airbnb when it came public, I loved everything about it. I'm a happy customer. The only thing that concerned me was its valuation. So because of that, I didn't want to just not invest at all -- l wanted to just break it up into pieces. May was a regular scheduled event, so I added to my position there.

Brian Withers: Awesome, that's really neat, Jon. We love to travel with the family on Vrbo. We're not as much Airbnb fans, but I love the idea of getting more space, getting kitchens, people have their own bathrooms. Certainly, a much different experience than the hotel experience, and it's a little more personal, too. So I think this trend is going to stick around for a while, and I think that's a great buy. 

Anand Chokkavelu: You got me thinking, too. Oh, sorry.

Withers: [laughs] No, go ahead.

Chokkavelu: I got too excited with Airbnb. I just popped up mine, I'm down about a quarter from where I bought because the valuation was also a concern, but I just wanted a starter position in there because I like it so much. You got a great reminder that I need to be looking back at Airbnb. Maybe I should add a little at some point.

Quast: Yeah. The purpose of dollar-cost averaging is just to spread out your investment. It worked out well that it's been down over this time, so I think I started buying around $200 [per share]. So it's down significantly from there. But to the same token, I would've invested on the way up as well. The point is, you make the decision beforehand, and you take that emotion out of the equation. So whatever the stock happens to be doing, you're just buying a little bit more to set interval until your position is where you want it to be.

Withers: Yeah. I love that idea, Jon, taking the emotion out of it. Because once you buy a small position, if it goes up, you're cheering because it went up. If it goes down, like Anand said with his Airbnb, I have an opportunity to buy more at lower than I had. So I think it's a little bit of a win-win, a little bit of brain trick, and it's certainly a good way, especially with high valuations, to get into a stock.

I know that's why I added to Lemonade (LMND -0.46%). I had added a number of positions, and I added almost a third the number of shares before I added at $105 [per share] where my previous purchases were $60. I really don't think about the share price, I just think about the total dollars that I'm investing, and that makes it a little easier to pay a little bit more. Lemonade had pulled back from its high considerably. In the meantime, it had announced that it was getting into auto insurance, and it continues to add customers and grow its in-force premium.

So why did I buy Lemonade and not something else? Well, it was just I was looking at my stocks, and Lemonade was right there in the middle, and I thought it should be higher on the list from a conviction standpoint to match my conviction. I know that's not very scientific [laughs] or it's touchy-feely, but that's what I did.

Chokkavelu: That feels like a great way to do it. I know when I'm looking at my stocks, if my top 10 doesn't include my highest-conviction stocks, then I get nervous and I think, "Well, all right." Especially if there's a downturn, that's when you start questioning. We were talking about Airbnb. Because I like it so much, it's down, no problem. It's a quality business that I want to put more into. If it's a lower-conviction stock that I have too much in... [laughs]

Withers: Yeah. I always look at the position of where that is in the list of stocks. You sort in descending order of dollars and you go, "You know what, I think that one could be higher." This works for me. Awesome, I love the insights and how you guys are adding to your winners.