Consider scaling into your investments next time you’re looking to buy an undervalued stock. By scaling in, I mean don’t buy it all at once but rather build your position over time and growth with your position as it grows.
A way to do this is to split your money into 3 stages. First, allocate anywhere from 10% – 30% of your liquidity to your first “buy”. This will be your established in your position and put skin in the game. Plus, it will take away any logistical electronic trading challenges you were anticipating to make latter trades all the more easier.
Next, replicate same amount you used in your first stage when the stock moves significantly…ideally in a downward direction. This allows you to take advantage of dips and grow your position at a better starting price. With that being said you might also want to consider this if the stock makes a significant upward trend as you don’t want to miss out on the upside.
Third, wait for a major correction in the stock and deploy the remainder of your available money. Again this will dollar cost average your buy price on the lower band and give you significant upside opportunity. Buy when there is blood in the streets.
Whatever you do, don’t go all in all at once. Take your time, pick your spots, and enjoy more restful sleep at night knowing you’re engaging in a form of risk management. Don’t put all of your eggs in the same basket at the same time…spread the risk over the medium term and strategically grow your wealth.
