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I'm a Singaporean. The purpose for all my blogs is to share my life experiences in Singapore.

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Tuesday, January 5, 2010

Rule no. 5: For a wonderful company, be delighted when its stock price falls, be regretted when its stock price rises.

A lot of investors do not like to see the prices of their stocks fall. However I do have a different view for this. I always buy stocks that have good fundamentals and at my fair price. If the price drops before my fair price, I will average down by buying more instead of cutting loss. My theory is very simple, buy when it is cheap, and buy some more when it gets cheaper.

Stock with a good fundamental will have a good chance of going up again. Furthermore I can collect dividends while waiting for the stock to go up again. That is why I always choose stocks that offer good dividends.

I have a friend who had bought Singtel at $3.40. The price started to drop until $2.85. I advise him to hold rather than cutting loss, and if he has extra money, he may want to consider averaging down. The price of Singtel at the point of writing this post has gone up from $2.85 to $3.10. He had collected a total dividend of $0.131. Though he is still making a loss now, but in my opinion, he will have huge gain in the future eventually.

I feel regretted when I see the stock price rises. It is because I am seeing myself buying stock at a higher price.

My Quotes/Rules of Investment

3 comments:

Eric See said...

interesting post

Thomas said...

Hi Freedom Achiever,

Instead of averaging down, how about sell off everything before the market goes down?

Assuming the example if your friend bought Singtel at $3.40 and so unlucky it's during economic crisis, then he sell at $3.35 assuming, then when price dropped till $2.85, buy in again?

Freedom Achiever said...

Hi Thomas,

Market direction cannot be predicted. No one will know whether the stock price will go up or go down. So don't ever assume. As long as you bought the stock at your calculated fair price, you should hold your stock until it reaches your target sell price.

Regards
Freedom Achiever

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