how to seize an investment opportunity

There are these moments in time that assets are dumped, worth far less than their real value. That is the time when you should be buying these assets. Of course, you need to have the cash available to do so. 

The market correction of January presented such an opportunity. Some really high quality stocks I am interested in were priced crazy low. Unfortunately, I did not mange to seize the best out of the moment. I was lacking a plan.

 

My steps to seize investment opportunities

A first condition is to have cash available to invest. Part of my portfolio is in cash. I can use some of that, but it has already a purpose: serve as security for my put writing. Although it is not kept in my trading account, I prefer to have some cash available for severe markets conditions that could trigger some assignments of stock.

Early July, I altered our plan to have cash available for such an occasion. I had a little bit of cash available as a result. Not a lot, but some. So, we need some more. But at least, there is cash available to seize the opportunity. Given the savings rate of January, I will allocate some more cash to this part of the portfolio.

A second condition is to have a plan on how and with how much to enter the market. This, I do not have. This means that I can not be mechanical when the conditions are there. Each day, I look and wonder what I will buy, if I will buy and at the end, I do something. More a random act than a planned move.

Going forward, this is the plan

If the below is not applicable, invest less than foresee

Market is 15 pct below the average price of the world tracker –> buy without putting extra money aside

Market is 20 pct below the average price of the world tracker –> use 20 pct of the funds to increase the position in the tracker

Market is 30 pct below the average price of the world tracker –> use 20 pct of the funds to increase the position in the tracker

On a reread, this sounds too complex. First of all, 20 pct of the saved up money is for now way too small to initiate an order.  Then, It requires me to follow up too much.

I rather keep buying each month, but less than foreseen as long as I am not able to buy 15 pct below the average cost of my world tracker. This is easily verified at order entry. Next to that, I will put in a limit order at an extra  low price compared to my average cost.  If the market  tanks during the month, I buy extra. If I run out of cash, I stop this.

To me, this feels like an achievable plan that allows me to profit from market corrections

Do you have a plan in place to seize investment opportunities? Or are you all the time fully invested?

 

 

 

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19 thoughts on “how to seize an investment opportunity

  1. Ciao ATL,
    Normally I start considering re-entering on a certain stock if it passes the -15% mark, of course some considerations are to be put in place, as investing in a falling business is also wrong.
    As I progress into the investing process I am also adding data from the 52week low values. Though it’s not a major economic indicator I think that going on in time there might be the chance that the average price wil lfall below the 52wk low level. If that was to be the case I need to consider this threshold too as a possible re-entry point.

    Technically I’d love to be able to buy stocks when they are below average but I also hope that in time the average will far from the actual price! 🙂

    Actually my biggest problem is exactly the opposite… When a stock rises a lot, do you buy into it again?

    ciao ciao

    Stal

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    1. Het Stal, I understand your problem. It is indeed key to decide when to buy an individual stock for your DGI portfolio.
      When the stock rises, do you buy? As long as it is priced below your fair value, why not?

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      1. Good question there… Technically when I enter in a stock it’s because I believe that that price is a fair value for the company, of course in time things might change and the fair value might rise, but in that case I always take a look at the dividend that I am getting in reinvesting. If it’s below my 3% gross threshold then I don’t buy in, because I feel that there might be opportunities elsewhere to get more returns for the money. For example I got into Macdonalds at 88 dollars, it’s now worth 120… There is no way I am buying share now, I am actually thinking to take the profit and go as any reinvestment is going to water dow the dividend returns. I need to be able to get more than a saving account from the stocks, at least on dividend value (the stock might go down but in the long run is less interesting that point)… Still it’s hard to make a choice, you only look at an updated fair value or do you take into consideration other points?
        Ciao ciao
        Stal

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        1. As an indexer, I look at nothing… What I mean is that I buy each month about 1600 companies via a ETF.

          For my playmoney, I look more into fear about the stock, dividend yield, bottoming out. I am not so much into analysis of any sort.

          I understand your point on not reinvesting in McDo if thz stock is above your fair price.

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  2. Nice discussion AT. We are almost never actually “fully invested”, subscribing to the idea that dry powder is a good thing. At this moment, we probably have too much dry powder…..but we are opportunistic investors. Once a potential investment is researched, and a price we’re willing to pay is established……we wait. Then when that price is reached, as some were last month…..we make a few large buys. Now we’re back in waiting mode….although we’re not selling much at the moment either.

    I hope your week finishes up well. Have a great day!
    -Bryan

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  3. I think your plan makes sense and hopefully will allow you to jump when ready. I was in a similar spot where I noticed that, when the deals showed up, I wasn’t ready to act. Fortunately, I was ready during the market correction you’re referring to in January and had cash to be able to invest. I got what I think are some pretty good buys then.

    However, with the moves I’ve been making recently, I’m back to the place where I wouldn’t be ready if a deal hit. I need to build that back up again.

    — Jim

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    1. Good that you were abel to buy the dip in January. I was not ready enough. I am ready now. And at the same time, I do not want to become a market timer, so I keep buying each month

      Good luck building up the cash again.

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  4. Hi atl,

    I’m just going to buy new funds according to my target percentage allocation and I’ll put some extra money into whatever funds are under-performing the target allocation. I’m not going to reference an external benchmark to judge high/low; I’ll let my funds fight it out amongst themselves 🙂

    For individual stocks, it’s different. If it’s below ‘fair-value’ then it’s a candidate for purchase as you mentioned in the comments above.

    Best wishes,
    -DL

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  5. I am a consistent investor through my employers 401K plan – I do try to time the market when I have control over the purchase – but I don’t sit in the weeds waiting for the best price of the year. Over time the market has proven to beat timers (unless you are a pro and are dedicated) and I have accepted being lazy 🙂

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  6. Nice commentary, AT. I face a similar issue and the problem I faced last year was that i didnt have enough cash reserves when the opportunity presented itself. I agree that what you originally proposed sounded a bit complicated,…and I dont know what the best course of action is. For now, we are maintaining a 5-10% cash reserves in our portfolio and waiting for those fat pitches

    R2R

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  7. Sounds like a good plan to optimize your DGI strategy.

    Dollar cost averager here, although I did buy some extra index ETF shares during the January dip. With such a jittery market (and with stocks so generally overpriced in the US), I feel like I’m better off just doing zombie investing and shuffling the usual amount over into my allocations monthly, rather than biting my nails watching the indices shoot up and down.

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  8. I read somewhere that one of the traits of a millionaire is that make quick decisions when they see the opportunity and they are not procrastinators.

    I have a friend at work in his 50s, that means he’s been working the same job for 30 years (20 more years than I do), but only has 1/3 of the retirement saved in 401k, he says he’ll catch up when he’s close to retirement. He’s neglecting the compound interest of investing.

    Quite a Few houses that I’d like to buy, because I wasn’t quick enough to make the decision, I ended up losing out on the opportunities. They turn out to be great investment, patience and sweat equity are some other good traits. 🙂 it take a dollar of saving here and there to get started on investment. People would go to Starbucks everyday didn’t realize they’d spend thousands of dollars on the very drink that make them overweight and losing out on paying their future selves with the money saved.

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  9. Hey ATL,

    I think after we’ve done IVF we plan on doing both. We will be investing an amount regularly (eg $500 or $750 every 3 weeks or a month), perhaps on our favourite 5-10 stocks. Then at the same time we will building up our ‘dry powder’ to help jump on big opportunities – such as a few weeks ago, whilst always keeping a decent store in reserve in-case of another 2008 and we can buy at the cheapest prices.

    Tristan

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