When someone is new to stock market investing, they don't know the importance of building their position slowly. When you want to build a position in a company's stock, you don't want to buy all of the shares at once. The idea is to slowly purchase shares as the price fluctuates. To help keep your cost basis as low as possible, you buy share incrementally.
When you buy all of the shares at once, you can't take advantage of the fact that share prices will always rise and fall. To help increase you portfolio, you need to be able to buy and sell as the price goes up and down.
Let's say that you want to buy shares in company XYZ and the price is $50. You want to invest a total of $10,000 in the company. At the current price you would be able to purchase 200 shares. If you were to buy all 200 shares at once, you will have to wait for the stock to go up in price before selling any of them (unless you take a loss).
If you went ahead and purchased only 50 shares as your initial buy-in, you will still have the remaining $7,500 to buy more. Let's say the price drops to $45 a share over the next week. you would go ahead and buy another 50 shares at that price, making your total average cost per share $47.50 instead of $50. If the stock was to drop again to the $42 level, you would still be able to buy more shares at a lower price. At this point your average has now dropped to $45.66 per share.
As the price goes back up you can now sell some of the shares for a profit. Once the stock is above the $45.66 level you are now in positive territory even though you bought shares at a higher price. if you continue to buy and sell your shares incrementally around the $45 range, you will be able to make a profit and still have a position in the company.
The importance of building your position in a certain companies stock is something that will help you in the long run. Don't rush and buy all your stock at once.
For more tips on stock market basics please go to: http://stockmarketbasicsonline.com/ Article Source: http://EzineArticles.com/?expert=Joanne_Greco |  |
No comments:
Post a Comment