Buying Stocks and ETFs on Sale!

I thought I’d take this time to talk about buying stocks and ETFs at a lower price than they are currently trading for. Many investors think of this as waiting for a particular stock or ETF to go on sale. The thing is that stocks and ETFs, in fact the entire market, have their swings. Most of you, I’m sure, are well aware of this. If not, how come you’re not aware? Shame on you! Just kidding. LOL

Keep reading as I’m going to talk about a very interesting way to buy stock at a discounted price and bring in extra income at the same time. It’s really an interesting strategy and one that Warren Buffett has used for years. But first a little basics, then I’ll dive into it.

We’ve all seen these market swings. Most of the time the market moves on news. Bad news sends stocks down and good news sends them up. Many investors are quite fickle. Any news of the day can start the selling process or start a buying spree. I can picture an investor sitting at a computer looking like the Tasmanian Devil, ready to pounce on the keyboard to sell or buy as fast as possible.  😅

Some people are like that. But I think reactive trading is counterproductive, especially for the kind of investments I’m talking about. Much of the time news only moves the needle for a day.  Other investors, especially seasoned investors, are quite patient. They’ll bide their time and wait for a stock of interest to take a dip and hit their desired buy price. And you can set this up ahead of time, so you don’t have to keep watching. More on that in a minute.

We always want stocks that are solid, with good fundamentals, meaning they are long-term investments with great dividends. Unless something drastic happens to a particular company to damage its fundamentals and long-term outlook, personally, I’m hanging on to it. No Tasmanian Devil buying and selling!

Now, there are times when the market takes a more serious drop. Every couple of years there is a “correction.” A correction is generally a 10% to 15% decline, which is admittedly pretty serious.  Most of the time, however, these corrections simply occur because the market has been overbought and has run up higher than the fundamentals support. So, a correction takes place, which actually is a good thing in the long run.

Then of course there are the occasional market crashes and the bear markets. I’m thinking of crashes like the dot-com crash of 2000 or the real estate crash of 2008. Those were quite serious but think about this. If you sold when stocks were down, you locked in a major loss. If you hung on during those times, it was painful for a while but guess what?  Within a year or two (and sometimes much less than that) if you hung on, in most cases you would be right back to where you were or better.

Think of investing in a dividend-paying company the same way you’d think about buying rental property — only for a lot less money. Real estate has its crashes too. But you most likely would not sell a good rental property when real estate goes down. You still collect your rent (income). And you know what eventually always happens to real estate – it goes up in value, especially if you live in California.

Quick story then I’ll get to how to buy stocks on sale. I owned 600 shares of Apple before the dotcom crash in 2000. I panicked and sold them before they dropped too far. I still made a nice profit so I was happy, but had I simply held on to those shares, today I would have 67,200 shares, due to several stock splits it went through, which would be worth about $20 million today. That was a hard lesson to learn and boy did I learn! 😢

Ok, here are two ways to buy stock on sale.

• The first one is a “no brainer” and not much to it. Say you want to buy XYZ stock or ETF. Today it is trading for $20. You see the market and the ETF moving around each day and think, “I’d like to own this at $19”.

You can simply put in an order to buy the number of shares you want for $19 on what is called a “Good-’til-canceled (GTC) order”. Then you simply wait.

A “GTC “order is exactly what it sounds like. It’s an order that does not cancel until you cancel it. You then simply check your account once a day or whenever you please. If the order gets filled, you are done – mission accomplished. 👍 If it doesn’t get filled and you get antsy; you can always modify or replace the order as you see fit.

In later articles I’ll go into how this works in more detail so you can really learn it. But like I said above, it is a simple process and one you‘ll learn quickly.

• The second one is a bit more complicated. But even with this one, once you learn it, it’s relatively easy. This is the method Warren Buffett has used for his investing for many years as mentioned above. It’s an option strategy. Here again, I’m not trying to teach exactly how to do this YET. I want to introduce the strategy to you though, to let you know of the smart things that are available in the stock market.

There is an option strategy called “Puts”. You enter a Put contract to buy XYZ stock or ETF, for a certain price. As in the example above, XYZ stock or ETF is selling today for $20 but you would like it better at $19. You can make a deal with someone who owns XYZ to buy it at $19 and guess what. In exchange for agreeing to buy the stock at $19, if it falls to that level, they’ll actually pay you money to enter that contract.

Don’t worry, this is all done in a very simple way through your broker. They handle it all. More on that later.

So, if you enter this contract, which is called “selling a Put” you might get paid say $1 per share or $100 for 100 shares. If the stock goes down to $19 within a certain time, you not only buy the stock at $19 but you keep the $1 you sold the Put for. So, you effectively buy it for $18 – Purchase price = $19 – $1 Put premium received = $18 effective cost.

And here’s another nice part. If the stock doesn’t go down to $19 and you don’t get to buy it, you keep the $1 or $100 for 100 shares received for the Put contract anyway. Does that sound exciting? Well, it is! There is a whole world of strategies with options that you might find exciting. Or not. 😅 That’s your call. We’ll explore it at some point and see what you think.

For now, that’s enough. Remember, if you have any questions email me at ponzot2004@yahoo.com. Or scroll down to the bottom and put your comments in the comment section.

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Until next time.

Tony