Buying on Dips- A Winning Porfolio Strategy

Posted: Nov 17, 2011 12:01 AM

In my personal portfolio, I'm starting to see tech stocks showing distinct strength, followed by energy-related stocks (oil service companies and the like). I'm seeing upside volatility in steel stocks, meaning they’re not for the faint of heart, but I believe the next move is back toward early-2011 price ranges. And financial stocks are also showing signs of upside life.

A few weeks ago, I published a list of stocks which I’d be willing to buy if they dropped to specific prices. (Click on the free trial subscription offer on the home page if you can’t access the article.) Since that day, I succeeded in buying Microsoft (MSFT) at $26.00, Target (TGT) at $53.00, and Intel (INTC) at $23.48. (I hadn’t had any tech stocks in my current portfolio prior to those purchases.)

Today at 1:50 PM Mountain Time, I received a text showing me that Avago Technologies (AVGO) had fallen to $32.00, followed in quick succession by a text telling me that American Express (AXP) had fallen to $48.25. That gave me nine minutes to make a buy decision.

I’d already researched the stocks and decided the prices I’d be willing to buy them at. The only thing left to do was to check the news and make sure nothing disastrous had just happened to either company, or to the stock market in general.

I couldn’t find any ugly news, and the stock market averages continue to recover nicely from the big drop in August/September 2011, so I bought shares in Avago.  

In determining which stock to purchase, I looked at the likely total return over the next six months, and Avago has a wide enough trading range that I might make twice as much in that stock near-term as I would in American Express.  Plus, tech stocks are showing much more strength than financial stocks right now, so I went with Avago.

Have you been buying low?  

It requires a little homework.  First, you’ve got to identify healthy, growing companies.  Then, determine a fair price at which you’d be willing to buy.  Lastly, put in a buy order (or an alert) at that price.  My account at Morgan Stanley allows me to key in alerts under all kinds of circumstances, including target prices, new highs/lows, news, stock splits and more.  When the stock reaches these targets, I get a text message, at which point I can decide whether or not to take action.

The hard part of this process is deciding to take action once your stock hits the buy or sell target price.  People get really emotional and second-guess themselves at this point. Unless you’re a seasoned investor who’s shown yourself capable of taking decisive action without regret, I recommend placing open buy and sell orders, rather than re-visiting the investment decision once you’re alerted that the stock has hit its target price. This is the moment where fear and greed can take over, and ruin your chances of making wise investment decisions.

Investing is a very emotional process, and it takes years to tame that tiger and casually stroll through the investment jungle.  Not everybody can do it.  If the emotions of investing are driving you nuts, I recommend steering clear of individual stocks, and moving towards mutual funds, or possibly very low risk vehicles like U.S. Treasury bonds and C.D.s.  Your professional advisers are there to guide you: attorneys, financial counselors and accountants.

But if emotions don’t rule your behaviors, then come up with a concrete investment plan and stick to it. And when you’re brave enough to buy low and sell high, send me an email to celebrate!

You can read more about Microsoft in Windows of OpportunityTarget, Intel in Is Intel Breaking Out?American Express, and Avago in Revisiting Avago… . Again, click on “one month free trial subscription” in order to access the content of these articles at

Readers should consult their investment and tax advisors to determine suitability, risk and taxation.