Stocks investment strategy – buying on weakness

Dow goes down 400As I mentioned before I have been considering my options as far as preserving savings is concerned. The investment time frame is around 1-2 years but may potentially be much longer. This is so called emergency savings.

Theoretically these should go into a cash account and some of it did, however since I consider the probability of an emergency as fairly low, I am willing to take certain risk with investing a part of these savings into a riskier accounts that potentially can benefit higher yields down the road.

Investment alternatives

At some point during my search I seriously considered investing into commodities, in particularly silver, however looking at it further I decided that at this point it is too late for me to jump in. The commodities prices have lately seen very good gains partially from higher demand and partially from people using commodities as a “safe heaven”. If the economy rebounds, and I believe it has a good chance of doing so later this or early next year, a downturn in commodities prices is inevitable.

In addition I considered CD’s as an alternative. I even took advantage of a few offers last year, just about the time when I was doing those regular roundup on best banking offers. I gave up on these. With where the rates now and with constant threat of inflation, it makes less and less sense to look into savings accounts as an option. So as more funds become available, I have been slowly re-balancing my portfolio into… stocks.

Stocks as an investment

I believe right now is about time to start looking at certain companies that had disappointing developments of short term nature yet a very strong long term outlook. This strategy is called value investing - a favorite of Warren Buffet and the likes.

There are thousands of books written on the subject, and you might want to read one or two before you sink your hard earned cash into value stocks. In a nutshell however there are two types of analysis that people apply during the decision making: technical and fundamental. One looks at the stock price dynamics as a function of time and attempts to spot certain trends. Another one looks at the company balance sheet and financial prospects of the business and attempts to predict the future.

Both of these approaches have legs and I suggest using a combination in your research. My biggest problem however has not been analysis. I have always had problem with stock ideas. At some point I even considered joining one of those investment clubs where people get together to discuss stock tips - never had the time to follow through with it.

Buying stocks on weakness

Recently I discovered an interesting resource. It came from nowhere else but The Wall Street Journal. It is a daily list of stock symbols which had a down trend in the previous day and yet enjoyed a greater number of trades resulting into a stock price up-tick during that day, as opposite to a down-tick.

Technically it means that the people who were buying the stock have been perceiving it as a bargain and are willing to pay a few cents premium to meet the seller ask price rather than wait to see if the price can go lower during the day. And it makes sense to some extend. If say Google goes down from $710 to $420 during the past 2 months, what difference does it make for you if you pay $420 or $420.05 today? The investors are basically willing to pay a few cents more, because the price is already so low, that they don’t care if they are buying on an upward movement.

Since the list is of a daily nature you can’t really make any significant conclusions about the companies you see, and I would really like to see a weekly or monthly version of this list. Yet, this list is a great source of stock ideas if “Buying on Weakness” is what you consider as an investment strategy. At least it has been for me.

What kind of stock investment strategy is your favorite? Where do you go to look for stock ideas? Please share your tips in the comments.

Photo courtesy of William Wilkinson @ flickr

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