Your entry point – the amount you pay for a stock – is an important part of your investment strategy. If you buy when the stock is over-valued, you may not see much growth and will likely suffer the opposite.
However, assume you are comfortable that the stock is at a good price and you are ready to buy and hold for a long-term investment. Now is not the time to quibble over a few cents on the price.
Room for Growth
We all want to get in as low as possible so there is more room for growth, but often forget the risk involved. For example:You want to buy and hold a stock current trading for $25 per share. Three-year projections show the stock at $35 per share. You reason that if you could get the stock for $24.75, it would be that much more profitable.
However, what happens if the stock never backs up to your price? While waiting for your order to fill, the stock moves forward to $25.50. Was it worth trying to squeeze an extra $0.25 per share of profit out of the deal only to see $0.50 of potential profit disappear?
Clearly, you would have been better off taking the $25 per share price. The point is don’t quibble over pennies when you plan to hold the stock for a long time and risk the price moving up.
Traders Quibble
Traders, on the other hand, must quibble. That’s where they make their money. Whether they buy a stock on the momentum of market news or some other event, traders must know when to get in and get out.If the stock has already moved on the news, there’s not much point in getting in (unfortunately, for the casual traders, this is usually when they choose to jump in with both feet).
The seasoned trader knows if there is anything left in the stock and grabs what is reasonable in terms of a profit and exits. If they can’t get the trade on their terms, they’ll pass and move on to another deal.
