Seeking Alpha
Research analyst, portfolio strategy, portfolio management
Profile| Send Message|
( followers)  

Executive summary:

  • Investors just starting a portfolio are seeking the right prices.
  • Holding on to investable cash will cost you money.
  • There are no perfect answers to market timing.

__________________________________________________

The one question that always seems to pop up is, when is it a good time to start buying a stock or beginning a portfolio? It is a difficult question to answer simply because there are no right OR wrong times, as it depends on what the goals are for the investor.

Using our new BTDP for retirement as a guide, I have come up with what I feel is as good an answer as any. Even so, it is not an answer as such, but a suggestion that makes sense to me no matter what cycle the markets are in.

Keep In Mind We Are Buying The Best Of The Best, Proven Winners

The BTDP consists of just these stocks for now: AT&T (NYSE:T), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), General Electric (NYSE:GE), McDonald's (NYSE:MCD), and Chevron (NYSE:CVX).

As far as I am concerned, there is simply no right (or wrong) time to buy these mega cap, blue chip, dividend paying stocks. I don't care what book anyone reads, what chart anyone uses, or what metric anyone looks at. The fact of the matter, at least to me, is it is all guesswork.

That being said, everyone wants to get the best price possible, as soon as possible, to begin having their money actually work for them. Investable cash on the sidelines is basically earning nothing, and while my idea or suggestion is neither perfect nor foolproof, at the very least you can feel a level of comfort knowing that you didn't pay the highest price, and your money is now producing those dividends for income.

Keeping this simple, why not buy a stock when it is in the middle of its 52 week high and 52 week low. That's it, nothing fancy and easy to remember. Let's take a look at how it would have worked with our new BTDP:

2/3/2014STOCK52 wk lo52 wk hiTgt Price
31.95T$32$39$35.50
90.05XOM$85$102$93.50
86.78JNJ$75$96$85.50
37.21KO$36$43$39.50
75.71PG$74$86$80.00
24.35GE$21$28$24.50
93.02MCD$92$104$98.00
111.14CVX$109$127$118.00

Realizing that in a bull market there will be higher highs as well as higher lows, and in a bear market there will be lower highs and lower lows, the mid-point appears to me to be a rather simple way to get started.

While these prices are always changing and never static, it can be used as a guideline probably as good as any other "tool". I am certainly not perfect, and anyone claiming to have "THE" answer is probably trying to sell something.

If you look at the chart above, you can see that we got pretty fortunate by buying the dip just 2 weeks ago. Aside from JNJ, every single entry price was well below the mid-point of the 52 week high and low prices, which, as it states in the right hand column, is our "target price" to begin buying.

To encapsulate briefly; if you are thinking of opening a position in a stock, or starting your retirement portfolio, take a look at this easy-to-use approach and see if it is right for you.

The Bottom Line

Could this be the "alpha" of when to begin buying? Well, I have no idea, but some of the valuation experts and the technical trading professionals should have plenty to say about such a simplistic approach.

Nothing is ever going to be perfect and all of the investment risks stay the same. The most important aspect of a simple approach like this is to get your money moving. Money not invested is income you are losing, so if this helps you decide, then you will be ahead of the game.

Source: Retirement Strategy: When Is The Perfect Time To Buy Stocks?