After You Buy, It'll Always Go Lower ('The Dick Davis Dividend' Book Excerpt)

An excerpt from the new book 'The Dick Davis Dividend: Straight Talk on Making Money from 40 Years on Wall Street' - reprinted with permission of the author and publisher:

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After You Buy, It'll Always Go Lower

Forget about buying a stock, a fund, or an index at the bottom or selling at the top. Yes, somebody does, but that elusive somebody will never be you. The truth is that after you buy a stock it will go lower — not sometimes, but always. And when you sell a stock, it will always go higher. It’s not bad luck or bad timing. It’s simply unrealistic to expect that, competing with thousands of other players, you’re going to be smart or lucky enough to get the very top or bottom tick.

If you know ahead of time that it’s going to go lower after you buy it, why not wait? The reason is because if you do and the stock goes lower, you’ll want to wait some more. But then, at some point, it’ll turn around and you’ll be left on the sidelines. The best you can do is to buy in a reasonable buying range, know that it’s going to tick lower after you buy it, but also know that you have a position in the stock and will benefit when it goes up. Don’t be disappointed when this happens. It happens to everybody. It’s part of the game.

Also worth remembering: In more cases than not, stocks go down faster than they go up. The likely reason for this, at least in part, is that the emotions that trigger selling are felt more intensely than those that motivate buying. It’s usually more urgent to get off the train than to get on.

More on the book at Amazon; see also Must-Read Investing Books.

Comments

[MistaWhite:]

I actually just purchased this book off Amazon the other day. I haven't started reading it but I flipped through and it looked like some good info. I suggest it.

2007 Dec 22 10:35 AM

[jbs:]

If stocks always go lower when you buy, then you'd always make money if you shorted instead of going long, and buying back once the stock went down (after all, they always go down).

What a bizarre comment. I see what his point is but his statement that stocks always go lower is absurd.

2007 Dec 22 11:29 PM

[Lisa:]

MistaWhite: Sounds like you're promoting the book. Sure you're not the author or publisher using a pseudonym?

Jordan: I don't think it's crazy at all. He's saying that the probability of picking the exact bottom is almost zero, and therefore you should absolutely expect the stock to go lower after you buy it. Give that, you're right that you could short every stock and set a limit order to buy it back a tiny bit lower (as long as the spread allows you to do so -- it would have to fall more than a tiny bit for you to cover at a lower price). But you'd essentially be trading volatility for tiny gains, and you'd need to ensure your trading costs were extremely low.

2007 Dec 23 08:03 AM

[MistaWhite:]

That didn't sound like promoting it at all. Last time I checked I wasn't an author or a publisher.

I guess I can't read amazon comments anymore because it might be people lying because they are the author or publisher.

Are you the author or publisher defending your book?

2007 Dec 23 10:38 AM

[Lisa:]

MistaWhite -- sorry about that. It just sounded odd to recommend a book when you'd only flipped through it, and hadn't yet started reading it.

2007 Dec 23 12:44 PM