Looking In The Rear View Mirror Part 2: How to Develop a Good Old Fashioned Investment Plan

Step 1 – Know what a Stock is Worth To You

The obvious first stage with any investment strategy is to have an entry point. If you are a stock investor, for example, your entry point could be a point or two lower than where the stock is currently priced. If it is, you can either adjust your entry point or sit on the sidelines. My experience tells me sitting on the sidelines ain’t a bad place to be if my stock is selling above my entry point.

Please note I do not make any attempt to define entry point. That is purely subjective and should match your investment parameters for that particular investment. I once bought a house with my partner using our credit cards as the finance source.

We were in a hurry to buy because we had a buyer who was willing to meet our selling price and didn’t have the time to go through the loan process. It took us 36 days from purchase to close to do the deal. When you have a guaranteed profit, does the entry point price make a
difference? Only you can answer that.

Step 2 – Know How Long you Want to Own a Stock

The second leg of my investment plan is called the holding period. I’ve bought and sold in one day, 36 days, 6 months and two years. I tend not to be a long term holder of anything except the house in which I live. I decide what I will sell at and sell at that price. You have to decide what holding period fits your style.

The last leg of my investment plan is the exit point. As just mentioned, I am not a long term holder of anything. I have a predetermined profit in mind and when the investment reaches that number, it is sold. On the flip side, if it goes down, I use a stop loss order. I try to exit with as much of my capital as I can capture.

Step 3 – Take Advantage of DRIPS and Good Deals

The only regret, if that is a correct phrase, I have is not participating in a DRIP program. I won’t bore you to tears with the math but had patience been a virtue I possessed I would not have passed over the DRIP program. The dividend re-investment program is one of the best programs to ever come down the pike for people who want to grow their money using solid companies paying dividends above market rate interest.

The beauty is you don’t have to put all of your investment capital into a DRIP. That leaves you capital for more investment opportunities.

Looking in the rear view mirror has been fun. I hope I didn’t come off sounding like I was lecturing. I believe if you construct your investment plan around the entry point, holding period and exit point paradigm you will have a winning plan. Good luck and I hope you make a million dollars or more this year.

 

Leave a Reply

Your email address will not be published. Required fields are marked *