It’s not enough to just identify stocks you want to own.
During a recent market lull, Real Money’s Jim Cramer found himself considering an underappreciated investing rule.
“First, we should understand, buying a stock or a mutual fund is a big deal,” he wrote recently on Real Money. “Where you buy, when you buy, does matter. Far too often, we hear that if you like a stock or a company, you should go buy shares in it once you have done the requisite homework.”
But that leaves out a key factor.
“You commit capital when you think that the odds that favor your purchase are at a decent, less risky level than another time,” Cramer added. “Yet I don’t hear many people talk about this concept. They like such and such a company — so why not go own stock in it? They don’t think, “I really like this company, but I don’t like the stock at these prices.”
One big problem – most people tend to fear missing out more than they fear losing money. That’s understandable, as the stock market is running on 250 days without a 5% decline. Consequently, missing a stock has become more of a sin than buying one and having it go down.
Aside from rising inflation, the possible peak of COVID, and the notion that the Federal Reserve is on hold, there really isn’t that much to like about stock market opportunities. Cramer said this problem was only going to get worse, especially with the endless day-to-day chasing problem.
“You typically want to buy stocks when you know you want to buy more of them, in case you didn’t pick the bottom. But if you bought stocks because you thought the trend was your friend, or because you haven’t gone wrong purchasing the dip, you are suddenly wondering if that’s a mistake.”
Has the pattern changed? Not really, even though you might have been hanging your hat on buying dips, as the philosophy has worked for ages.
“But maybe it won’t anymore,” said Cramer. “The calendar says that dip buying doesn’t work right here. Maybe the calendar is right.”