Lesson 6: Share price isn't as important as you think...$$
Yesterday we learned why having more shares is the most important part of making profits in trading stocks, (remind me to tell you why people who think stock splits don't mean anything are stupid jackasses later), so today we'll explain why the share price going up isn't important.
Most people think you need to select stocks that go up and up and up and never go down and that's how you become rich. They absolutely could, but you'd have to select the absolute best stocks at their lowest prices and hold on to them for years and years...insanely difficult.
What's much, much easier is to bounce a stock between two prices. Disney ($DIS) is a great example here. Disney tends to bounce between $20ish and 30ish. A $10 change, which would be a great gain in anyones book. The problem is the buy and holders just keep moving between these prices and really only gain $10, then lose $10, then gain $10, then lose $10. It's pretty stupid when you think about it.
Now, the better way to trade the stock is buy it at $20, as many shares as you can, and sell off some of your profit as the stock goes up. For example, if you have 100 ($2000 investment) shares, you could sell 10 shares at $22, 10 shares at $24, 10 shares at $26, 10 shares at $28 and 10 shares at $30 (I'm being HUGELY general here to make a point, don't do things this structured) and you'd end up with Disney at $30 and you'd have 50 shares of stock and $1300 cash ($1500 in stock.)
Should the stock drop back down to $20, you have $1300 to buy more shares, 65 to be exact, so now you can run 115 shares up that $10 run.
You can bounce a stock like this over and over. You limit your taxes (as we saw in a previous lesson), you amass more and more shares of a good stock without adding any of your own money and you begin to generate more and more profit per move of the stock price by having more shares.
By having one of these 'stable stocks' that don't move so much, you also tend to lower your risk because you know this stock pretty much sits in this pocket of prices.
Start thinking differently. Think of it like eBay, if you can buy something for $20 over and over and sell it for $30 over and over, wouldn't you do that? The price doesn't need to keep going up, you just want that steady stream of income. That's what my strategy gives you. Push it out over 10 stocks or so and you can make a good living with low risk stocks that don't move much.
Invest in peace...
