The Buy Below Price

A fellow OFW asked me how I determine the buy below price.

Well, stock market is not an exact science. It is more of an art. If somebody has perfected the formula of timing the market, he is the richest man in the world. Unfortunately, there is none.

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So the question on how to determine the buy below price is a matter of individual analysis and preference.

 The best time to buy a stock is during the BER months according to Peter Lynch. Typically, stocks just go down during this season because the brokers need spending money for the Holiday Season. In US, they have the so called tax loss wherein the investors must sell their positions in order to avail the tax loss. Of course, this is not absolute and the market can go up during BER months.

Also, one of the best times to buy a stock is during scary moments when the market collapses, crisis, freefalls, drops that happens every few years. It is during the down market that an investor must buy. When the market is down, all you can hear and read is the gloomy prospect of the economy. The sky is falling! Recession is coming! We’re back in the old ages! Etc.

In the Philippines, you won’t hear that much because foreign investors are flocking in our country because of our great economic fundamentals. In fact if you check the P/E of PSEi, it is one of the most expensive in Asia. That is why buying at these levels is treated with caution.

The stock market is not going up forever. There will always be a time that it will go down. Enter the buy below program.

The buy below price allows you not to buy a stock at the peak.  The main premise is that you are not chasing a stock on its way up. You are trying to inculcate a discipline in your investing style. This is very important because your discipline will become your investing habits.

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BDO stock was trading at 63 when I checked its financials. However it was on a downward trend. The fundamentals remain the same and nothing changes so I set a target price of buying at 60 and below. On Aug 22, 2012 this stock went below 60 after three months of trading above 60. Knowing this in my mind, I waited for an entry below 60 and when it does, I immediately bought it. Right now it is trekking higher and perhaps I would not be able to buy below 60 anymore. It currently earns more than 9% in less than 1 month, even banks cannot offer an interest rate of this high for the whole year. 60 is not a technical gauge, it is a psychological barrier that BDO is down into another territory, the 50s.

In stock market, as long as the fundamentals remain intact but the stock is going down, it is a buy. Again this is not absolute because each one has its own preference of buying a stock. The richest and successful investors in stock market have this strategy: Buy and hold forever. This strategy has withstood the test of time.  Why don’t we follow it? Because we think there will always be another strategy that is better than that. And we think that we can find that strategy. Again I have never met an investor who has perfectly timed the market consistently.