Stock Market Crashes-Time to Get Greedy
Investing is all about fear and greed. When the stock market crashes, people get fearful and start selling. This leads to even lower stock prices because there is less demand, which leads to more selling, and then the stock prices drop even further. When the stock market is going up, people get greedy. They keep buying and buying, even when it’s apparent that the top is near which forces stock prices up to unnaturally high levels (higher than the company earnings would normally warrant). Remember, stocks generally settle at around a P/E (price-earnings ratio) of 15.
I’m a Long-Term Investor, not a Short-Term Trader
I mostly invest in a portfolio of dividend paying stocks from blue-chip, established companies which I plan on holding basically forever. Because of this, I only check my account once a month because there is likely nothing that will happen in the short-term that will cause me to take any action. I only check monthly because I feel satisfied knowing that my dividends keep rolling in with no effort on my part whatsoever. I do, however, get email notifications from Interactive Brokers when an individual stock or ETF gains or loses more than 3% in a single day. This proved very useful recently.
Is this the Buy Opportunity I’ve Been Waiting For?
On August 21st, 2015 the major stock indexes went down an average of just over 3%, which I knew about because of the previously mentioned emails.
Interesting, I though to myself. Is this the buying opportunity that I’ve been waiting for? Perhaps.
So, I went into my account and set up 6 buy limit orders on stocks that I didn’t quite have a full position in and which I’d been wanting to acquire for a while, but they were just too expensive. A limit order is where you set up a trade that will only happen if a stock reaches a certain price, down on the buy side and up on the sell side. I set these orders for around 5% less than the close on that day. If the stock prices went up, nothing would happen. If only a small drop, nothing would happen. I was waiting for the big drop when all these companies would be cheap! Buying when stock prices are cheap means more awesome for me.
Results? More Dividend Stocks for Me!
I woke up and overnight, I was the new owner of more shares of MMM (3M), INTJ (Intel), and JNJ (Johnson & Johnson). Nice, everything went according to my master plan. The other stocks I wanted didn’t drop as much, so those orders are still open in case of further volatility in the market, but for now, the bulls seem to be in charge again.