Tuesday, August 24, 2010

Why Did You Buy

My brother asked me why did I buy FJ Benjamin (I got it on Tuesday, 6 lots) when the results were out for all to see. I told him simply that it was for the dividends.

That answer was really to brush him off. The dividend did give me a good vibe about the retailer. But the considerations I had, was to make my stake in the company more meaningful. My initial stake was only a paltry $500.

There is of course some loss of "pride". By averaging up, I cannot really say in the future that I nabbed a multi-bagger. But FJ Benjamin in my opinion has that upside probability despite the world economy still being in the throes of an uncertain recovery.

There are two lessons to be learnt here. Firstly, the best stocks to buy are the stocks you already have. In this instance, by buying more of the same stock, in the future when I liquidate my position, it will enable me to incur only one more transaction costs. Moreover, I do not have to pay more attention to monitor my stocks.

Second, do not wait for clear blue skies to buy stocks. Some studies have shown that buying near the bottom of the stock market is much more profitable than selling near the peak of the market. In my case, I think that there is still upside in the market, at least for the next 2-3 years.

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