Target buy and sell prices
Question: Stock prices are falling. What should be my target buy price? Asked at “Ask a Friend, Ask Efren” free service through www.personalfinance.ph, Facebook, and SMS.
Answer: As of the time of this writing, stock prices in the Philippines and around Asia are falling like a rock owing to the trade war that is going on between two of the largest economies in the world, the United States and China.
But prior to the escalation of this trade war, Philippine stock prices were already having a bad month, particularly in May 2018.
It was in May 2018 that the Peso to US dollar exchange rate hit a 12-year low, oil prices zoomed to over USD70 per barrel and the inflation rate hit 4.6% year-on-year. The confluence of these events led to the drop in the Philippine Stock Exchange index or PSEi to a low of 7,470.
A stock trader, one who attempts to profit from the short-term swings in stock prices, will benefit from being able to buy at the lows and sell at the highs. The only thing is that it is largely a guessing game when it comes to tagging the low and high prices. Since stock prices follow the herd mentality in major short-term price movements, it would be anybody’s guess as to where stock prices would be headed next.
Moreover, if one were lucky enough to identify the highest and lowest points, it would be too late to buy at those levels because such levels are relative; you will need to know what the succeeding prices will be to say that a certain level is indeed the highest or lowest point.
So, rather than trying to do the impossible, why not just buy periodically. Many will not have the cash to plunk into an investment one time. This is a blessing because by buying periodically, the investor can take advantage of the ups and downs of stock prices and get a better average buying cost than one who is timing the market.
Many are also obsessed with their target buy price that they forget their target sell price. At the end of the day, paper gains and losses are what they are, scribbles on paper. To enjoy the fruits of investing, an investor must sell at the right price.
Now what is the right price? It is determined by the return you need to make to fund a certain goal in life. That is your life prize. And if all you want to do is earn a return, then greed has become your goal.
Target your life’s prize and not just the stock price.
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