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You've decided that you think a company, options, real estate, etc. are worth investing in. What are some heuristics that you use in different situations to figure out how to go about making your purchase (i.e. all at once, average in, etc.)?

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Everyone is different, but I do like to get a "starter" position going and scale in as I get more comfortable or just stop altogether if I am not.

Once I do get started - I do like to set low bids 'good until cancelled' and keep renewing them. Many times on very bad down days or bad sector news these get filled at the open when the long holders are freaking out.  Worst case on my starter position, if the stock runs away from me - well I don't have a full position, but I still make some money.

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Agree with the above. I employ something similar. Buy a small starter, generally 10-25 bps. Then you start researching it. If it goes down, who cares. You can either find the lower price appealing, or let it go. A position that size going even to 0 is still almost meaningless to your bottom line. As Mike said, if it goes higher, you're still making money, whats the problem? 10% return on $10,000 is still better than the return you'd get of $250k if you are in cash. 

 

If I conclude from my DD I like it, I have several options. Generally recurring, repeated buys spread over the period of time I consider reasonable to average into an upcoming catalyst. IE earlier this year I saw the BRK Feb earnings as a catalyst. I started 2021 with an 8% position and every day up til the ER release bought some stock, more on down days, up until the ER, taking it to a ~40% position. Then I was done. 

 

If there's no catalyst I'll generally take a more sizable starter, 1-3% in a couple purchases and then just wait for more material dips to add.

 

If something is controversial I will look to sell puts against it to collect premium and add lower. 

 

If its really boring and liquid and doesnt pay a meaningful dividend, I'll sometimes cut it with options. IE BRK at $225 I took some $175 calls for Jan 22. MSFT at $250 I'd just take a position in the $200 calls a few months out. If the stock declines toward that basis you can then sell puts at that strike to keep the position on and then sell OTM calls against it. 

 

The only thing I try not to do is buy OTM calls as they're generally a sucker bet. But thats not to say you cant ever do that. I'm looking at some energy stuff at the moment and if you expect a big move in a notoriously shitty biz, thats probably a good situation to limit your exposure/outlay/capital at risk via OTM LEAP calls. 

 

This is a good topic though. I find its easy picking winners and losers. The challenge is often how to maximize what you get out of the idea and doing so in the best risk adjusted fashion. 

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On 6/12/2021 at 2:09 PM, spartansaver said:

You've decided that you think a company, options, real estate, etc. are worth investing in. What are some heuristics that you use in different situations to figure out how to go about making your purchase (i.e. all at once, average in, etc.)?

 

Amount, time horizon, thesis, effort required. How many $, for 1-2 quarters only?, a company or industry bet?, better done via an ETF? Most solutions are either going to be an industry specific ETF, or a LEAP/long-dated warrant. Which, depends on the effort you're willing to devote to it.

 

Objective. If just to make a buck, largely a non issue. If for something life-changing, more effort required, and a direct holding. You have a life, and live it; this is just something shoved into the sock-drawer, and looked at once/quarter - at best.  

 

My 'edge'. Do I have one, what is it, am I using it ? No direct holdings, if you bring nothing to the table. For most people, an ETF will be the better option.

 

SD

 

Edited by SharperDingaan
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