The thirds strategy is where instead of buying your normal full position, you invest in portions equal to a third of your normal full position. Instead of buying one position of $900 (if that is the normal amount you put into a stock at a time), you buy one $300 to start with, add another $300 when you want to buy more, etc. The thirds strategy brings out patience, adding at better value points, and building a position in a company over the long-term.
The thirds strategy is helpful also for diversification, opening a third in many companies and adding when they get to better values (lower price or a lower P/E, for instance) is a good long-term strategy.
Stocks are volatile, and as investors we should take advantage of this volatility rather than being afraid of it. The thirds strategy is a good way to take advantage of this. Rather than risking large positions on different stocks, why not open smaller positions and add when they present better values? This way your portfolio won't be down in the dumps when one of your stocks goes down 50%, because if you only invest a third of your normal position, it won't have a huge affect on your portfolio. Plus, you could now add to your position in the stock without it making up an uncomfortably huge part of your portfolio. This gives you a great advantage, because there's no better way for long-term success in the stock market than investing in great businesses at great prices. Stocks will always be volatile, there's no consistent way I know of to avoid it other than not investing in it at all.
You don't always need to use the thirds strategy, but I'd recommend not opening what you'd call a full position in a stock all at once. If you think buying two chunks (so if your goal, again, was $900, you could invest two $450 chunks at the opportune times) would be a better way to go for your situation, go with that. I think the thirds strategy is a good way to go, though, because if you can invest in great companies (such as those recommended in Stock Advisor) at three better value points each time (you likely could do this), you'll have very satisfactory long-term results.
Patience is the key for long-term success in the market. You must be able to handle a downturn, and you should also be comfortable and confident enough in the companies you own to add to them when the market is overall bearish on them. The ideal time to invest in the market is when prices have been held down because of fear, speculation, or other such short-term reasons. The market has crashed quite a few times now, but every time it has recovered. Sometimes it has taken 10-15 years (this was the period after the 1929 crash, but there were still many great investments with individual stocks) to recover, but it eventually has. You have to be confident that after the next downturn, it will eventually again recover.
What I'm getting to with this is that you should build your stock positions over time. If you invest a full position in the stock, you are betting on one market condition, one economic condition, you are putting everything on one period. With the thirds strategy, you have the leverage to build your position in a stock as slow or as fast as you want. With the more volatile stocks, such as Hansen Natural, you'll probably fill out your position quicker than a slow, steadier stock like Johnson & Johnson. But don't feel you need to have a full position in each stock you own right away. After being in stocks for a year and a half, I'd definitely say patience is the key for building a stock portfolio. There has never been a stock I've bought that hasn't gone below the price I originally bought it at. Sometimes it's taken an hour, sometimes it's taken six months. But every stock I've bought eventually was selling for below where I bought it.
So, be patient, keep learning, and build up your stock positions over time at better value points each time. If you can stick with this strategy, I guarantee that in 10 years you'll be satisfied with the results.
Tags:
investing, patience, stategy, stocks, thirds
Posted at: 05:27 PM | Add Comment
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