You were told to do peso-cost averaging, weren’t you?
The peso-cost averaging strategy is the act of buying shares of stocks at regular intervals at any price for a long period of time.
You were told to follow the Buy Below Price system, weren’t you? It’s the brother of the peso-cost averaging method.
The Buy Below Price system suggests that it’s okay to keep on buying the stock at any price below the Buy Below Price.
You were told to apply the peso-cost averaging method and the Buy Below Price system by buying the biggest companies. Usually, these are the 30 stocks that compose the Philippine Stock Exchange Index (PSEi).
It sounds more practical and less risky compared to lump sum investing, isn’t it?
The peso-cost averaging method and Buy Below Price system are good.
Humble bragging: we can do better than that.
We suggest that you continue buying regularly, but you should STOP BUYING AT ANY PRICE BELOW THE BUY BELOW PRICE.
That was intense. Sorry for the all caps. We’re not shouting. We are just so passionate about encouraging our clients to forget the phrase “any price” because buying or selling at “specific prices” will make you earn more than those who buy or sell at “any price.”
There’s a problem with the “buy at any price below the Buy Below Price” advice.
It does not tell you exactly where below the Buy Below Price it is more logical and strategic to buy.
Let’s say the Buy Below Price of Stock XYZ is P100.00. The prevailing price is P79.00. The intraday high is P79.50 while the intraday low is P77.00.
A Buy Below Price follower is taught that it’s okay to buy at any price below the Buy Below Price. So, there’s a high tendency for the Buy Below Price follower to buy at P79.00 per share since that’s the price he immediately sees in the Ask spread. Anyway, P79.00 is below the Buy Below Price of P100.00, isn’t it?
Meanwhile, Equilyst Analytics can do better than that. We will position our buying price within the range that got the biggest volume and the highest number of trades. If the range that got the biggest volume and the highest number of trades is between 78.50 and 78.70, then we will patiently wait for the price to go down and proactively position within that range.
What’s the big deal in knowing the range that got the biggest volume and the number highest number of trades?
Psychology and data science are important, related, and relevant when it comes to investing. Here are some analogies.
What’s the top-of-mind place for anchovies (bagoong) or salted and dried fish (daing)? Pangasinan.
What’s the top-of-mind place for Christmas lanterns? Pampanga.
What’s the top-of-mind place for fireworks? Bulacan.
What’s the common characteristic of the stores of these various products in their respective areas?
They put up their stores in a cluster – almost always close to each other. Therefore, their cluster attracts more customers than similar solo-flight stores from a few miles away.
This is known as the Nash Equilibrium.
In the same way, the in demand price points in trading gather in clusters, too. Big players look for the clusters that got the biggest volume and the highest number of trades.
We do price-volume distribution analysis. Don’t worry about it. We’ll do the hard work. We’ll just serve it on your table.
We say this respectfully: your pocket may not be as deep as the big players’ but that doesn’t mean you cannot execute as strategic and logical as they are.
PRO Tip: Be careful. Some “financial teachers” have re-branded the term Peso-Cost Averaging strategy to drive people’s attention away from the fact that their stock recommendations come from their partner brokers. They are using the same and old Buy Below Price system, which, to your dismay, is also found on their partner broker’s platform for free. Ouch! (for paying something that’s already free)
Do you know understand why you should start telling everyone you know that you’ve found something better than the Buy Below Price strategy?