Don't Rush: The Best Way To Establish A New Position
Patience is perhaps one of the most underrated virtues of investing. It is also perhaps one of the most important. Before buying, it is important to take the time to do your due diligence. Make sure you understand the company, the upside, and the risks.
Then, even after you make the decision to establish a position, it is best to exercise patience. Typically, we recommend investing up to 2-3% of your portfolio in any single stock. We do not recommend buying a 3% position in a single buy.
Waves of the Ocean Method - Our Preferred Method
This method involves breaking up your buying into several waves or tranches. It allows you to reduce your impact on the share price of any security.
How this works is if you intend to have a 3% portfolio allocation of the value of your overall portfolio. We recommend not to buy "all at once", but you do multiple waves, each a portion of your total target allocation.
Stocks don't go anywhere in a straight line, and more often than not, the minute you decide to invest in a ticker is not the lowest price you will ever see. Avoid buying at near-term highs, and add to your position when it pulls back. When the broader market is red, it is a day to be looking for such opportunities. When the broader market is rallying, you want to be pickier.
Keep it on your watchlist and each time you see a dip, add a little more to your position. It is ok if it takes weeks, or even months to build a full position. High yield positions can often be volatile, as such this allows to you buy with the most efficient cost basis.
Typically, I will be building multiple positions at one time. So I will have 5 or 6 picks that I want to increase my allocation and will buy shares in the 2 or 3 that have the best price right now. Avoid the temptation to chase up a pick that is having a rally, especially if the rally is not based on some fundamental change or news. Often, these rallies run-out, and are followed by a profit-taking sell-off.
When buying fixed income securities that have lower volume, setting a limit order for your position, and letting it slowly fill based on what is available from sellers allows this method to really shine.
You're not rushing to get it filled and driving prices immediately, and you're not going to worry about missing any opportunities. Be patient and let the market come to you.