You and I think alike.

I have noticed that small and large cap stocks seem to trade popularity. And, I know smaller cap stock appreciate faster on average than large caps. But, I didn’t realize they outpace large caps at the beginning of a rally.

Thanks for the tip.

These are some great questions. Here are my thoughts.

1. I have always bought stocks on sale and it has really paid off for me. Even when I was young and foolish, I figured out quickly that you get a lot more shares for your buck when the market is down. And, despite the drama of the latest catastrophe, the market always seems to come back.

But, there is a herd mentality that permeates the market, which is probably related to our “flight or fight” instincts. It takes a lot of courage to buy when the market is dropping like a rock and no one knows where the bottom is. Traders call it “catching a falling knife” because it can be painful.

Dollar Cost Averaging takes the pain out of this, because you aren’t trying to find the ideal time to get in or out. You just keep buying every month and it averages out the ups and downs.

2. I am familiar with the Dogs of the Dow strategy, but I don’t use this myself. It’s hard for me to get excited by Kraft and AT&T, when there are some great new industries being formed. Last year, I bought Ford, Dell and B of A, because they were just too cheap to resist. But, I like to invest in the small to mid-cap stocks. That’s where most of the growth is.

1. (rhetorical) Why is it that stocks are the only thing people have an aversion to buying when they are on sale?

2. Have you ever tried the old “Invest in the Dogs of the Dow” strategy, Bret? I’m just curious if you have, but if you haven’t, would you ever consider trying such a strategy? (I guess that is really two and half questions.)

Best,

Len
Len Penzo dot Com
Len Penzo´s last blog ..The Best of the Best in Money and Personal Finance #11