Earch month our publisher Caroline Mark writes on her experience buying shares.
I’ve been buying shares for just over a year now. I had been very nervous buying my first shares but over the past 12-months my confidence in investing has really grown. I’ve made 20% on the money I’ve put in, which beats any bank deposit and I’m really proud so far. (although you never want to tempt fate do you).
Buying shares in 2020
It’s been a roller coaster buying shares in 2020. I had bought some ‘safe’ blue chip stocks at the end of 2019, paying $28 for NAB, which this year I watched drop to below $14. No one likes seeing their shares losing money, nor seeing your screen awash with red. It was the small caps in my portfolio, particularly MAQ which was really making me money, and my other small caps were holding there own. It was on the so called safe stocks that I was losing!
Buying shares on the way down to lower your average cost
A trading strategy that has really worked for me this year has been to keep buying in small parcels as the share price drops. It has meant that I’ve lowered my average cost of my NAB shares from $28 to $20.51, so now I’m back in the black and profitable now that it’s trading above $23.
What is lowering your average cost?
If you buy 200 shares at $28, and then I bought more shares at $19, then as many as I could directly from NAB in their placement at around $14/$15. If you work out how much you have paid for all the shares and then divide by the number of shares you own you work out the average cost per share. You include your brokerage to be accurate and then voila you can see the real cost.
Note: I was surprised when my online account didn’t recognise the price I’d paid for the shares from the placement (which was by far the cheapest rate) and so I called them and they showed me how to do it manually on the screen so I can now see my average weight.
Too much in banks, re-balancing my portfolio
Although this buying more shares when the price was falling has worked out for me, it is a calculated gamble that the shares were undervalued and would go up overtime. It did mean though that I’ve had way too much (like 40% of my share portfolio) in the banks (CBA, NAB and ANZ). So to get some cash out I sold all my CBA shares (on the basis that they were really highly priced and would drop) and then I sold half my NAB shares as I was overexposed to this one stock (ie I had too many of my precious eggs in one basket).
When to sell your ASX Shares?
I’m working out my own risk tolerance. I’d read our research and the overall consensus is that CBA is fully valued and I watched it go from $62 up to $75, then it started to fall…. I got nervous… I watched it fall past $70, and then hover at $68-69. With my experience of NAB and all that red, and a big chunk of my cash was tied up in CBA, I decided to sell half at $69. This of course now looks stupid, as shortly after this the price climbed back to $70 +++ to $80. At $80, I sold the other half. So I made a nice amount, but I sold out and lost some lovely profit. But then, I slept happily the night I’d sold at $69 knowing I wasn’t risking all my capital and I had made a nice little profit on it anyway. And I made $11 more a share a few weeks later. Sods law. But I’m learning to be grateful. You can always look over your shoulder and second guess yourself.
Buying more shares to lower my average cost.
I’ve done this a lot this year with other blue chip stocks that I paid pre-covid prices for. Now they are back at those same prices, I’ve been making good money because I was brave and bought more when they were cheap! And this strategy has really turned my lines of red into lines of green profit. I was down a lot on AWC (although it is a nice little dividend earner) but now I’m back in profit.
Panoramic Resources (PAN)
PAN was one of the first stocks I bought but I only put $1,000 into it at around 30c a share as I was nervous buying any shares. It went up 40% and our recommendation was to take profits and sell. I was greedy and didn’t thinking $1300/$1400 didn’t make it worth while. My lesson was, I personally should put more than $1,000 into a stock because a 40% return is pretty awesome in a few quick months, I just hasn’t put in enough to make it worth it.
Then I watched as the price plummeted and not only did I lose my profit but my initial investment was whittling away as well. As a % loss it was not looking good.
I started buying more shares to average out my price, and I did this a few times. It hit 7c and I felt a bit sick. At 8c I decided to buy 40,000 shares and now my average price is about 11c and every 1c increase I’m making a few hundred dollars. I’ve decided to take a bit of a risk on this stock. At low prices our analysts think it’s a great stock and has a real potential to be re-rated. Will it get back to 30c? Who knows but I’m going to hang in for the ride and have a bit of fun. I’m playing with profit I’ve made this year, not my capital and I’m prepared to take a risk with it.
Plans to buy more ASX shares in 2021.
I definitely have plans to buy more shares in 2021. I have about $20,000 in cash from selling my CBA and half my NAB shares. I also sold half my MAQ shares at a nice profit (but as they have continued to climb in price from $20 where I bought them, over $30 where I nervously sold half, to over $50 I wish I hadn’t sold the half my shares but I’ve essentially taken my costs out and I’m letting my profits run.).
The point is, I’ve got cash to invest, I’ve made a decent profit and I’ve got dividends too that I will re-invest. I’m going to have a bit of a break of Christmas and New Year and then I’m planning to focus on small caps. A mix of dividend payers and true growth stocks. I really love reading about the little companies and what they do and watching their share price and seeing what it does. Some take off and others linger for a while. But the ones that do take off, like MAQ, really have transformed my portfolios returns. Here is to 2021.