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I know, I must be crazy. When the world seemed like it was ending last Thursday I actually entered a buy order to add to one of my current holdings. This particular stock was actually trading below the buy zone I generate as part of my watch list. I had been looking to add to this stock for some time now and took advantage of one of the worst days in the history of the market. The stock I added more to was General Electric.
Of course, one day later I looked like a total hero which is actually totally irrelevant. Sure, I bought into the stock at $23.99 and last Friday the stock closed at $26.62 for a nice one day gain. If I was not a long term dividend investor but a trader that would be a pretty good one day gain. However, I added to my General Electric holding because I believe in the long term fundamentals of the company.
Was this the right thing to do? Only time will tell but as long term investors we are always told to buy low and take advantages of when things seem like their worst and the stocks you believe in are showing significant weakness for no other reason than irrational behaviour of the market. General Electric has shown some weakness in corporate performance recently but they still have a strong history of dividend growth as well as a 3 year dividend growth rate of over 12%. That compounded growth will be very powerful for me over time.
I know there will be more opportunities like this in the future. Probably sooner rather than later as the huge gain on Friday was a result of double the average trading volume for the stock (161,981,252 versus an average daily volume of 80,272,297). The market probably won’t support that type of volume for long and when it reduces a drop in share price usually occurs. That is a very short term view but my message is this – play it very safe and do not act on emotions. Monitor your asset allocation, find better than average opportunities based on thorough research, and act only when you have a handle on the amount of risk that your actions entail. Good luck out there…