How to buy in the crypto circle

How to buy.

First, let’s review the four conventional steps of value investing: Step one: we need to establish our personal circle of competence,

find quality stocks,

and then put them into our stock pool to wait.

Step two: we need to regularly evaluate these stocks,

to know roughly how much the company should be worth at minimum.

Of course,

we don’t estimate its upper limit,

only its lower limit,

the minimum value it should have.

Step three: wait to see if the market will give you an opportunity to buy.

Step four: when the price is far below your estimated minimum value,

and a margin of safety appears,

that’s when you start to buy.

Today, we mainly discuss the fourth step,

how to buy,

which is the so-called buying strategy.

The specific operation method is the incremental buying method.

First, you need to plan your overall funds for investing in the stock market. How much of this total capital do you intend to allocate to this stock? To calculate the position size, you can refer to the “My Position Strategy” section,

which contains specific formulas,

allowing you to roughly calculate how much funds you can allocate to buy this company,

and what percentage of your total funds this part represents.

For example, if your total funds are 1 million,

and you plan to spend 200,000 to buy this company’s stock.

Then, instead of immediately investing the full 200,000 when you see the price below the safety margin,

you usually buy in multiple installments.

Why buy in installments? Generally, I divide into three purchases,

but you can also divide into two or four,

and each purchase amount can be the same or different each time.

For example, with 200,000, you can divide it into 4 times,

investing 50,000 each time,

or start with 40% which is 80,000,

and then invest 60,000 each subsequent time.

It doesn’t matter,

but you must buy in installments.

Additionally, when buying in stages,

you should stagger the prices,

the purchase prices each time should not be the same.

For instance, if a stock is $50 per share,

and it has already fallen below the safety margin,

then you buy the first batch at $50,

and when you buy the second batch,

the price should have dropped at least 20% to 40, or $40,

and the prices should be staggered.

This is the second key to buying.

The first key is to buy in installments,

the second key is to stagger the prices.

Why do this? The first point involves an issue of uncertainty.

Because when we analyze any company, there are many uncertainties,

our circle of competence is limited,

even if we think we understand that company,

are we really sure? Could our judgment be wrong?

Therefore, we generally do not buy full position all at once,

because if you buy all at once and then some unknown news causes the stock price to fall,

it will interfere with your holdings,

and your paper losses will be larger.

Or if you judge incorrectly,

your principal loss could be severe.

But if you buy in stages,

only allocating one-third of your position,

if you are wrong,

when you need to exit or stop-loss,

the loss will be relatively smaller.

The second point is that your judgment might be correct,

but the company might have some issues or some unknown bad news,

such as a pandemic,

or a stock market crash, etc.

In such cases, if you hold full position, the loss could be significant.

For example, if a company commits fraud,

you truly don’t know and can’t know,

when unpredictable situations occur,

if you don’t enter all at once,

the losses will be much less.

The third point is the stock price.

As a value investor,

when buying,

more often doing contrarian investing,

since it’s contrarian,

it means going against the market trend,

so after buying, the price may continue to decline.

Therefore, we shouldn’t buy with the mentality of bottom-fishing all at once.

After buying, wait and see,

perhaps you can buy more at a cheaper price,

buy more when it’s cheaper,

the more it drops, the more willing you are to buy,

this way, your mindset won’t get easily disturbed.

With the same funds, you buy more shares,

lower your cost,

and when the price rises, you earn more.

The premise of buying more as it falls is that you must buy in stages,

the prices should be staggered,

the more it drops, the more you buy,

this is a very good buying method.

Everyone can divide their purchases into two, three, or four stages according to their situation,

personally, I usually divide into three stages.

Dividing into stages is just a technique,

applicable both for value investing and for speculation,

incremental buying is a more seasoned method,

many investors or market participants also use similar approaches,

one of the underlying logics of this method is that your circle of competence is limited,

your judgment may be wrong; the second logic is that some companies’ operations are unpredictable,

the stock market is unpredictable,

you can’t be sure your price is the lowest; the third logic is that investing itself is contrarian,

buying on the left side when prices are falling,

so the chance of buying at the absolute bottom is very low,

most likely, it will continue to decline.

If you want to lower your costs,

you should buy in stages incrementally.

There is also a risk,

you might buy the lowest price in the first stage,

and then the price rises,

there’s no way to avoid that.

If you dare to buy lower and lower,

without a bottom-fishing mentality,

and you end up buying more as it falls,

there’s no other way.

This is a better method,

but not perfect,

there’s no method in the world that is 100% perfect.