If you follow me on Instagram, you saw me post a chart on Foot Locker at $48.50 last June. By October, the stock was trading for $30 a share and I called for dollar cost averaging. Today, with the stock back above $49, the investor that did that made 32% on their money. You can only do this in good companies and despite the short term drop, Foot Locker is a good company.
Here’s how it would have played out.
- You opened the initial investment with 100 shares at $48.50
- The stock falls
- You buy the same dollar amount at the lower price of $30, 160 shares
- The stock rises
- You now have 260 shares at $49 for $12,740 on a $9,700 investment
- You just made 30% on your money
- The S&P 500 gained 13%, you win.
To me, trading doesn’t mean sitting in front of your computer all day for pennies. It means buying something because you think it’s undervalued at one price with the understanding that in the short term (daily/weekly/monthly), it may drop. In fact, the chances that it will are at least 50 50. But, over the longer term (1 year or greater) good companies tend to trade higher, especially if bought at the right multiples.