I’ll be the first to admit that I am not the most patient person in the world. After deciding to invest in the stock market this past January, I’ve so far employed a strategy of mostly funding my portfolio every chance I get. This means dollar-cost averaging every month with my standard paycheck, in addition to lump sum deposits whenever I receive: ESPP, bonuses, RSU, etc.
Up until March, this strategy proved effective, as my portfolio was very much in the green. This was to be excepted, however, since the overall market was up (S&P 500 rose ~ 12% from the beginning of January through the end of March). But unfortunately, what goes up must eventually come back down. And come crashing down it did, especially on April 10. April 10 was a tough day all around for the market, and I personally received a huge dose of reality check that day. It was tough to see red throughout my portfolio, but what really bothered me was the reason for it- I bought in too high.
The first rule they teach you in investing is – buy low and sell high. Being inexperienced, I would often jump in and purchase a stock as soon as I saw 1% or 2% drops from the previous day. To me, this was a signal to buy in. Also, I made the mistake of investing too much of my money over too short a period of time. I chalk this up to over-excitement, especially when I received large, lump sum payments. As a result of these mistakes, I was out of cash during the first ‘real pullback’ of this year, on April 10. That day, I saw so many discounted stocks that I wanted to buy, but sadly, had no means to do so.
Having missed such a golden opportunity has taught me to be more patient when playing this game. I have to constantly remind myself that investing is not a race, but a slow and steady marathon that is won by being: smart, patient, and consistent. To be clear, I don’t see anything wrong with dollar-cost averaging every month since it is impossible to always accurately time the market to ensure you are buying at the bottom. It’s very important though, to have a surplus of cash on hand in case the market has a major correction. With that said, I’ve eased off the gas pedal a bit these past few weeks. I haven’t made any new purchases, and I am simply holding cash at the moment. And although I will be receiving another ESPP distribution next month, this time, I intend to hoard all of it. I’m standing on the sidelines and won’t rush into buying anything until the next pullback. The stock market is inherently volatile, so it will come around again. However, the next time it does, I’ll be ready.