Buy Stocks Like You Buy Milk
Okay, so you’re probably thinking I’ve lost the plot here by comparing stocks to milk. But this was a shower thought I had one day and having reflected on it, this idea helped me invest over the last few years.
Let’s start with the milk. I stopped drinking dairy milk a couple of years ago after I did some research on the pros and cons of dairy. Anyway, this isn’t a debate on dairy or veganism - I’ll leave that to Netflix documentaries of course. The problem is non-dairy milk is pricey, most of the time it costs around £2/litre, and every week I suck it up and buy it because my coffee and porridge just aren’t the same without it.
But every now and then there is a sale where I get my fix of Alpro or Oatly for £1! So as the child of immigrant Indian parents what do I do? -Of course, I buy as many cartons of oat, coconut, or hazelnut milk I can carry.
But why do I do this?
I know I need milk, it brings me utility and my life is better to by having it that not so it systematically goes on my shopping list every week no matter what.
When it’s on sale, I don’t worry about why it's on sale or start re-evaluating my milk choices again. I know what I like and I want to maximise the value of low prices as I know these opportunities come few and far between.
It turns out I have been buying stocks using the same process:
Every month I take a portion of my salary and buy into the market systematically irrespective of if prices are going up, down or sideways. Using Dollar-Cost Averaging, I smooth out the price with which I buy into the market so even if I buy into the market at the highs, over time I'll catch the lows as well. However, most importantly it means I'm always in the game and not sitting on the sidelines waiting for "the right time".
When the market has a correction or suffers a rapid decline, I take a chunk of cash and buy into the market to take advantage of discounted prices. There's no need for me to panic or let my emotions get the better of me, even if I look at the market and see red everywhere because I have a plan. I’ve done my research and I know what I like to buy and so I should maximise the value of these opportunities (i.e. "the right time") when they arise.
This is an odd analogy for investing but there are two main points are worth highlighting. Firstly, there is a lot of value in having a systemised plan for investing as well as the mental discipline to be consistent and avoid panicking in periods of high volatility. Secondly fear and greed are the most dangerous emotions to have when making investing decisions. You need to look at your portfolio objectively and make decisions as unemotionally as if you were buying milk at a supermarket.
Disclaimer: This article is for informational and educational purposes only. I am just a guy on the internet so you should do your own research and seek professional advice if you need it before making any investment decisions.