The following are some initial strategies for the stock portfolio simulation:
1. Trade a maximum of one buy-transaction per month.
2. A buy-transaction must not exceed 33,000 Pesos.
Given that the global economy is in a recession, it would be best to be prudent with investments. As such, we should be extra careful in buying companies, or else the stock prices may fall significantly any time and we become stuck with the stock holdings, being unable to liquidate them without realizing large losses.
I am estimating the economic recession or stagnation to last from about two to five years. As it would be unwise to plunge all cash into stocks very quickly, it would likewise be unwise to wait for five years before starting to invest again, as we never know when the next bull run will start all over again in the cycle that is called the economic cycle.
As such, we take a balanced approach by slowly buying into stocks that are undervalued. We spread our investments over a course of about two and a half years. Investing about 30,000 Pesos every month for the next two and half years, would sum up to a total investment of one million pesos, which is the starting cash balance of our stock portfolio.
Going forward into the recession, we will expect stock prices to further drop. We will be able to take advantage of these drops by investing as we go deeper into the recession. But we cannot wait to reach the bottom of the recession, or else we will miss it.
In a way, what we are doing is what is called cost-averaging. That is, the strategy of buying small amounts of stocks at regular intervals in time, in the hope of averaging down the total costs of purchasing these companies. Also, it is a good way to compromise the impossibility of finding the rock bottom of bull market conditions such as today.
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