There are many ways to invest and the whole thing can get quite complicated, but for the normal disinterested investor who regularly throws money into SPY and some mutual fund, they're doing something called dollar cost averaging (even more so if they have a dividend reinvestment plan, DRIP).
Let's say I'm investing $100 a month into a stock that ranges in price from $25-$100/share, with a media price of $50. When the stock is $50, I buy two shares, when it goes up to $100, I only buy one share, when it crashes to $25, I buy four shares.
So if I buy for a month at $50 and then the stock goes to $100 the next month and I'm flying high, before it crashes to $25. I have bought seven shares for $300 with a current market value of $175, not great, but the stock did crash 75% and I'm down less than 50% and a correction back to the median of $50 actually puts me ahead ($350).
I don't want this to be a wall of text, but I actually like it when my Altria (MO) stock drops, because that means my DRIP buys more shares and since those shares also pay dividends, I can actually have the stock lose money every year, while my gains compound.
There is a huge amount of counter intuitive math involved with investing. Frequently, the more counterintuitive, the more profitable.
Yes, but also no. (Clear as mud, right?)
There are many ways to invest and the whole thing can get quite complicated, but for the normal disinterested investor who regularly throws money into SPY and some mutual fund, they're doing something called dollar cost averaging (even more so if they have a dividend reinvestment plan, DRIP).
Let's say I'm investing $100 a month into a stock that ranges in price from $25-$100/share, with a media price of $50. When the stock is $50, I buy two shares, when it goes up to $100, I only buy one share, when it crashes to $25, I buy four shares.
So if I buy for a month at $50 and then the stock goes to $100 the next month and I'm flying high, before it crashes to $25. I have bought seven shares for $300 with a current market value of $175, not great, but the stock did crash 75% and I'm down less than 50% and a correction back to the median of $50 actually puts me ahead ($350).
I don't want this to be a wall of text, but I actually like it when my Altria (MO) stock drops, because that means my DRIP buys more shares and since those shares also pay dividends, I can actually have the stock lose money every year, while my gains compound.
There is a huge amount of counter intuitive math involved with investing. Frequently, the more counterintuitive, the more profitable.
The distributions are not normal nor are they symmetric
Yup. Dollar cost averaging and diversification are the only two free lunches. I include hedging within diversification.