My Investing Journey and the DCA discipline

Last updated on: June 9, 2006 at 6:17 am by Desh Kapoor

My Investing Journey and the DCA discipline 2006-06-09T06:17:00-05:00 Desh Kapoor

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My efforts in investing money had started way back when I was in India – but there I would never use much discretion or have any philosophy on investing. The result was extensive losses.

The tide changed when I came to the US. It was my friend, Bobby Mahendra, who influenced my thinking and introduced me to Warren Buffett, the Master of Investing. I cannot say I have been the best of learners but over the years I have invested with a certain discipline – which has been useful and also humbling at times. For example, I never bought a dot com stock, or Qualcomm, or in the last few years the Google. This has meant that I have lost on “quick profits” but it also meant that I did not lose my sleep on the extreme volatility that accompanied these stocks! Over the last 7 years, I have been positive on the results with whatever little money I had to invest – which wasnt too much in any case!!

It was around 3 years ago that I got excited about the Dollar Cost Averaging. This was also the time when the money I had to invest had reduced due to mortgage that I had to pay for because we bought a house. I started with the I-bonds, which in those days were paper bonds, but later they have become all online. I also tried Foliofn and Sharebuilder but found them to be too expensive. I finally turned to Direct Investing through Equiserve about two years back with three stocks of which I discontinued one. I started with Walmart, Yahoo, and Exxon Mobil. I stopped Walmart but have continued the other two.

Dollar cost averaging is an investing technique intended to reduce exposure to risk associated with making a single large purchase. According to this technique, shares are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance. The theory is that this will lead to greater returns, since smaller numbers of shares will be bought when the cost is high, while larger number of shares will be bought while the cost is low.

Equiserve has since become Computershare.com and still offers the stocks for Direct Investing and is very convenient. You can do search for the stocks that fit your criteria. My basic criteria are:

1. It should offer Auto Online funding
2. Preferably, or very low, commission and fee
3. Max of $1000 initial investment and a regular monthly minimum of at least $50

The trick in Dollar Cost Averaging (or regular monthly investing a certain money amount that can help buy stocks even in ratios), in my view, is to keep buying a stock that you know will still be there and thriving when your grandkids grow up. This process is successful, if you can keep buying this stock for at least 10-15 years, where on you will be able to acquire sufficient quantity of stock at an average price that is quite low. The basic underlying philosophy of this approach is that you get to buy more number of stock when the price is low, and less numbers when price is high. Which means that you – by design – tend to lower the average price. This strategy works particularly well when you keep buying when the stock price has fallen or low. That is why I wanted to start 2-3 years back when the stocks had been pounded just after the dot com bust. It has stood me in good stead. Now, all I need to do is keep at this process for the next decade or so.. at least!

In subsequent posts, I will share more operational details of this process and will try to present the options that you have in various markets in India and the US – two markets that I am aware of. I will start with the US – which is the closest to my analysis and I have access to more. My intention through these series of posts will be to help other small investors like me to develop a saving and investing habit where one may not need to invest large amounts at any point, but even a discipline of investing just $50-100 a month in some good stocks will one day add up to substantial values that one can use over the retirement years or for kids’ education. I would also like to analyse the various investment options and stocks in a way to see which might be the best candidates for our journey on the DCA – or regular investing!!

If any one has any questions or thoughts, please send them to me at my email – [email protected].

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