In a small sampling of economist John Maynard Keynes’s early personal portfolio, we see how he was buying and selling one of his favorite stocks at the time: U.S. Steel. He also owned longtime favorite Mather & Platt, an engineering firm and Marine Insurance.
Keynes consistently purchased shares at lower prices, thus reducing his average cost. The 20 shares he sold (in this sample) were within 10 percent of the highest purchase price.
This is a tried-and-true method called dollar-cost averaging that’s worked for individual investors for decades because it avoids buying at the absolute highest price and selling at the lowest. It’s a good method for long-term, buy-and-hold investors who want to own companies that offer dividend-reinvestment plans, where new shares can be purchased — preferably on a regular basis — at no commission.
Dividends can be reinvested in new shares commission-free as well. If Keynes liked a stock, he kept buying it and was encouraged when the price came down — so he bought more and got better bargains.
John F. Wasik’s new book, Keynes’s Way to Wealth, McGraw-Hill Education (Nov 2013), hardcover and ebook ($27), 208 pages, is available at Amazon.com. He will also speak at the 2014 BetterInvesting National Convention next May in Chicago.