Why a Hot Stock Tip Will Inevitably Make Me Miss Dollar-Cost Averaging

Like any practical-minded, monetarily conscious individual, I spend most of my workday reading random articles on the Internet in a desperate attempt to make time pass.

I was at a site the other day-I won't say which, because, like any financially savvy guy, I fear lawsuits like no other pain forged by God or man. Anyway, one of the articles said the market was going to dip in October.

As I write these words it is September 2006 and things have been good. Perhaps too good. I've been content to watch my portfolio rise, but there hasn't really been a time to get in and improve my position. Prices rise. Where's my chance to buy low, sell high, if the low never comes? What's this I read about October? Will things be cheaper then?

I click the article but it seems I can't get it unless I subscribe to the site. Like any shrewd investor, I'm too freakin' cheap to pay for Internet information. And it's just me and a headline, and the headshot of a friendly guy in a neat powder blue oxford shirt. You can trust a face that tops that kind of shirt.

"Tell me more, hot stock tip!" I yearn to ask. "Share with me, as you do the entire Internet, your secretive and mystical predictions of a falling market that will enable me to scoop up shares at a reasonably discount price." I am tempted to act on this, think on this. I am lured by the prospect of a hedonistic lifestyle.

Dollar-cost averaging, as we all know from school (wait… we don't learn responsible personal finance in this country), is the safe, normal, unhurried process of investing the same amount each period. When the market's up, you buy fewer shares, when it's down, you buy more, and it all evens out. That's what I used to do before I got this nifty hint. I am now empowered by the chance to wait out this overpriced period and get stock at a steal.

Because dollar-cost averaging is just so… vanilla. What does a power investor like me need with buying stock this month when the next will pose a better opportunity? Unless it doesn't. In which case I'm out a few bucks.

Now here's a little secret from me to you. I don't have so much money sitting around that buying a few cents up or down is going to affect my portfolio much either way. So dollar-cost averaging isn't going to keep me from missing out on any superbargains. So if I were smart, I'd stick with that-not out of responsible financial policy, but just so I wouldn't twist my stomach in knots watching the market and wondering if waiting for this downturn is going to pay off or not.

I'm pretty stupid sometimes.

What is it about buying low and selling high that turns investors into nitwits? I have faced the demon many times, and won sometimes, and lost others, and I can tell you what: it's the feeling that you're getting away with something. We want to beat the market, not just ride with it like the dollar-cost averaging crowd. Silly market and its 10% average yearly yield. We can do better than that, and next month is the time to start! I know because I read it on the Internet.

My fingers itch. I want to make a killing. I've done the math, and with my princely sum of ill-gotten cash on hand for my next investment, if I hold it till this fabled and historic dip in stock prices, I might be able to buy one, even one and a half more shares of what I'm looking at.

(No, I won't tell you what it is… you think I want my best investment secrets getting out on the Internet?)

Dollar-cost averaging isn't just good for the wallet. It's good for the soul. Nerves, too, I guess. Leave me in my pit of despair, reloading the charts, and just put in X a month and forget about it. You'll have to forego all this glamour, of course.

Investing is not about mathematics but psychology. Still and yet I'm going to play with this little decision and see if I can profit a few cents. If it bites me on the rear by the same amount, you'll be the first to know.