My mentor cautioned me with a serious tone, “Listen carefully. Don’t waste time speculating on the perfect time to buy or sell. This requires power to predict the future. People may cross your path claiming insight into future events, appealing to your doubts, fears, and interests. Don’t listen to them! Remember, very few people on earth can truly predict the future.” He smiled, looked in my eye, and said, “Ancient cultures stoned prophets for making false predictions.” He chuckled, “There would be very few predictions if that was the case today. Since predicting the perfect time to buy and sell requires powers neither you, nor I, possess, let’s make it simple,” he continued.
I sipped my coffee, listening intently, then picked up my pen.
“Remember, markets fluctuate,” He said.
I nodded, recalling the economic principles of supply and demand.
“Let’s say you receive five thousand dollars as your salary each month, and devote five hundred dollars to invest in registered investment company shares. You begin investing on January 1, when the market values one share of your fund at thirty dollars. With five hundred dollars, you buy sixteen shares and two thirds of one share.”
I wrote in my journal: January 1, ABC, $500.00 / $30.00 = 16.67 shares.
“On February 1, you inquire about your investment company securities, and find the market values one share at forty dollars. The price rose ten dollars per share. Since you already hold sixteen and two thirds of a share, your holdings are worth $666.68. If you sold those shares at that price, then you would realize a profit of $166.68.”
I quickly calculated $166.68 / $500.00 = 0.33 x 100 = 33.34, and exclaimed, “That’s a thirty-three percent return in one month!”
My mentor smiled, “You’re beginning to understand.”
“I’m also prepared to invest $500 more.” I said with a grin.
He asked, “How many shares can you buy?”
I wrote in my journal: February 1: ABC $500.00 / $40.00 = 12.50 shares.
“Twelve and a half shares!” I said to my mentor whose eyes beamed as big as his smile.
“Tell me about your total holdings,” he said.
“My total holdings at the end of February equal 29.17 shares of ABC investment company securities with a market value of $1,166.68.”
“Well done,” He said. “Continue this process for another month. It’s March 1. You inquire about the price of ABC investment company securities, and find your fund rose again, so the market values one share at forty-five dollars.”
I wrote in my journal: March 1: ABC $500.00 / $45.00 = 11.11 shares. Speaking confidently I said, “I can buy eleven shares.”
“Tell me about your total holdings,” he said again.
I glanced at my notes and quickly calculated in my head 29.17 shares plus 11.11 shares, equals…“40.28 shares,” I said.
My mentor placing his empty coffee mug on the table and said, “Well done! Let’s pick this up next time.”
Chris Bryant is an American financial advisor.