Use the limit order to get a good deal

The concept of a limit order is that the investor only desires to buy an asset for no more than a specified price or sell for no less than a specified price.  The limit order is an option that is offered by stock trading brokers.  In this case the principle is the same.  A buy limit order limits the price of what you are willing to buy the stock for and a sell limit order limits what you are willing to sell the stock for.

The opposite option of a limit order is a market order.  In this option your buy trade is immediately executed against whatever is the best available selling price.  The problem here is that price may be higher than the current reflected per share price.  The orders go through a computer system, where buyers and sellers are matched and the market “clears”.  Your buy transaction may be the unlucky one that clears a percent or two above market price.

Avoid this by maintaining your cool and willingness to wait to get into or out of a stock.  The market is efficient, but people are not.  By taking this into account, setting a limit a little lower than market price for a buy, and perhaps using the 30 day or good till canceled option; you can buy the stock that you are looking at for a modest discount.  Or as a seller, your patience can be rewarded by gaining a premium for your investment sale.

Gold vs. S&P 500

Is it better to buy gold or the S&P 500?  The answer is both.  It’s the timing between the two that’s crucial.  To understand why, it’s best to take a practical look at the two asset classes.  Gold is commonly referred to as a “store of value”.  It is what it is.  Gold has a high value due to its anti-corrosive properties, its density, malleability, luster, and ductility.  However, it does not work or generate any cash flow or grow itself additionally.  This is where stocks come in.  Stocks are a product of ownership of production.  A company brings in revenues, pays fixed and variable costs, taxes, and corporate debt.  The remaining amount of earnings, positive or negative passes to the shareholder in a mix of dividends and reinvestment into the company.  The present value (discounted at the required/market rate of return) of the sum of these earnings establish the stock price of the company, which fluctuates on a daily basis.

The chart below is a graph of the ratio of the S&P 500/Gold Price with respect to time.  This chart does not take dividends into account.

Gold vs SP500

Using this chart it is easy to see which asset outperformed the other over any period of time. Over a given time period if the end ratio is higher than the start ratio, the S&P 500 outperformed gold. If the end ratio is lower than the start ratio, gold outperformed the S&P 500.

For example, take a starting point of 1970 and an point of 2000.  The ratios are 2 and 5, respectively. Over this 30 year period stocks outperformed gold.  The ratio for 1930 is 1.5 and the ratio for 1950 is 0.4.  In this period gold outperformed the S&P 500.
There are a lot of factors that will determine price movements and based on trading activities, politics, and the economy.

Any chart theory is not definitive, and should be used only as part of a complete investment approach.  This method is based on a best value trading of the Gold / S&P 500 pair.  Stocks represent the productivity, but a commodity can become increasingly scarce.  A possible approach would be to trade based on the historic ratio bounds.  In this case rebalancing would occur based on the ratio.  At 0.2, an investor would hold 5 parts stock to 1 part gold (0.2/1:1).  At 5, an investor would hold 5 parts gold to 1 part stock.

Blockchain and robotic automated systems

Evolution in Investment world

Carlisle Mitchell - Real Estate

Carlisle Mitchell - Insider Tips for Real Estate Investors. Expert investment & market analysis for real estate investors world-wide.

Writing in Color

Because Life is More than Black and White

Finance Gateway

Finance Plan Makes Your Future

politicsandreason

Discuss politics with civility and reason

LilyPetal

Either write something worth reading or do something worth writing

My Mom Thoughts

Thoughts and Recipes by Marie

%d bloggers like this: