What is reserved cash?
Now you use this reserved cash for opportunities like that.
(I realize that successful people always see opportunities everywhere, but that’s a different topic)
In other words, you have this as your free cash, ready to be tapped under extreme conditions.
You have a separate wallet for your regular investments, and a different purse for your reserve cash.
And when the stock market gives its surprises, you open this purse to buy at low prices.
Specifically, you use this reserve like when giant fantastic companies have dropped big time in one day.
Why Risk Doing This
There are basically two ideas on which this strategy rests:
- If good companies dropped big time in series of trading days, then it’s highly probable that it will bounce the next trading day.
- The higher the drop, the higher the bounce.
Now we use that reserve cash to leverage on that expected bounce.
You see, this is actually more as a trading strategy, since this has a shorter time frame, and caters more to those folks who can afford to monitor more closely the stock market.
Take note that I used highly probable for the bounce scenario above, which means stocks prices may still keep going down even more. But from experience, with such a big drop, it’s usually the bounce that’s more often the case for these giant fantastic companies.
We recognize it’s only some bad external news that had driven people crazy that pulled the prices down.
You can see below the green pasture bounce I’m talking about, as the Philippine Stock Market closed today from a recent nightmare it had. ( I also shared again this nightmare picture where it bounced from)
In the above scenario, you can see upside attained by several companies dragged down like
URC: 3.11% from -6.29%
MEG: 5.26% from -8.21%
MPI: 5.45% from -8.11%
AGI: 4.34% from -2.60%
As a last note, take serious time to realize that you use this free cash under extreme conditions – like an unacceptable big-time drop that dragged giant sound companies.
There you have it.
Author: Omeng Tawid
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