The Switching Stocks Strategy

Bo Sanchez recently told members of The Truly Rich Club to use the Switch Strategy. Here's a basic description of how it works:

1. Sell all your stocks in Company AAA, even at a loss.

2. Use the money from that sale to buy as many shares of stock as you can in Company BBB, because the price of Company BBB's shares is quite low, and the price of Company BBB's shares is expected to go up faster than that of Company AAA.

Here's what we're going to do...

a) We're thinking about selling half of the shares of stock that we have in Company AAA, so that our loss will also be half.

Since Company AAA is considered as a good long-term company, we'll just wait for the remaining half to appreciate in price in the future, and sell those at that time.

b) We'll buy more shares of stock in Company BBB (for as long as the stock price is lower than the Buy Below Price).

c) Continue monitoring the other stocks where we used the Switch Strategy in early 2016.

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Here's some math to consider...

  • If we sell all our shares of Stock AAA, how much is the loss? Let's assume it is P8,000.
  • If we use the money received from the sale of all our shares of Stock AAA to buy Stock BBB, how many shares of Stock BBB can we buy? Let's assume it is 200 shares.
  • Let's divide P8,000 by 200 shares. We get P40 per share.
  • How likely is it that the prices of Stock BBB will go up by at least P40? Based on some tables, the Target Selling Price of Stock BBB (these AAA/BBB are just 3 letter combinations we chose for this article to obscure the actual companies, because that info is available to paid TRC members) is at least P40.00 higher than the current price of the stock.

From the above, we can ask ourselves whether or not we will go ahead and switch, or just patiently wait for the price of Stock AAA to go up to the recommended Target Selling Price.

NOTE: One of the benefits of blogging is you get to see your thought processes. This helps you decide whether you will buy or sell stocks, because you can easily run scenarios in your mind and on paper (or on the screen). In the process, you will be able to crystallize your thoughts and choose the appropriate course of action.