Subscribe Feed (RSS)What’s the Catch
What’s the downside is a very obvious question, especially when it seems on the surface that this stock investing strategy so straight forward and so stacked in our favour. Well there are a couple of things to consider. Firstly, since you own the stock there is always the chance that the stock price will fall. If this happens you of course get to keep the fee paid to you but you have a paper loss on the stock.
Now in reality if you are happy to own a stock then you’ll always have the risk the stock will fall in price. Remember though that we are dealing with good stocks and history will show that stock prices on average will rise in price over time; albeit with price dips along the way.
In fact have you noticed what happens each time you receive your fee from this stock investing strategy. You actually reduce the cost of your shares so that employing this stock investing strategy continually REDUCES YOUR RISK compared to simply buying and holding the shares.
In our example, our stock would actually have to fall to $19.50 before we lost any money. That’s $20.00, the price we paid for the stock, less 50 cents the first fee we received. So it’s a risk reducing stock investing strategy.
The second thing to consider is that if the stock price does rise substantially, and it might on some occasions, our profit is limited to our agreed price. In our example our profit on the stock is limited to $1.00. That’s $21.00 the price we have agreed to sell at, less $20.00 the price we bought the shares for. However as we have already said it is much better to be the one that receives the small regular cash each month than to be the one HOPING for a big rise in price. In other words better to be the seller of hope that being the one hoping.
CONTINUED…
1. Why would anyone pay me to buy my shares at a higher price than I paid for them?
2. How do I find someone to enter into an agreement like this?
3. How do we agree on the sell price, the fee and the date?
Disclaimer: This information is provided for educational purposes only.
Tags: investing in stocks, Renting Shares, stock market investing
