This strategy takes advantage of the random nature of the market, buying less shares in overvalued markets and more in undervalued markets. This strategy also allows an investor to slowly establish a position in a security while continuously evaluating the opportunity. Usually 5 or 6 equal purchases can be spread over a 3 to 6 month period. If the security experiences a problem before the purchases are completed, the investor doesn't experience the same loss as if they plopped down the entire amount in a single purchase. Limit Orders Limit Orders can be used to buy securities at significant discounts to market prices.
Limit orders are orders to buy a security only if it reaches a specified price.
A properly orchestrated combination of limit orders set below the market price can add significantly to portfolio returns. It should be noted that limit orders involve making a low bid on a security, which doesn't guarantee the purchase of the security as a market order would. But the limit order can be set with a high probability of making the purchase at a discounted price. Proper Diversification Proper Diversification can be used to minimize risk while still allowing appreciating securities to dominate a portfolio. Diversification can eliminate non-market risk from a portfolio, that is, risk associated with owning a particular company.