Today I was shopping for a plane ticket I need to buy for an upcoming trip. Since the trip is several months away and the dates are flexible, I was playing with the dates a bit to get the best price. Based on demand, some flights are more expensive than others. Do you need to fly on a Wednesday or a Friday? Do you need a nonstop flight or are you okay with a connecting flight? Do you need a seat assigned ahead of time or are you willing to get whatever seat is available to you? The more specific your flight demands become, the more your ticket will usually cost.

The same is true in picking stocks and building a portfolio. The more flexible you can be when building a portfolio, the better your purchase price tends to be. For example, a hypothetical “stock picking” manager that decides, “I need to buy $10M of Tesla stock (a large cap growth stock) and I need to buy it today!” is probably not going to get great pricing. On the flip side, a flexible stock manager from DFA (our preferred mutual fund manager), might also need to invest $10M today, but instead of demanding one stock, he or she might put bids out for 10 different large cap growth stocks (that are all acceptable to the portfolio) and see what seller is most willing/desperate to unload their stock.

Immediacy and rigidness in your purchase decisions can create higher prices. Flexibility can help you to find the bargains.

Posted in Investments

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