While I have been investing in Mutual Funds for the past 13 years, I am pretty new to buying individual Stocks. I have noticed that on the Defensive stocks there are very wide Bid / Ask Spreads. I have read that using market orders in these situations is not a good idea.
Could I get a recommendation from a fellow Graham enthusiast as to how I should approach buying (and eventually selling) these stocks? Thank you!
Submitted by Tom W. Created on Monday 2nd September 2013. Updated on Wednesday 6th March 2019.
Limit Order vs Market Order
Hello Tom,
Thank you for using Serenity!
Placing orders at market price is never a good idea, for any stock. The current price is usually that of the first bid on the market. Sometimes, there can be a large difference in price of the first few bids and the remaining bids, especially if your order is a large one.
So it's always a good idea to set a "limit" on your order prices.
If you're buying (or selling) Graham stocks, you could set the price limit anywhere between the current price of the stocks and Graham's maximum recommended price for that stock.
For example, if a stock is selling at $7 and Graham recommends a maximum price of $10 for that stock, you would "limit" your buy orders to $10 or $9. That way you are assured that you'll never pay more than you should (or sell it for less than you should).
Hope this helps!
Limit Order vs Market Order
Thank you for the quick reply! It looks like the reason the spreads were so wide is that I checked them over the weekend during after hours trading. During normal trading hours the spread is much smaller.
Regardless, I am very glad I asked the question as you make an excellent point about limits. I had not thought about that, but with smaller stocks especially, it makes a lot of sense!