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Dividend Investing Psychology – Why I Use Limit Orders

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Dividend-Investing-Psychology-Limit-Orders-300x198I have a problem with dividend investing, and I doubt that I’m alone.  My problem is that I have a terrible time always thinking I can get a better value on a stock.  In fact, this problem has probably cost me thousands and thousands of dollars.

Here is the situation and my solution.

Have you ever researched a stock and determined everything meets your buying criteria (eg. perfect company, great dividend growth history, great yield…), but its only missing one thing?  It’s overpriced.

But, you say to yourself, I like this stock.  Unfortunately it’s overvalued at the moment so I’m going to put it on my watchlist and wait for it to come down another 3 – 5% (whatever fair value is) before I buy.  A week or a month passes, and the price finally hits the target price you’ve been waiting for to buy.  And, then you think you can do better.

You think “I knew the price was coming back down”, now I’ll be really smart and wait for it to really bottom and then buy.  Sadly, you don’t ever buy and the stock shoots back up because good deals don’t stay around too long in this market. And, then you kick yourself.

I’ve personally lived this situation now with Johnson & Johnson (JNJ), Wells Fargo (WFC) & Realty Income (O) among several other stocks that I’ve been stalking.  I’ve passed on the best dividend growth stocks at terrific valuations because I thought I could get it for half a percentage point cheaper or because I wasn’t near a computer during the trading day.

Dividend Investing Psychology – Buying during a correction

If you’re like me waiting to buy your carefully selected watchlist of great dividend growth stocks once everything starts correcting, you’re not going to buy.  You’re lying to yourself.

You’ll think to yourself that you knew the market was going to come down.  And, once it gets to the price you thought you would buy, you’re going to wait to see if it goes lower.

You’re going to try and time the bottom to get the best deal you can.  The dividend stocks are going to bounce, and you’re not going to buy. You’ll miss the correction.

This market doesn’t want to go down and will continue to grind up.  It will probably do so for the next 12 – 22 months. So the momentary correction won’t serve any purpose for you.

If it does correct, do yourself a favor and use limit orders and take your emotions out of the decision.  You don’t want to miss it.  You wait to buy, and then you wait some more.

If you think Johnson and Johnson (JNJ) is priced fairly at $98.48, then put your buy limit order in now.  If you like MMM at $158.86 then set it up now.

It takes discipline that many of us don’t have to set our buy prices and then execute them without thinking “I can get a better deal if I wait”.  Don’t do it.

Why I Use Limit Orders

Unless you are a professional trader (which I’m not) and spend all day watching the market, there is a good chance that you might be working during the trading day.  Using Good Till Canceled (GTC) limit orders can help.

Create a buy order and set it as a limit and change the timing to GTC and you’re ready to go.  You don’t have to be anywhere near a computer during the day. Once the stock price hits your “limit order”, then your online brokerage firm will make the purchase for you.

You’ve also just automated a decision that many of us can’t make during the hard times when prices are falling.

Why Not To Use Buy Limit Orders

Why would you not want to use limit orders?  Well, you can forget they are there.  It requires an extra step to make sure you have the cash in your account before you make a purchase or setup another limit order.

You also have the potential lost opportunity cost.  If a random company (not currently on your watchlist) drops 25% and becomes a fantastic deal but you have limit orders already setup and a finite amount of cash, you will have to put more cash into your account to cover your commitments.  Do you cancel some of the established limit orders and make the buy on the new good valued stocks?

Using buy limit orders is best in markets like today where you know the market only likes going up and down days are few and far between.

I’ve personally made almost a dozen buys using limit orders and haven’t had any problems.  Limit orders keep me from overthinking and prevent me from making stupid decisions like trying to time the bottoms.


Do you use limit orders for your dividend stock buys?  Have you ever missed an opportunity to buy a stock on your watch list because you were working or didn’t see it dip?

I'm a dividend growth investor who is aiming to retire early in 4 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!


  1. Nice article! I have the same problem and it is precisely why I can’t wait to be able to buy blocks of 100 shares. With 100 share purchases, you can sell put options at the strike price you wish to acquire the stock at (essentially a limit order). The only thing better than a limit order is getting paid to place a limit order…Until I have the capital for that I will continue placing my limit orders like you.


  2. Blake

    Hi Ken! Selling put options is a great idea. I’m with you on not yet being able to buy stocks I want in 100 share lots. I’m sure we’ll get there soon though!

    Thank you again for stopping by!

  3. Interesting article.

    I don’t personally use limit orders but have considered them on many occasions. Your reasoning (on both sides) is very sound.

    Unfortunately, I get an itchy trigger finger if I have cash sitting in my brokerage account for too long. I want it out and working for me as soon as possible. I plan to experiment with them at some point however and your article has given me a little nudge to bring that forward when I get a chance!

    Thanks a lot for the fascinating post.

    • Blake

      Hi DD,

      I agree, it is very tough not putting money to work at once! Buy limit orders are certainly worth a try. It really is a great feeling to receive those fill emails when away from the computer.

      Thank you for dropping by!

  4. I can relate to what you have written. I make about one hundreds of stocks stalking lists with categories but so far I missed many of 52 weeks low stocks such as HCP, OHI, HCN. Even non dividend paying stock such as Regulus. But I didn’t miss WMT.

    • Blake

      Hi Dai,

      While getting in at the lows is always fun, just getting in much more important. I’m with you on WMT. Last few times I’ve been to my local store it’s been packed. I think it will do well for us!

      Great to hear from you!

  5. I use to try to get the “best” price but with the bulk of my money going to my 401-K, using a DSPP on a couple of stocks and buying stocks through Loyal3 (all of which sort of take the price out of my hand) I just don’t think it matters that much in the long term.

    I work the third shift and I’m actually around to see the market movements of the stock market during the day and I admit it can be frustrating to know the price I bought my stock is higher than the price it ended the day with. Or see my 401-K contribution make a purchase on a big up day when the NAV had been down for the bulk of the week.

    But this “stuff” can become unimportant a year later; even more so when thinking of the decades I have till retirement and when I actually will want to make use of my invested money.

    • Blake

      Hi Adrian,

      A common investing saying is “time in the market is more important than timing the market”. While I agree, it certainly doesn’t mean I don’t do a lot of research and pick the prices I want to pay for stocks. Then set my limit orders to execute at prices I think represent fair values.

      However, I’m in the same situation with my 401k in that I buy at market prices whenever money is transferred and often see account values less than the cash I’ve contributed. It can be frustrating, but thats the reality of many 401K’s. But you’re right… with long timelines those accounts, even with their inopportune buys will make little difference!

      Thank you for stopping by and commenting!