====== Pipette ======
While you might remember it from chemistry class, in the world of investing, a **Pipette** isn't a glass tube for measuring liquids. Instead, it’s a powerful metaphor for a disciplined investment technique. To "pipette" capital is to add money to an investment in small, precise, and well-considered increments, rather than deploying it all at once in a single lump sum. Think of yourself as a careful scientist in a lab, not a gambler at a casino. This method is a favorite among savvy [[value investing]] practitioners because it prioritizes prudence and precision over speed and speculation. By adding to a position incrementally, an investor can manage risk, average their purchase price, and force themselves to continuously re-evaluate the investment, ensuring the thesis remains sound with each new allocation of capital. It’s the art of building a position with surgical accuracy.
===== The Art of the Pipette =====
Using the pipette technique is more than just a mechanical process; it’s a mindset that instills discipline and patience, two of the value investor's greatest assets. It shines by offering several key advantages that protect and grow your capital over the long term.
  * **Mitigates [[Timing Risk]]:** Let's be honest: nobody can consistently predict the absolute bottom of a stock's price. The pipette method frees you from this impossible task. By investing smaller amounts over time as a price falls or consolidates, you can achieve a favorable average [[cost basis]] without needing a crystal ball. You are buying at several points, some higher and some lower, smoothing out the bumps.
  * **Reinforces Analytical Discipline:** Every time you decide to "pipette" more money into a stock, it acts as a mental checkpoint. It forces you to ask: "Has anything changed? Is this company still undervalued? Is my original [[investment thesis]] still valid?" This regular re-evaluation prevents you from falling in love with a stock and helps you avoid the trap of blindly [[averaging down]] on a failing business.
  * **Manages Psychological Pressure:** Investing a large sum of money at once can be nerve-wracking. If the stock immediately drops 10%, panic can set in. Pipetting, however, allows you to ease into a position. These smaller, manageable steps reduce the emotional weight of each decision, helping you stick to your plan even when the market is experiencing high [[volatility]].
===== When to Use the Pipette =====
The pipette is not for every situation, but it is an indispensable tool in specific scenarios where caution and precision are paramount.
==== Building a New Position in an Uncertain Market ====
You’ve done your homework and found a wonderful business trading at what you believe is a fair or even cheap price. The long-term [[intrinsic value]] is compelling. However, the overall market is shaky, or the industry is facing short-term headwinds. Instead of going all-in, you can use a pipette to start a small position. If the price drifts lower, and your analysis still holds, you can add more, patiently building your stake at even better prices.
==== A Pipette vs. a Shovel ====
To truly grasp the concept, it helps to contrast the pipette with its reckless cousin: the shovel.
  * **The Pipette:** A tool for the investor acting as a business analyst. Each addition is measured and based on [[value]]. The focus is on precision and risk control. You slowly and deliberately build a position in a great company.
  * **The Shovel:** The tool of a [[speculator]]. It involves dumping a large pile of cash into a stock, often driven by [[FOMO]] (Fear Of Missing Out) or a hot tip. The decision is emotional, impulsive, and lacks a disciplined valuation framework.
Wise investors like [[Warren Buffett]] often wait with cash for years for the right opportunity. When it comes, they may use a bucket, not a shovel. But for most investors building positions over time, the pipette is the more prudent choice.
===== A Word of Caution =====
While powerful, the pipette technique requires careful handling. Firstly, it is not an excuse to prop up a bad decision. If a stock is falling because its underlying business is deteriorating, adding more money is like adding water to a sinking ship. The investment thesis must remain intact. Secondly, be mindful of [[transaction costs]]. Making many small trades can be expensive if your broker charges high commissions for each one. This technique is best suited for low-cost brokerage platforms. Finally, you accept the trade-off that if a stock's price shoots up immediately after your first small purchase, you will miss some of the initial gains. However, for a true value investor, the price paid for reducing risk is well worth it.