Averaging Down

(19-07-2011, 10:34 PM)brattzz Wrote: Have to be patient... recession comes, grab blue-chips 1st, they recover faster, after that move the gains to small-cap counters to ride the uptrend..

pyramid up during an uptrend feels better!

Becareful of right issues hor..Some of the singapore blue chips failed quite badly in this aspect..haha.

Averaging Down. If you know the stock is going down, why are you buying? Wouldn't it be better to buy after the price is down?

You don't know if the price is going up or going down. Don't know enough to make a decent profit from it. If you know, you don't need to analyse stocks, just sit in front of the computer and count your money. You know it is down only after it went down.

Because you are unsure, you need a plan for making your purchases. You think it might go up and so you buy a little. The majority of the designated funds for this stock stays in cash such that if it goes down, you buy more. This is a plan you devised BEFORE you entered the first transaction. You intend to "average down" if the price goes down. If it goes down by 10%, I will make another buy. Another 5%, one more. And so on...

The situation is different if you had showed your hand already and the price still goes down. You are sitting on paper-loss, and usually that loss is too big for the stomach. You get uneasy and you wonder if that was a mistake in the first place to buy that stock. You are using the signal from the market and it generates a lot of self doubt. You are thinking to pull cash from elsewhere to "make back from where you lost it". Averaging down becomes a double or nothing venture. You are dragged along by circumstance, absolutely no control. You are gambling. Very risky.

To get a good average price should be the objective for any long term holdings. There should be a plan before the ops. The easiest way to achieve that is to buy when it is down. And you better be sure about your analysis.

To "average down" because you were wrong and you want to recoup your losses, that's disaster.

You plan to buy if it goes down (and you have reserved cash for that) is very different from if you are forced to buy because it went down.

(19-07-2011, 10:42 PM)yeokiwi Wrote:

(19-07-2011, 10:34 PM)brattzz Wrote: Have to be patient... recession comes, grab blue-chips 1st, they recover faster, after that move the gains to small-cap counters to ride the uptrend..

pyramid up during an uptrend feels better!

Becareful of right issues hor..Some of the singapore blue chips failed quite badly in this aspect..haha.

Agree, some right issues are sucks. Sucks your hard - earned monies. But if you think it is a good stock for the future market recovery, it is one of the best opportunity to average down. i have done it for some blue - chip Reits. It's worthwhile.

(20-07-2011, 12:48 AM)cif5000 Wrote: Averaging Down. If you know the stock is going down, why are you buying? Wouldn't it be better to buy after the price is down?

You don't know if the price is going up or going down. Don't know enough to make a decent profit from it. If you know, you don't need to analyse stocks, just sit in front of the computer and count your money. You know it is down only after it went down.

Because you are unsure, you need a plan for making your purchases. You think it might go up and so you buy a little. The majority of the designated funds for this stock stays in cash such that if it goes down, you buy more. This is a plan you devised BEFORE you entered the first transaction. You intend to "average down" if the price goes down. If it goes down by 10%, I will make another buy. Another 5%, one more. And so on...

The situation is different if you had showed your hand already and the price still goes down. You are sitting on paper-loss, and usually that loss is too big for the stomach. You get uneasy and you wonder if that was a mistake in the first place to buy that stock. You are using the signal from the market and it generates a lot of self doubt. You are thinking to pull cash from elsewhere to "make back from where you lost it". Averaging down becomes a double or nothing venture. You are dragged along by circumstance, absolutely no control. You are gambling. Very risky.

To get a good average price should be the objective for any long term holdings. There should be a plan before the ops. The easiest way to achieve that is to buy when it is down. And you better be sure about your analysis.

To "average down" because you were wrong and you want to recoup your losses, that's disaster.

You plan to buy if it goes down (and you have reserved cash for that) is very different from if you are forced to buy because it went down.

My thinking is abit different.

There is no average up or down. Other than portfolio consideration which many have, every buy is an independent decision. It is nothing to do with Any Earlier purchases.

The problem with average down or up is the problem of keep asking this question.

(21-07-2011, 12:12 AM)donmihaihai Wrote:

(20-07-2011, 12:48 AM)cif5000 Wrote: Averaging Down. If you know the stock is going down, why are you buying? Wouldn't it be better to buy after the price is down?

You don't know if the price is going up or going down. Don't know enough to make a decent profit from it. If you know, you don't need to analyse stocks, just sit in front of the computer and count your money. You know it is down only after it went down.

Because you are unsure, you need a plan for making your purchases. You think it might go up and so you buy a little. The majority of the designated funds for this stock stays in cash such that if it goes down, you buy more. This is a plan you devised BEFORE you entered the first transaction. You intend to "average down" if the price goes down. If it goes down by 10%, I will make another buy. Another 5%, one more. And so on...

The situation is different if you had showed your hand already and the price still goes down. You are sitting on paper-loss, and usually that loss is too big for the stomach. You get uneasy and you wonder if that was a mistake in the first place to buy that stock. You are using the signal from the market and it generates a lot of self doubt. You are thinking to pull cash from elsewhere to "make back from where you lost it". Averaging down becomes a double or nothing venture. You are dragged along by circumstance, absolutely no control. You are gambling. Very risky.

To get a good average price should be the objective for any long term holdings. There should be a plan before the ops. The easiest way to achieve that is to buy when it is down. And you better be sure about your analysis.

To "average down" because you were wrong and you want to recoup your losses, that's disaster.

You plan to buy if it goes down (and you have reserved cash for that) is very different from if you are forced to buy because it went down.

My thinking is abit different.

There is no average up or down. Other than portfolio consideration which many have, every buy is an independent decision. It is nothing to do with Any Earlier purchases.

The problem with average down or up is the problem of keep asking this question.

You are spot on, every buy is an independent decision but you also have said portfolio is taken into consideration.

I agree 100 % every buy should be the best buy for your money at that time, at that market, nothing else matters. But we can never be sure of it and it is really a lot of hard work to look for the best buy. So we conveniently think average down is the best buy. We think we have done enough homework. Many of us maybe homework fatique already. That's why, even our hard earned money is at stake, we try to do the shortcut investing.
Nevertheless you are 100% on target.
Must try to put into practice what you said.

(21-07-2011, 12:12 AM)donmihaihai Wrote: My thinking is abit different.

There is no average up or down. Other than portfolio consideration which many have, every buy is an independent decision. It is nothing to do with Any Earlier purchases.

Not much difference. Fully agree that every buy is an independent decision.

I merely mentioned one way to buy. Each buy decision may consist of more than 1 transaction and it may spread over a period of time. Liquidity and the amount you want to accumulate play the most crucial role.

To a broker, a buy is a transaction.

To an investor, a buy is more than that. It is an operation. It can be more than one stock. It can even be a hedged position.