Averaging down

[specuvestor]

Agree to the extent that the structure of your funding and external demands limits you... one should always know why the trade / investment was put in the first place

Sometimes it's not about right or wrong... it's about "last". The market can stay irrational longer than we can remain solvent

When you average down, you are implying that your earlier investment decision was correct.

When you don't average down, you are implying that your earlier investment decision might be wrong.

If you're not sufficiently introspective, you may have a higher likelihood of making the first choice. Few people enjoy questioning and doubting their earlier decisions.

I think the 'correct answer' of whether to average down or not has already been given.

Every time you put money down -- whether for the first time or average down/up -- you should re-think the entire thesis, and also consider if there might be something better out there.

[money]

Hi port, i know why you are asking questions like that. I bought some singapore bank stocks last week only to watch it fall 3 to 5% today. But i dont think you always have to make money back in the same way from the same stock. You can always buy into other stocks that have been beaten down

[weijian]

Dear Value Buddies,

In Dollar-Cost-Averaging, one can buy on the way down or on the way up.
I fear Averaging down, I prefer Averaging up. See my two actual examples below.

Averaging Down:
I bought a valued stock, “STX OSV”, later they changed the name to “Vard Hldgs”
24th March 2012. I bought it at $1.71. It went down all the way so I did the “Average-Down” all the way.
05th October 2016. I made the last purchase. My average price became $$0.774
I dared not buy anymore, it went further down.
The company took it private and paid me $0.25 per share on 28th March 2018
I lost a small fortune on this stock.

Averaging Up:
20th July 2009, I bought “Fraser Commercial Trust at $0.216 per share.
I did “Average-Up” all the way.  
13th Oct 2011, I did my last purchase.
29th January 2020, the dividends I collected already covered my cost. Looking at the COVID-19, I decided to sell it off at $1.64 per share. I made a small fortune on this one.

Retired@52,
Thanks for sharing your invaluable experience. Experiences accumulate and hopefully synthesizes into wisdom eventually.

Sometimes, i thought an easier way would be to invert the question. Rather than answering the question "should we average up or down?". The better question is to invert it and ask "When should we not average down?"

While trying to answer this inverted question, also brings me back to John Hempton's illuminating blog post that i once shared below:
https://www.valuebuddies.com/thread-6593...#pid135641

[port]

Thanks for all the valuable comments provided. Really appreciate it.

I took the plunge by averaging down and by a stroke of luck managed to buy at 52W low. It has since rebounded by 25%.

I find it peculiar that mgt do not stress or mention any FCF in its latest financial statement and just providing a grim outlook while other firms are touting a very high ratio of FCF to mkt cap probably to reassure investors that their share price are deeply undervalued. There is a saying that if one is good, ppl will automatically come to seek you out without the need for advertisement if I may use this as an not so appropriate analogy.

The firm seem very comfortable with maintaining the level of debt it has over the past 5 years without the urgency to pare it down compared to other firms. FY2019 Capex> mkt cap. brings to mind if one is able to spend more than one's net worth considering the dire situation....hmmm

just penning down some thoughts which may be irrelevant.

[money]

Thanks for all the valuable comments provided. Really appreciate it.

I took the plunge by averaging down and by a stroke of luck managed to buy at 52W low. It has since rebounded by 25%.

I find it peculiar that mgt do not stress or mention any FCF in its latest financial statement and just providing a grim outlook while other firms are touting a very high ratio of FCF to mkt cap probably to reassure investors that their share price are deeply undervalued. There is a saying that if one is good, ppl will automatically come to seek you out without the need for advertisement if I may use this as an not so appropriate analogy.

The firm seem very comfortable with maintaining the level of debt it has over the past 5 years without the urgency to pare it down compared to other firms. FY2019 Capex> mkt cap. brings to mind if one is able to spend more than one's net worth considering the dire situation....hmmm

just penning down some thoughts which may be irrelevant.

Congrats  Now you are in a better position to decide if your thesis is correct or wrong

[port]

Hi port, i know why you are asking questions like that. I bought some singapore bank stocks last week only to watch it fall 3 to 5% today. But i dont think you always have to make money back in the same way from the same stock. You can always buy into other stocks that have been beaten down

Hi $$$,

To be frank, I also hv the tempation to switch to buy firms which are trading at a huge discount to NCAV and net cash.

An analogy came to my mind. 

If one is married or attached, does one jump ship when another more attractive candidate comes along into our life?

[money]

i think i should make it clearer. I dont mean that your stocks fall, you sell and jump ship. What i mean is when your stocks fall, you can still buy, but dont buy the same stocks, buy other beaten down stocks

[BRT]

thats why in interviews the ans to "whats been your best investment?" is often my spouse/family. it just has to be

[davidoh]

My bad experience in believing the media.

Bought Noble for their experience in commodity trading. Since every country needs one commodity or another and a middle man like Noble fitted right in.

Something gone wrong when it was "bad mouth" by a "shortist". Noble gone into high gear of denial.

Olam came along and was saved by Temasek.

It gave a rather calming effect.


Noble then gone with 2 rights issue which appears reasonable as it might save the company.

In realty it was used to .........

Now all Noble shares are taken to some offshore depository that cannot be traded.


It is a form of "averaging down".

I wondered why our authorities or at least SGX do something rather than keeps punishing the small retail investors.


Bitter experience.

[weijian]

I wondered why our authorities or at least SGX do something rather than keeps punishing the small retail investors.

Bitter experience.

hi David,
I emphasize with your experience. Personally, i also had shares that returned me a piece of paper cert. Rather than blaming external parties (Mgt, SGX, Temasek, Media or whoever), I told myself that I was fully responsible for the loss (it was really a huge hit to me back then in terms of NAV).

There wasn't a need for me to wonder why didn't XXX do this or help that. Paradoxically, once we wean ourselves off this "psychological reliance on others", we actually become better at protecting ourselves as OPMI.