# Averaging down experience



## Nortorious

Hi All,

I'm still building my investment/trading plan and thinking about different strategies to employ for my long term investment decisions, and short term trading decisions.

In terms of long term investments, what are your thoughts/experience on an averaging down strategy if the situation arises to purchase additional shares at a discounted price?

Given the fluctuations that I have seen over the past couple of weeks, most notably the shock sent through the market from S&P's credit rating news, in future situations where a lower entry point exists, would you buy more shares at a discounted price if you have a long term view of the sustainability/growth of the company?

I'm interested in how this strategy can be used and if it is widely used by ASF members or something to be warned against.

Look forward to hearing from some of you!


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## skyQuake

Nortorious said:


> Hi All,
> 
> I'm still building my investment/trading plan and thinking about different strategies to employ for my long term investment decisions, and short term trading decisions.
> 
> In terms of long term investments, what are your thoughts/experience on an averaging down strategy if the situation arises to purchase additional shares at a discounted price?
> 
> Given the fluctuations that I have seen over the past couple of weeks, most notably the shock sent through the market from S&P's credit rating news, in future situations where a lower entry point exists, would you buy more shares at a discounted price if you have a long term view of the sustainability/growth of the company?
> 
> I'm interested in how this strategy can be used and if it is widely used by ASF members or something to be warned against.
> 
> Look forward to hearing from some of you!




Too much depends on your view? imo if u're inexperienced (<3 years active trading) don't do it. 
One bad stock and it'll take ages to get out of that hole (financially and psychologically) eg buying uranium stocks like BMN after the tsunami


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## traderboi29

Nortorious said:


> Hi All,
> 
> I'm still building my investment/trading plan and thinking about different strategies to employ for my long term investment decisions, and short term trading decisions.
> 
> In terms of long term investments, what are your thoughts/experience on an averaging down strategy if the situation arises to purchase additional shares at a discounted price?
> 
> Given the fluctuations that I have seen over the past couple of weeks, most notably the shock sent through the market from S&P's credit rating news, in future situations where a lower entry point exists, would you buy more shares at a discounted price if you have a long term view of the sustainability/growth of the company?
> 
> I'm interested in how this strategy can be used and if it is widely used by ASF members or something to be warned against.
> 
> Look forward to hearing from some of you!




can i ask have you used this strategy before? or are you trying it for the first time?


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## tech/a

Personally Ive never considered it.
Why?
Because if I'm in a stock which isnt going my way I dont want to be in it let alone buy more of it.
Risk management (Mine anyway) doesnt include shovelling more money into an already losing position.

I wont do it in business or personal life so I'm not going to start now?
Averaging down in my opinion is held in high regard by those who cannot accept that their view may be in correct and cannot accept loss.
They live on hope and what could and should happen--if---when--or when everyone else---who are wrong---realises that they are right! These people will generally declare that a loss isnt a loss until you liquidate it.

Truth is --its a loss the minute its below your purchase price

*"Radge---quote"
It doesnt matter that your wrong---only how long you stay wrong"*


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## KurwaJegoMac

As the saying goes: "Cut your losses short and let your profits run"

Why would you want to be putting more money into something that's losing value? You're playing with the assumption that it will at some point return to the same value under which you originally made a purchase. This is not always the case.

Also wouldn't it be better to free up your capital and put it into stocks that are increasing in value?


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## skc

Nortorious said:


> Hi All,
> 
> I'm still building my investment/trading plan and thinking about different strategies to employ for my long term investment decisions, and short term trading decisions.
> 
> In terms of long term investments, what are your thoughts/experience on an averaging down strategy if the situation arises to purchase additional shares at a discounted price?
> 
> Given the fluctuations that I have seen over the past couple of weeks, most notably the shock sent through the market from S&P's credit rating news, in future situations where a lower entry point exists, would you buy more shares at a discounted price if you have a long term view of the sustainability/growth of the company?
> 
> I'm interested in how this strategy can be used and if it is widely used by ASF members or something to be warned against.
> 
> Look forward to hearing from some of you!




Averaging down on its own is not necessarily evil. But it's a terrible excuse for people who can't admit they are wrong. I will average down on my uranium stock after the Fukushima meltdown is just recklessness.

Also, averaging down cannot trump your overarching risk management rules. E.g. I am committing $5K to a small volatile company... you may have only bought $2.5K and want to top up to $5K after a fall. But if you are already filled up then best to keep your exposure as is.

If you don't think you have the discipline / EQ to execute then probably better just have a rule that says never average down, period.


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## Boggo

tech/a said:


> Personally Ive never considered it.
> Why?
> Because if I'm in a stock which isnt going my way I dont want to be in it let alone buy more of it.
> Risk management (Mine anyway) doesnt include shovelling more money into an already losing position.




I did it twice on the same stock a few years ago (AED - have a look at the weekly chart !), never again, an expensive but valuable lesson.

Below is an example of what I do now (YTC out on 21st Apr), I cannot understand why anyone would want to hold on while a stock is dropping.

(click to expand)


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## danbradster

Averaging down has worked well for me.

I try to pick shares that are undervalued, I try to be so confident in my decision that I am not second-guessing myself if it falls.  If you have picked a good undervalued company that will move closer to its true value in the next year or so, then a lower price is more of a bargain.

My strategy usually takes 2 months to 2 years to unfold, but the averaging down part of it is a benefit in my experience.

Generally a 10%+ fall in SP, for no good reason, is a good opportunity to start topping up.


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## jimmyizgod

danbradster said:


> Averaging down has worked well for me.
> 
> I try to pick shares that are undervalued, I try to be so confident in my decision that I am not second-guessing myself if it falls.  If you have picked a good undervalued company that will move closer to its true value in the next year or so, then a lower price is more of a bargain.
> 
> My strategy usually takes 2 months to 2 years to unfold, but the averaging down part of it is a benefit in my experience.
> 
> Generally a 10%+ fall in SP, for no good reason, is a good opportunity to start topping up.





...unless a 10% fall in SP is just the precurser to a further 20% fall


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## KurwaJegoMac

danbradster said:


> Generally a 10%+ fall in SP, for no good reason, is a good opportunity to start topping up.




How is it a good opportunity? A stock will rise or fall depending on the willingness of people to buy or sell that stock. If it's fallen 10% then more people are selling than buying - that is not a positive sign. Doing this you have your funds tied up in an asset that's deteriorating in value and will require an unknown length of time (potentially years) just to break even, let alone make a profit. 

If it's falling in value why not get out quickly, cutting your losses short and waiting until their is support for your stock in the form of buyers and jumping in then? You preseve your capital and will get in at a better price than someone averaging down. Problem is it takes more effort and the willingness to upset you messed up and bought at the wrong time. The latter is what most people seem to struggle with.

If your investment is not making you money, you paid too much or bought at the wrong time.


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## Reasons

I did average down during the GFC with a couple of the banks, but psychologically it was not pleasant and it runs totally counter to standard trading and risk management practices. At the time there was mass speculation that dividends would never recover again so there was that overhanging doubt as well. I started committing small amounts once the market got so low that dividends of the major banks were at ridiculously high levels and followed them down about 20% until we fortunately got to 2009 and they bottomed. Logic at the time was that if the big 4 banks go bust what else was really going to survive, and that dividends were so high that the shares would become loved again eventually. I sold out far too early with hindsight.

I would average down again in a similar high fear scenario, but only when everything logical is screaming at me not to do it and I have some reasonable confidence that the companies in question will likely survive (based on logic that because if they don't, no others will either). You might find other non-GFC opportunities like a property crash that causes a similar bank share event or the high AUD drives down the price of good companies that aren't likely to go out of business, but causes sufficient panic perhaps. 

Not suggesting it as a strategy, just a way of looking at companies and events that might make averaging down more logical in application compared to being considered a mainstream tactic. The bottom of a share is always zero if you get averaging down wrong and not generally considered smart logic without a risk management plan.


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## Boggo

KurwaJegoMac said:


> If your investment is not making you money, you paid too much or bought at the wrong time.




Exactly, simple really.

For those thinking of averaging down or believing company fertiliser you should have a read of the AED thread, particularly around the time when it started to topple.

I believed some of the nonsense for a while until I saw just how much I could lose (and would have had I held). It did hurt to sell but I am so glad now that I did.

A couple of posts from that thread around the time it was falling over in Oct 2007 when it was >$9.
It is currently trading at $0.235 !
I still see these sort of posts daily on here on other threads.



laurie said:


> A lot of people followed the sheep today fair enough its their right to be wrong!
> if people read the announcement properly  "As water handling and gas lift facilities have not been fully commissioned,oil production levels will remain lower than initially forecast while works are being completed." and that during this period preliminary assessments suggest that the ongoing production rates are likely to be approximately 20,000 to 25,000 bopd. *WHILE WORKS ARE BEING COMPLETED* Those that sold today will be first to buy back in once project is fully commissioned BUT at what price
> cheers laurie






jimski said:


> I'm in for the long term too.  I'm not greedy or wearing rose tinted specs but AED has a long way to go yet in my opinion.  I agree with Laurie that todays action is short sighted by many who haven't properly understood the latest announcement ie. that this is a temporary glitch and nothing to panic about.




PS. I know its easy in hindsight to post these examples, I feel I am entitled to as I was a victim in the initial decline and spin.
I am hoping though that people learn from this type of scenario. AED was being talked up by management, numerous brokers recommending it and it appeared on Comsec's top ten buy lists as it was about to collapse, ie based on fundamental nonsense it was a great buy !


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## Wysiwyg

I am in the Boggo's experience camp though I do wonder what poster *ROE* has to say on the subject. I'm not 100% sure but I think he held and bought more of his holdings during or near the end of the USAFC. Maybe averaging down works with good companies in a market meltdown?


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## sinner

So nobody is going to dicuss the difference between averaging down in a single instrument, and averaging down in an index fund, where recency bias could actually work in your favour?


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## Country Lad

"_Averaging down_" is a term devised by the proponents of that activity because it sounds better than "_losing money_".  The real name is "_buying shares which are losing value_".  Intersting that there is not a commonly used term "averaging up".  If the price is going down it is for a reason - the market is saying that it is no longer in favour and has moved on.

There are 2 parts to _"averaging down_", and to me, both are an anathema.  The first is the fact that the original parcel is being held while it is falling instead of selling and buying one rising in price.  

The second is compounding the error by buying more of a falling share instead of a rising share.

Also the commonly used term associated with falling shares is _"it is under valued"_ should be viewed with suspicion.  Under valued by whom? Certainly not by the people in the market doing the selling and of which there are many for a falling share and certainly not buyers who are missing in action otherwise the price would not be falling.

So the shares held during the retracement have fallen, let's say, 20% and are no longer "under valued" because the market has walked away and they are out of favour and they are now correctly valued by the market.  It will need to rise 25% to break even.  Add to that the opportunity cost by not selling and then buying a rising share?

"Average down"?  I never have and never will, my objective is to hold winners, not losers.

Cheers
Country Lad


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## Reasons

sinner said:


> So nobody is going to dicuss the difference between averaging down in a single instrument, and averaging down in an index fund, where recency bias could actually work in your favour?




I will average up or down in high probability long or short counter trend trades when the divergence and swings are doing what I need them to, both in specific indicies and shares, but not sure what you are indicating about index funds and recency bias'.

I am interested.


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## skc

Wysiwyg said:


> Maybe averaging down works with good companies in a market meltdown?




Of course averaging down works when the price goes back up.

Average down on AED or Babcock or ABC learnings and it's a disaster.

Average down on CBA or MND or MMS and you would have done well. 

We can all come up with examples of how averaging down worked for somes shares and didn't work for others. 

The problem is not averaging down per se - it is the fact that the investor/trader was no good at picking stock or recognising change in the first place. For the average investor/trader, adopting a "NEVER AVERAGE DOWN" stance may be prudent, but it doesn't make it gospel.


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## KurwaJegoMac

sinner said:


> So nobody is going to dicuss the difference between averaging down in a single instrument, and averaging down in an index fund, where recency bias could actually work in your favour?




IMO if you're skillful enough to know that an index has been dampened due to a recency bias and is due to return to normal levels soon, you shouldn't be averaging down - you should be selling all that you hold and waiting until the index hits support and then buying in. 

E.g. plenty of people sold on the Japanese tsunami ASAP and bought in a few days later when the fall had become overextended and positive news (and buyers) started to return. If you're experienced enough you can see these things coming (although you cannot predict them with certainty or time them with certainty of course - but you can get close). 

Simply put: Every time you average down you're wrong - You paid too much or did not buy near the bottom. If you were right about a stock you wouldn't need to average down. Hence no use compounding a loss. Kill it while it's small and wait for the moment when you feel that events leading to the initial recency bias are slowly being resolved and then jump in on the positive upswing and momentum.


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## KurwaJegoMac

skc said:


> Of course averaging down works when the price goes back up.
> 
> Average down on AED or Babcock or ABC learnings and it's a disaster.
> 
> Average down on CBA or MND or MMS and you would have done well.
> 
> We can all come up with examples of how averaging down worked for somes shares and didn't work for others.
> 
> The problem is not averaging down per se - it is the fact that the investor/trader was no good at picking stock or recognising change in the first place. For the average investor/trader, adopting a "NEVER AVERAGE DOWN" stance may be prudent, but it doesn't make it gospel.




Well said Skc. Agreed - I acknowledge i'm a bit harsh in my stance regarding this but I think that as a beginner one needs to learn how to cut losses short rather than take the risk of averaging down (which as you say may or may not work).


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## Wysiwyg

skc said:


> Of course averaging down works when the price goes back up.



 Yes and I suppose the real answer lies in whether averaging down is, over time, a profitable trading strategy. Most agree it is not. 


> For the average investor/trader, adopting a "NEVER AVERAGE DOWN" stance may be prudent, but it doesn't make it gospel.



If the stock index drops yet a particular company has an historical resilience and product demand can be one of those times.  


KurwaJegoMac said:


> E.g. plenty of people sold on the Japanese tsunami ASAP and bought in a few days later when the fall had become overextended and positive news (and buyers) started to return.



Stock market participants buy because others are buying and sell because others are selling (reflected in charts). Watching the news can accelerate both conditions.


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## burglar

Wysiwyg said:


> Yes and I suppose the real answer lies in whether averaging down is, over time, a profitable trading strategy. ...



If you do it repeatedly you may win. 
Eventually you will pick the wrong company. 
I know I did, it cost me bigtime!
Not only in money terms but the setback in time as well!


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## nomore4s

My views on this matter are probably a bit different to most.

I never average down in my trading accounts as that really does defeat the purpose of trading.

But there are times I will buy stock at a lower price to my original purchase in my long term investment portfolios *but* this is a part of my strategy and not something that happens a lot. I also would never do it while using leverage of any sort.

If averaging down does become apart of ones strategy it is important to remember a few things. Firstly every-time you average down you are increasing your risk and doing it while already being behind (already holding a losing position), so your strategy needs to be able to take this into account for the benefit of both your emotional and financial states. Second you need to understand exactly when, why and what stocks you would average down with because like skc said averaging down on stocks like ABC, BNB etc will put a serious dent in your capital but if done with quality stocks at the right time it will obviously be very beneficial.

Would I recommend a beginner incorporate averaging down into their plan/strategy? In short no.


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## Julia

skc said:


> Of course averaging down works when the price goes back up.
> 
> Average down on AED or Babcock or ABC learnings and it's a disaster.
> 
> Average down on CBA or MND or MMS and you would have done well.
> 
> We can all come up with examples of how averaging down worked for somes shares and didn't work for others.
> 
> The problem is not averaging down per se - it is the fact that the investor/trader was no good at picking stock or recognising change in the first place. For the average investor/trader, adopting a "NEVER AVERAGE DOWN" stance may be prudent, but it doesn't make it gospel.



Great summary.
I've never averaged down and never would.  Holding falling stocks makes me totally uncomfortable.

But I remember after the worst of the GFC falls we had a conversation a bit like this one, and a few posters described how well they had done by indeed averaging down on companies they were confident would come through well.

They were right:  those companies did recover quickly and well.
So perhaps the strategy should not be written off but rather regarded as sometimes useful if you understand the companies concerned well, and have enough experience to justify your expectations of their recovery.


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## tech/a

Julia said:


> Great summary.
> I've never averaged down and never would.  Holding falling stocks makes me totally uncomfortable.
> 
> But I remember after the worst of the GFC falls we had a conversation a bit like this one, and a few posters described how well they had done by indeed averaging down on companies they were confident would come through well.
> 
> They were right:  those companies did recover quickly and well.
> So perhaps the strategy should not be written off but rather regarded as sometimes useful if you understand the companies concerned well, and have enough experience to justify your expectations of their recovery.





Julia.
You'll note when an index crashes there is ALWAYS a good bounce.
if you time that right then it can work well.

But buying in any bear run which extends over a longer period is plain crazy.---in my opinion.


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## burglar

Julia said:


> ... sometimes useful if you understand the companies ....




Hear hear!!


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## Julia

tech/a said:


> But buying in any bear run which extends over a longer period is plain crazy.---in my opinion.



No need to persuade me of this, Tech.  I agree absolutely.  Just trying to be objective about what has apparently worked for others.


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## So_Cynical

Nortorious said:


> Hi All,
> 
> I'm still building my investment/trading plan and thinking about different strategies to employ for my long term investment decisions, and short term trading decisions.
> 
> In terms of long term investments, what are your thoughts/experience on an averaging down strategy if the situation arises to purchase additional shares at a discounted price?




My last 3 (completed) average downs as posted in real time in this forum. 
~
https://www.aussiestockforums.com/forums/showthread.php?t=17040
https://www.aussiestockforums.com/forums/showthread.php?t=14605&page=2
https://www.aussiestockforums.com/forums/showthread.php?t=7127&page=3

I have a few more but no charts..and a few more but they are actually slight averages up....so don't let anyone fool you into thinking averaging down never works cos im proof positive it does work....averaging down is a core part of my wealth creation strategy.

Charts below.


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## suhm

I will average down based on news if there is a trend reversal or if the news is good.

I will also average up based on news.

I tend to hit the sell button if news is not forthcoming and the sp is in a decline and sp is not supported by cash or strong past or expected cashflow/earnings.

I pretty much trade based on expected newsflow and what I percieve as fundamentally undervalued companies in an uptrend.


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## Reasons

tech/a said:


> Julia.
> You'll note when an index crashes there is ALWAYS a good bounce.
> if you time that right then it can work well.
> 
> But buying in any bear run which extends over a longer period is plain crazy.---in my opinion.




I am never totally comfortable psychologically doing it, especially during a down swing as hard as the GFC, but in reality it is actually nothing more than a logical and calculated risk-reward bet with something like a bank in the ASX top 20. 

Eg, once the price has crashed down to a point that it is delivering ~10% net dividend, what is the likelihood of it dropping from its present price and delivering say a ~15-20% net dividend and holding that level because no-one will ever be interested in the risk of an ASX top 20 share unless it is providing a 15-20% net return, as opposed to finding support and going up again to at least slightly more normal levels? Fairly high; just does not feel that way at the time. If it keeps dropping you keep buying based on your logic.

I learnt that this is not the time to tell anyone else what you are doing either or to listen to the press much as everything negative and more about such a tactic will be slung at you and bring illogical fears to the forefront instead of the straight forward risk-reward logic of the tactic.

Once the price snaps back up, you are already set so that larger move is then easy to capture and you are not trying to judge the entry. It is a 10-20% capital risk strategy only, preferably diversified over a number of shares (capital protection and psychological risk management when spread). Holding for the next couple of years to maximise the profit can prove harder. General feeling is that you need to hit yourself over the head with a hammer after executing and wake 12 months later to evaluate your decision


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## Boggo

Reasons said:


> I am never totally comfortable psychologically doing it, especially during a down swing as hard as the GFC, but in reality it is actually nothing more than a logical and calculated risk-reward bet with something like a bank in the ASX top 20.
> 
> Eg, once the price has crashed down to a point that it is delivering ~10% net dividend, what is the likelihood of it dropping from its present price and delivering say a ~15-20% net dividend and holding that level because no-one will ever be interested in the risk of an ASX top 20 share unless it is providing a 15-20% net return, as opposed to finding support and going up again to at least slightly more normal levels? Fairly high; just does not feel that way at the time. If it keeps dropping you keep buying based on your logic.




You sound like one of those Telstra 'investors'.


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## Reasons

Boggo said:


> You sound like one of those Telstra 'investors'.




Probably similar logic in some ways now you say it as once Telstra's price gets too low, the high dividend will bring the buyers in because they consider they are are being rewarded sufficiently for the risk taken. I will only occasionally undertake this particular tactic near what I am guessing at the time to be close to capitulation of the last sellers in fairly dramatic market circumstances, and during the GFC with equities that were likely to be back-stopped by the government if all else failed. 

The tactic is most definitely not investing, it is a calculated risk-reward bet in your favor with potential for higher than normal losses, but if you had held from the GFC until now it was a damn good investment from a capital gains and dividend perspective.


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## danbradster

> ...unless a 10% fall in SP is just the precurser to a further 20% fall




...picked a good undervalued company...

"10%+ fall in SP, <b>for no good reason</b>"



> How is it a good opportunity? A stock will rise or fall depending on the willingness of people to buy or sell that stock. If it's fallen 10% then more people are selling than buying - that is not a positive sign. Doing this you have your funds tied up in an asset that's deteriorating in value and will require an unknown length of time (potentially years) just to break even, let alone make a profit.
> 
> If it's falling in value why not get out quickly, cutting your losses short and waiting until their is support for your stock in the form of buyers and jumping in then? You preseve your capital and will get in at a better price than someone averaging down. Problem is it takes more effort and the willingness to upset you messed up and bought at the wrong time. The latter is what most people seem to struggle with.
> 
> If your investment is not making you money, you paid too much or bought at the wrong time.




Just saying that the strategy has worked for me more times than not.

If people are selling for bad reasons, then I top up.  Like for example if the gold price fell by 1%, a gold miner will likely fall in SP.  But if the AUD also fell by 2%, then their profitability will actually improve...but chances are the market won't realize it, they are blindly selling.  I am buying here.

Or when OAK:ASX announced that the CEOs shares went into receivership, the SP fell 30% the next day, again blind selling, I was topping up.  A few months later the SP has doubled.

If you have a quality company that's undervalued and becomes more undervalued, then it's time to top up.  It's impossible to pick the bottom every time...having an average buy-in near the bottom is good enough.

I sometimes even enjoy the market down days.  It allows me to sell my holdings that broke even or rose and average down on the ones that fell.  When they recover to where they started you're in profit.  Rinse and repeat selling high ones and averaging down the low ones.

I hold about 15 different shares at a time and have been making a strong profit in the sideways market.

I sometimes have to cut my losses, if the news is long term, but usually I don't have to.  I am ok with a 1 year wait for a company to realize a SP closer to its true value.


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## Nortorious

Thanks to everyone who has contributed to the discussion thus far. It has been excellent to hear the views and experiences from both sides. I'm learning a lot thanks to all of you!


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## sinner

KurwaJegoMac said:


> IMO if you're skillful enough to know that an index has been dampened due to a recency bias and is due to return to normal levels soon, you shouldn't be averaging down - you should be selling all that you hold and waiting until the index hits support and then buying in.
> 
> E.g. plenty of people sold on the Japanese tsunami ASAP and bought in a few days later when the fall had become overextended and positive news (and buyers) started to return. If you're experienced enough you can see these things coming (although you cannot predict them with certainty or time them with certainty of course - but you can get close).
> 
> Simply put: Every time you average down you're wrong - You paid too much or did not buy near the bottom. If you were right about a stock you wouldn't need to average down. Hence no use compounding a loss. Kill it while it's small and wait for the moment when you feel that events leading to the initial recency bias are slowly being resolved and then jump in on the positive upswing and momentum.




I disagree with your "simply put". Every time you average down you are wrong? What if I have a trading plan like:

* At the start of every quarter, allocate 10% of net quarterly savings to index fund.

That's just an example, but there are plenty I can think of where averaging down is not "wrong".

I know some FX traders who like to "sell a little on the way up and a lot on the way down" or "buy a little on the way down and a lot on the way up", these guys have a turnover and bottomline P&L that makes me green with envy. I have my own intraday strategy based on correlation which does this too. Are we 

"wrong"


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## Julia

Can we extend the discussion to a particular stock, let's say RIO, which today is down more than 1%, extending losses over earlier days.

The XJO and XAO are down by about half a percent.

Do you buy this now and continue buying if it continues to fall?

If you are holding and would, in terms of your usual criteria, be stopped out, sell?

Or do you say, hey of course it will turn back up again?

Or, in the face of the rising $A dollar which doesn't look like changing its upward course, do you consider the SP of RIO, and other big miners and manufacturers for that matter, will continue to be depressed?


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## tech/a

> Every time you average down you are wrong?




I would say.

(1) Poor risk management.
(2) Inefficient use of funds----- opportunity cost---heat---portfolio balance
(3) Poor analysis skills.

But others may like the idea.


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## bbker

It will turn back up, but when? You also have to decide when to start averaging down.

With the strengthening Australian dollar, and investment moving out to the cheaper overseas markets, you would be averaging up!




Julia said:


> Can we extend the discussion to a particular stock, let's say RIO, which today is down more than 1%, extending losses over earlier days.
> 
> The XJO and XAO are down by about half a percent.
> 
> Do you buy this now and continue buying if it continues to fall?
> 
> If you are holding and would, in terms of your usual criteria, be stopped out, sell?
> 
> Or do you say, hey of course it will turn back up again?
> 
> Or, in the face of the rising $A dollar which doesn't look like changing its upward course, do you consider the SP of RIO, and other big miners and manufacturers for that matter, will continue to be depressed?


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## KurwaJegoMac

sinner said:


> I disagree with your "simply put". Every time you average down you are wrong? What if I have a trading plan like:
> 
> * At the start of every quarter, allocate 10% of net quarterly savings to index fund.
> 
> That's just an example, but there are plenty I can think of where averaging down is not "wrong".




Firstly that's not really averaging down, that's a trading plan where the profits are made by paying the 'average' price of the index fund over a year by purchasing in a few lots, with the expectation that the market will continue it's increases.

But if you don't see it that way:

Personally I still see that as being "wrong". If you were right about your analysis than you would be holding your capital and buying into the index funds at times that will start generating you returns as soon as you invest, not tying up your capital in periods of downturns. 

Averaging down, by the very nature of the technique, requires you to purchase additional shares at a price below what you originally paid - therefore you were wrong in your initial analysis and are attempting to compensate by lowering your cost basis and bring it closer to your second entry price (which you are hoping will be correct). The cycle repeats until either your stock hits a bottom and reverses, stagnates or delists.

If your analysis was right in the first place you'd be in the 'black' straight away rather than being in the 'red' and needing to bring your cost basis down.



sinner said:


> I know some FX traders who like to "sell a little on the way up and a lot on the way down" or "buy a little on the way down and a lot on the way up", these guys have a turnover and bottomline P&L that makes me green with envy. I have my own intraday strategy based on correlation which does this too. Are we
> 
> "wrong"




Yes you are still wrong even in this example as you had to purchase on the way down. Put it this way: say you're looking at a fictional stock XYZ - by some divine measure you *know* for a fact it will go down in the short term. Would you buy this stock and average down? Of course not - you know it's going down so you'd wait and buy it at a cheaper price right? Why on earth would you buy in, knowing it'd go down tomorrow, and then attempt to average down? Nobody would do that of course - but that's what the average down strategy is.


----------



## Boggo

Julia said:


> Can we extend the discussion to a particular stock, let's say RIO, which today is down more than 1%, extending losses over earlier days.
> 
> If you are holding and would, in terms of your usual criteria, be stopped out, sell?
> 
> Or do you say, hey of course it will turn back up again?




Personally, assuming that I had got in on the run up then I would have been stopped out either at the break of the 83.63 or otherwise definitely at the break of 82.00.

My simplistic view is that anything below 82.00 is in negative territory, between 82.00 and 89.00 is sideways and above 89.00 is back to the positive overall trend.

Not wanting to involve EW in the discussion but if there was a clearly defined ABC within the area between 82.00 and 89.00 then I would be prepared to enter with a tight stop.
This is not the case with RIO but as an aside if you look at a chart of MND it may still be until it tells me otherwise.

In either RIO or MND I would not be still holding, I would rather be watching from the the sidelines.

PS - It will turn back up Julia, I don't believe that that is a reason to hold on while its going down but maybe thats just me 

(click to expand)


----------



## skc

danbradster said:


> ...picked a good undervalued company...
> 
> Or when OAK:ASX announced that the CEOs shares went into receivership, the SP fell 30% the next day, again blind selling, I was topping up.  A few months later the SP has doubled.




Don't think OAK is a high quality company... and it doubled on a takeover offer. So probably not the best example imo.



Boggo said:


> This is not the case with RIO but as an aside if you look at a chart of MND it may still be until it tells me otherwise.
> 
> In either RIO or MND I would not be still holding, I would rather be watching from the the sidelines.




Hey Boggo, can you do an experiment for us/me? Can you apply your trading methodology to the MND chart from say Nov 2008 (where it was the lowest low) and tell us what trades you would have done? And P/L if you just apply a 2% rule?

Quite separate from the averaging down discussion, but more about 'buy and hold' 

Don't worry if you method isn't 100% mechancial or it will take too long.

Thanks.


----------



## sinner

KurwaJegoMac said:


> Firstly that's not really averaging down, that's a trading plan where the profits are made by paying the 'average' price of the index fund over a year by purchasing in a few lots, with the expectation that the market will continue it's increases.
> 
> But if you don't see it that way:
> 
> Personally I still see that as being "wrong". If you were right about your analysis than you would be holding your capital and buying into the index funds at times that will start generating you returns as soon as you invest, not tying up your capital in periods of downturns.




Err what? What if I've done a 100 year analysis against the Dow and decided that the start of the quarter is the best time of year to passively invest funds into the index?

Which is in fact why (for example in this trading plan) I waited all quarter to invest my capital?!

Still disagree with you here!



> Averaging down, by the very nature of the technique, requires you to purchase additional shares at a price below what you originally paid - therefore you were wrong in your initial analysis and are attempting to compensate by lowering your cost basis and bring it closer to your second entry price (which you are hoping will be correct). The cycle repeats until either your stock hits a bottom and reverses, stagnates or delists.
> 
> If your analysis was right in the first place you'd be in the 'black' straight away rather than being in the 'red' and needing to bring your cost basis down.




Ok, not going to bother discussing with you on this one as you've made your mind up exactly what is going on here it seems.



> Yes you are still wrong even in this example as you had to purchase on the way down. Put it this way: say you're looking at a fictional stock XYZ - by some divine measure you *know* for a fact it will go down in the short term. Would you buy this stock and average down? Of course not - you know it's going down so you'd wait and buy it at a cheaper price right? Why on earth would you buy in, knowing it'd go down tomorrow, and then attempt to average down? Nobody would do that of course - but that's what the average down strategy is.




Ok let's take a look at fictional stock XYZ. After declining for 6 months from $1.20 prior to which it had undertaken a 12 month rally, it has established minor support at 60c and major support at 59c. 

Do you wait for 59c "of course", according to you. Me, I don't mind buying a little at 60c, as probabilities indicate to me minor support has a good chance of holding without testing major support. 

Scenarios that can unplay from here:
1. I am in small at 60c, and you are not. XYZ rallies to $1.20 and the market rewards each of us commensurately for our risk taken.
2. I am in small at 60c, and you are not. The next day XYZ falls to 59c, and I go in with the remaining capital allocated for this trade. Again, the market rewards each of us commensurately for our risk taken.
3. I am in small at 60c, and by 59c we are both in. The next day XYZ closes at 58c and we both get out for a loss.

From my experience in real life, trading EURGBP on a correlation basket basis EURUSD/GBPUSD, EURJPY/GBPJPY, EURCHF/GBPCHF - I would prefer to be shorting or buying *before* the correlation re-asserts itself! In fact once the correlation has returned the rewards become much much lower. This means the market happily pays me for being, as you put it, "wrong".

I also notice, in similar example to above, in the "ASX Pairs Trading" thread, people are very happy and profitable to short the spread between two instruments after its exceeded 1.5 or 2 std dev of the 14 day mean, and *add more* if it reaches 2.5 std dev. To make it clear, this is just a plain simple bet that the distribution of the average of the spread is Gaussian or near-Gaussian, and the further it gets away from a normal distribution, the more you *average down* in your bet that it is a normal distribution!


----------



## Boggo

skc said:


> Hey Boggo, can you do an experiment for us/me? Can you apply your trading methodology to the MND chart from say Nov 2008 (where it was the lowest low) and tell us what trades you would have done? And P/L if you just apply a 2% rule?




The confirmed reversal of the downward trend really didn't happen until around 10th June 09, see chart below for explanation.

I have only had two trades (both winning) on MND as shown on charts below.
My intention was to go long again for a third on 21st April but it gapped past my order at $19.61, I have since pulled the order but may re-instate it at the same level if the low stays intact as the ABC is still valid with a software generated target area (see bottom chart).

Hopefully these charts explain my approach.

(click to expand)


----------



## Boggo

RIO, waiting for direction.

(click to expand)


----------



## skc

Boggo said:


> The confirmed reversal of the downward trend really didn't happen until around 10th June 09, see chart below for explanation.
> 
> I have only had two trades (both winning) on MND as shown on charts below.
> My intention was to go long again for a third on 21st April but it gapped past my order at $19.61, I have since pulled the order but may re-instate it at the same level if the low stays intact as the ABC is still valid with a software generated target area (see bottom chart).
> 
> Hopefully these charts explain my approach.
> 
> (click to expand)




Thanks Boggo. I will start another thread with your data if you don't mind.


----------



## Boggo

skc said:


> Thanks Boggo. I will start another thread with your data if you don't mind.




Good idea, we may be able to shift some of this over there as we have derailed this thread a bit (except for RIO maybe).


----------



## Frank D

It really depends on where your first entry is, where the Index is at the time, and 
where your  2nd entry is.

For example, buying a stock at its 3-months highs and then averaging down is 
stupid.

Buying a stock near the 3-month 50% level and then averaging down is not as bad,
 but still carries at lot of risk.

in both those instances you should be using stops.

If you are going to use an *average down type of strategy *(not with
 leverage, but with CASH) then the 'less risk' strategy would be using the
*3-month lows of the stock as the first entry.*

The 2nd entry would be in the *following quarter, and once again use the 
dynamic 3-month lows…*

There will be far greater chance that price will converge
 towards the 50% level after the 2nd entry in the following Quarter.

Whether that convergence gets you into the black, is another matter.

I wouldn’t use this type of strategy with specs, but with blue chips I have no
 problem employing cash positions in falling markets.


----------



## KurwaJegoMac

sinner said:


> Err what? What if I've done a 100 year analysis against the Dow and decided that the start of the quarter is the best time of year to passively invest funds into the index?
> 
> Which is in fact why (for example in this trading plan) I waited all quarter to invest my capital?!
> 
> Still disagree with you here!




If you do your 100 year analysis and determine that the start of every quarter is best and therefore invest at the start of that quarter - and after investing in the start of that quarter the index falls further - you're analysis was wrong. Your stock is worth less than you paid for it so once again, simply put, _you are wrong_. If you were right in your analysis, your stock would have risen in value. 





sinner said:


> Ok, not going to bother discussing with you on this one as you've made your mind up exactly what is going on here it seems.



 the point of a debate such as this is to present your own personal view on the matter and argue for or against it. Being unable to offer a suitable rhetoric opposing my argument is no reason for such off-hand remarks. 





sinner said:


> Ok let's take a look at fictional stock XYZ. After declining for 6 months from $1.20 prior to which it had undertaken a 12 month rally, it has established minor support at 60c and major support at 59c.
> 
> Do you wait for 59c "of course", according to you. Me, I don't mind buying a little at 60c, as probabilities indicate to me minor support has a good chance of holding without testing major support.
> 
> Scenarios that can unplay from here:
> 1. I am in small at 60c, and you are not. XYZ rallies to $1.20 and the market rewards each of us commensurately for our risk taken.
> 2. I am in small at 60c, and you are not. The next day XYZ falls to 59c, and I go in with the remaining capital allocated for this trade. Again, the market rewards each of us commensurately for our risk taken.
> 3. I am in small at 60c, and by 59c we are both in. The next day XYZ closes at 58c and we both get out for a loss.
> 
> From my experience in real life, trading EURGBP on a correlation basket basis EURUSD/GBPUSD, EURJPY/GBPJPY, EURCHF/GBPCHF - I would prefer to be shorting or buying *before* the correlation re-asserts itself! In fact once the correlation has returned the rewards become much much lower. This means the market happily pays me for being, as you put it, "wrong".
> 
> I also notice, in similar example to above, in the "ASX Pairs Trading" thread, people are very happy and profitable to short the spread between two instruments after its exceeded 1.5 or 2 std dev of the 14 day mean, and *add more* if it reaches 2.5 std dev. To make it clear, this is just a plain simple bet that the distribution of the average of the spread is Gaussian or near-Gaussian, and the further it gets away from a normal distribution, the more you *average down* in your bet that it is a normal distribution!




Unless the price is moving in your favour you were wrong. No one would buy a stock unless they believed it to be moving in their favour. If you wish to enter on standard deviations or spreads or distributions thats fine - but if the stock goes lower after your purchase you were wrong in the timing of the purchase. 

Your position size and risk is determined at your entry price - if you need to buy in again at a lower price you are increasing your risk as you increase your position size. You were therefore wrong in your first position. Anyone can hold a stock for 'x' amount of time and claim that they were finally proven right - thats the joy of a positively biased instrument such as the sharemarket. It doesnt mean you were right when you made the entry


----------



## nulla nulla

Okay I admit it, I am an Average Downer. 

Decrying the practise of averaging down is, in my opinion, an unjustified generalisation. Traders/Investors are supposed to research their shares and know as much as possible about them before making a decision to trade/invest with that share. 

I also admit that, despite my best efforts, I have difficulty in picking the exact top of a share price rise when I should sell and the exact bottom of a share price fall where I should re-enter.

I have researched and follow several shares in different indexes. I monitor the trading channels established by past share price movements. If the channel is moving upward I am prepared to enter at a slightly higher price than the previous bottom. If the channel is moving down, I am prepared to enter at the previous bottom and top up if the opportunity arises. If the channel is moving sideways I enter near the previous bottom and again lower if the opportunity arises.

When I enter I normally already have an exit price selected and I often place the share parcel(s) in the queue(s) immeadiately after the purchase. Sometimes I get the determined exit price wrong and the share fails to hit my price, in which case I can either wait (confident it will with some additional time) or I can lower the price taking less profit. Sometimes the price moves past my designated exit and I miss out on the peak. Not a problem, my profit is locked in. Sometimes I let the profit run until I feel it is time to lock in the profit, regardless of whether or not the share price may go higher.

Averaging down can be dangerous. It is not for beginners and should only be done when you have done your own research and are familiar with what factors drive the movement of your chosen share.


----------



## KurwaJegoMac

nulla nulla said:


> Okay I admit it, I am an Average Downer.
> 
> Decrying the practise of averaging down is, in my opinion, an unjustified generalisation. Traders/Investors are supposed to research their shares and know as much as possible about them before making a decision to trade/invest with that share.
> 
> I also admit that, despite my best efforts, I have difficulty in picking the exact top of a share price rise when I should sell and the exact bottom of a share price fall where I should re-enter.
> 
> I have researched and follow several shares in different indexes. I monitor the trading channels established by past share price movements. If the channel is moving upward I am prepared to enter at a slightly higher price than the previous bottom. If the channel is moving down, I am prepared to enter at the previous bottom and top up if the opportunity arises. If the channel is moving sideways I enter near the previous bottom and again lower if the opportunity arises.
> 
> When I enter I normally already have an exit price selected and I often place the share parcel(s) in the queue(s) immeadiately after the purchase. Sometimes I get the determined exit price wrong and the share fails to hit my price, in which case I can either wait (confident it will with some additional time) or I can lower the price taking less profit. Sometimes the price moves past my designated exit and I miss out on the peak. Not a problem, my profit is locked in. Sometimes I let the profit run until I feel it is time to lock in the profit, regardless of whether or not the share price may go higher.
> 
> Averaging down can be dangerous. It is not for beginners and should only be done when you have done your own research and are familiar with what factors drive the movement of your chosen share.




Yeah that's fair enough, I see where you're coming from. I think your last paragraph is key - if you're a fundamentalist then averaging down can be part of a viable strategy (as you're keen to accumulate at a target buy price and will continue to accumulate as long as your buy price isn't breached).


----------



## mazzatelli

sinner said:


> From my experience in real life, trading EURGBP on a correlation basket basis EURUSD/GBPUSD, EURJPY/GBPJPY, EURCHF/GBPCHF - I would prefer to be shorting or buying *before* the correlation re-asserts itself! In fact once the correlation has returned the rewards become much much lower. This means the market happily pays me for being, as you put it, "wrong".
> 
> I also notice, in similar example to above, in the "ASX Pairs Trading" thread, people are very happy and profitable to short the spread between two instruments after its exceeded 1.5 or 2 std dev of the 14 day mean, and *add more* if it reaches 2.5 std dev. To make it clear, this is just a plain simple bet that the distribution of the average of the spread is Gaussian or near-Gaussian, and the further it gets away from a normal distribution, the more you *average down* in your bet that it is a normal distribution!




It's valid with a relative-value model [correlation, co-integration arb] with defined boundaries. 

It's a different mindset to lowering a cost basis for a directional bet gone astray, which I think is what the rest is harping on about.


----------



## tothemax6

I don't follow the whole 'average down' stuff.
You are supposed to buy when you see upside, and sell when you see downside. Nothing else.
Sure, you may buy a stock, and its price goes down. Whether you choose to sell that stock or buy more should depend on what information you have about the stock, your conclusions upon completion of processing that information, and how certain you are (how 'risky' the trade is). Same applies to bonds, currency, and commodities. Your current holdings and the price at which you bought them should not affect your current sales or purchases (there may be of course, practical exceptions such as a margin call if you are using credit).

I know some people here buy purely on the price action, i.e. 'which way the crowd is running'. So if the price goes down, 'dump the stock'. However, it must be noted that if the _entire_ crowd is trying to guess the direction the crowd will next go in - the whole thing is random.
This is not the case - the market agents do process information outside the set of market agents. They factor in news into their purchases, they factor in macroeconomics, they factor in uncertainty etc. If they did not, one could be just as assured of making a good purchase today even if WW3 breaks out tomorrow, or if the company has a terrible debt load, or if the company is trying to sell spinning wheels.
The people who are selling down the stock are not always right. Sometimes those who buy from the sellers are right.


----------



## Reasons

The upshot of this discussion seems to come down to your frame of reference and whether you have actually tried strategies that utilise averaging up or down, or not. It is easy to see who has as they don't defend too hard as they know it flies in the face of textbook logic, but in reality does have a place as some have indicated.

During the GFC, there were massive arbitrage opportunities in the indicies in CFD's. Because there were huge 3-5% swings happening daily at times during the really intense period of the GFC, at least one CFD provider was placing their open for the day after the US market closed at over 80 points higher or lower to the previous day's close (sometimes well over 100 points). 

The trick to trading this was that the index was set too high by the provider and sometimes for a short amount of time after the market opened, the index would nearly always pull back down or go back up a significant number of points to meet the real market index level, and then continue to follow the market movement correctly for the rest of the day.

I was collaborating with two other traders at the time over Skype and we would work out the likely odds on the arbitrage together prior to the close early in the morning after the US closed and get set if we thought the arbitrage worth trading.

At the 9:50am open the CFD provider would often run the index even higher or lower depending on the market direction. You had 3 choices at that point. 1. Sit on you original position and sweat out the likely swing back; 2. Panic and get out (probably why the market maker was running the index up or down even further) or 3. Average harder and fast into the swing against you.

The most successful one of the 3 made ~$78K over about 3 months using this tactic and it was because they were the most aggressive with averaging into the swing against them to maximise the points being offered in the arbitrage trade. Anyone who was trading indicies during this period will know what it means to eventually have over 200 contracts placed on the XJO or FTSE and hold your nerve during the wild swings that occured on the opening of the market.

Unfortunately the market started to calm down and this arbitrage trade just stopped working. My point is that you would probably find many more instances where averaging up or down works than has been offered in this thread. You will probably also find that there are others that are in use today, but the traders are just not going to flag it here. An interesting discussion; but as it flies in the face of the text books your position towards the strategy will just come down to your practical and importantly successful experience with its application.


----------



## So_Cynical

I took a mid sized average down into PTM today...at about a 7% discount to my original parcel of shares brought almost 12 months ago, reasons for taking this trade are (in no particular order).


SP clearly below post GFC support.
Need to increase my position size to reflect my current position size policy (plan)
I love the business...brought in today for the same reasons i brought in almost 12 months ago
I had the money

PTM thread linked below.

https://www.aussiestockforums.com/forums/showthread.php?t=6463&p=631172&viewfull=1#post631172
~


----------



## skc

Reasons said:


> The most successful one of the 3 made ~$78K over about 3 months using this tactic and it was because they were the most aggressive with averaging into the swing against them to maximise the points being offered in the arbitrage trade. Anyone who was trading indicies during this period will know what it means to eventually have over 200 contracts placed on the XJO or FTSE and hold your nerve during the wild swings that occured on the opening of the market.
> 
> Unfortunately the market started to calm down and this arbitrage trade just stopped working. My point is that you would probably find many more instances where averaging up or down works than has been offered in this thread. You will probably also find that there are others that are in use today, but the traders are just not going to flag it here. An interesting discussion; but as it flies in the face of the text books your position towards the strategy will just come down to your practical and importantly successful experience with its application.




Lol I thought I was the only person doing that. It was definitely nerve wrecking to hold such massive positions (my maximum was $250 per pip), even though I was supposed to be fully hedged. I was using one smallist provider and if they go under I would have had a naked $1m position that could swing 5-8% against me over night... I also had to keep my capital in 3 equal parts - 1 part to each provider (that I am arb against) and the 3rd part in the bank to satisfy any margin calls. Luckily only needed to use that once, but having a -$50K loss in one account overnight is not uncommon.

Probably wouldn't do that again... although I did enjoy making money by simply clicking buy/sell at the same time (I used 2 CFD providers, 2 computers, 2 mouses and 2 hands ).

BTW averaging down in this instance is not really a meaningful comparison to averaging down with long positions. With long trades you are not arbitraging anything...


----------



## skyQuake

Reasons said:


> The upshot of this discussion seems to come down to your frame of reference and whether you have actually tried strategies that utilise averaging up or down, or not. It is easy to see who has as they don't defend too hard as they know it flies in the face of textbook logic, but in reality does have a place as some have indicated.
> 
> During the GFC, there were massive arbitrage opportunities in the indicies in CFD's. Because there were huge 3-5% swings happening daily at times during the really intense period of the GFC, at least one CFD provider was placing their open for the day after the US market closed at over 80 points higher or lower to the previous day's close (sometimes well over 100 points).
> 
> The trick to trading this was that the index was set too high by the provider and sometimes for a short amount of time after the market opened, the index would nearly always pull back down or go back up a significant number of points to meet the real market index level, and then continue to follow the market movement correctly for the rest of the day.
> 
> I was collaborating with two other traders at the time over Skype and we would work out the likely odds on the arbitrage together prior to the close early in the morning after the US closed and get set if we thought the arbitrage worth trading.
> 
> At the 9:50am open the CFD provider would often run the index even higher or lower depending on the market direction. You had 3 choices at that point. 1. Sit on you original position and sweat out the likely swing back; 2. Panic and get out (probably why the market maker was running the index up or down even further) or 3. Average harder and fast into the swing against you.
> 
> The most successful one of the 3 made ~$78K over about 3 months using this tactic and it was because they were the most aggressive with averaging into the swing against them to maximise the points being offered in the arbitrage trade. Anyone who was trading indicies during this period will know what it means to eventually have over 200 contracts placed on the XJO or FTSE and hold your nerve during the wild swings that occured on the opening of the market.
> 
> Unfortunately the market started to calm down and this arbitrage trade just stopped working. My point is that you would probably find many more instances where averaging up or down works than has been offered in this thread. You will probably also find that there are others that are in use today, but the traders are just not going to flag it here. An interesting discussion; but as it flies in the face of the text books your position towards the strategy will just come down to your practical and importantly successful experience with its application.




That was actually just wild swings on the SPI - the CFD indices base their values on the actual futures (which open at 9:50)

I remember for a period there were huge gaps in the futs open where fund managers liquidated before the cash mkt opened. Those gaps got filled a lot of the time. Fun trading, would have probably had better fills with CFDs though!


----------



## skyQuake

So_Cynical said:


> I took a mid sized average down into PTM today...at about a 7% discount to my original parcel of shares brought almost 12 months ago, reasons for taking this trade are (in no particular order).
> 
> 
> SP clearly below post GFC support.
> Need to increase my position size to reflect my current position size policy (plan)
> I love the business...brought in today for the same reasons i brought in almost 12 months ago
> I had the money
> 
> PTM thread linked below.
> 
> https://www.aussiestockforums.com/forums/showthread.php?t=6463&p=631172&viewfull=1#post631172
> ~




Do you consider technical at all when u average?

eg. the chart looks horrible, its tested support so many times and each bounce is weaker and weaker; its almost popped thru.


----------



## So_Cynical

skyQuake said:


> Do you consider technical at all when u average?
> 
> eg. the chart looks horrible, its tested support so many times and each bounce is weaker and weaker; its almost popped thru.




MMM i see what you mean, the top trend line is clearly down..lines up nice too, funny how often those trend lines run straight in line...however all that interests me in that chart is the support and the fact that PTM fell clearly thru it today...for me that's a clear buy signal and that's what i imminently did.

I've learnt over the last 2 years that about half of the times i see what i did with PTM today and hesitate...the buying opp is gone and im kicking myself for being to cautious, sure half the time it goes against me but they have always come good before (over time) and will continue to do so im sure...happy to collect the dividends and wait it out.


----------



## tothemax6

skc said:


> Probably wouldn't do that again... although I did enjoy making money by simply clicking buy/sell at the same time (I used 2 CFD providers, 2 computers, 2 mouses and 2 hands ).



Ha, niiiiice. That my friend, is enterprising.


----------



## Reasons

skc said:


> Lol I thought I was the only person doing that...Probably wouldn't do that again... although I did enjoy making money by simply clicking buy/sell at the same time (I used 2 CFD providers, 2 computers, 2 mouses and 2 hands )




Damn, we thought we were the only ones . Yep, they were fairly heady times in the market, but I would do it again and better.



skc said:


> BTW averaging down in this instance is not really a meaningful comparison to averaging down with long positions. With long trades you are not arbitraging anything...




It was actually using this strategy with indicies that got me thinking about using similar tactics on longs with banks that I indicated elsewhere in this thread, not that long afterwards when the world was going to end as we knew it in late 2008. As you say, not an arbitrage trade in this instance, but what I considered a high conviction (if I did not talk to anyone else about it) averaging down long bet that I believed was weighted significantly in my favor. The logic and tactic paid off and I have used the experience gained to get myself out of trouble more than once since as I can now analyse possible solutions to tactical trading conundrums through a wider frame of practical references.


----------



## brty

There is a distinct problem with "averaging down" that has not been discussed, and that is asset allocation. If your plan is to average down then you must start with a much smaller position. Otherwise you would be over allocated in that stock.

The frustrating part comes when 2 or 3 stocks go up in price, therefore no average down. Your winners have a much lower proportion of your funds in them compared to your losers.

 If the plan is to average down or average up, then you will have less commissions by just buying a full commitment in the first instance.

The greatest problem with averaging down is that it works most of the time, until it doesn't. If a trader uses the methodology (and hence throws prudent asset allocation out the window) and it works well for them, eventually a stock comes along with good fundamentals that keeps going down without stopping. The average down trader with success in the strategy will keep going at the stock. I know of a trader who did this ~15 years ago, eventually 60% of his portfolio was tied up in the one stock that went bust. He had doubled his stake (in $) the day before it was suspended from trading, it was his eighth "average down", and the one that was going to reduce his loss by just going up for 2 or 3 days.

So_Cynical,

I have observed that we often have the same buying point on quite a few stocks, due to buying support, however this is not what I would deem to be 'good support' which is what I look for. Good support is support that is reached for the first time after a series of higher highs and higher lows. What you have here is what I call 'poor support' as the previous low was not on the way to a higher high, but a lower high. What I have found is that 'by separating 'support' into 'good support' and 'poor support', the probabilities of trades working are greatly enhanced.  
I would have $3.50- $3.80 as the 'good support' level for PTM.

brty


----------



## megatron

First of all, I think you need to have a lot of money to "average" down.  So like the other person above said, if you had an allocation percentage to shares of a certain percent of your portfolio and to the particular subclass, you would end up overweight in a falling stock if you keep pumping money in.  

Sure, if you are skilled and have the best charting tools and know how to use them, then that can be justified.  but for novice investors, dollar cost averaging incredibly risk.  I know we are talking about direct share ownership here but if you talk investment funds, it is just a term fund managers use to keep your money in the funds they manage so they can earn fees.  I can quote a list of managed funds who were the "darlings' at the time a decade or more ago and featured in money magazine etc whose price has fallen by a half and if you had dollar cost averaged, you would be sitting on a massive unrealised loss.

So to put it simply, dollar cost averaging is a bad idea for inexperienced novices unless you have too much money to play with. 

Also, transaction costs do add up in this strategy.

I would like to see someone put a chart up for an investment bank that traded up to 90 bucks a share just before their decline and see if it could have been predicted via charts (the stock is now worth approx $24).  If you averaged down, I would see you now having unrealised losses bigger than my current super balance lol and as the famous economist JM Keynes said, in the long run we are all dead so there is next to no chance of that particular stock getting back to 90 bucks.  That was a bubble imo.  

Back in that period, we all thought Babcock & Brown could be the next Macquarie Bank but if you have averaged down with that one, we all know what the result would be lol  They were both considered blue chip so there is no difference whether the stock is blue chip or not when you dollar cost average because poorly managed debt can do disastrous things to any company, but then you also need to learn to read financial statements or you would not understand a company.

Being not afraid to sell when you should is one of the key fundamentals of investing to beat the market.  Better lose $2000 bucks than to lose 20,000 and then assess at the bottom whether to get back in again with a clear mind.  While gut instinct overwhelms most when a position goes against them and the money involved is large, we need to think logically (or just ask your partner what she thinks about it using a roundabout way).

Preservation of capital should be first and foremost for anyone planning for their future as opposed go speculating or gambling on the stockmarket for quick cash (especially if you are using your SMSF money lol)  Better to take the money you save from cutting your unrealised losses and put it to some of the popular super cheap resources stocks and you can make big $$$ in an equally short timeframe. (cheap to me is under $1 per share)


IMO, if you think or believe strongly the stock is going to fall further for a while (after detailed research eg looking at a chart and other evidence), get out of the stock, then sell CFDs on the stock, if cfd exists for it (but obviously don't put your house on it) then exit out at the bottom, then buy back into the actual stock on the up.  This strategy will easily recoup any initial losses due to leverage.


----------



## So_Cynical

Another timely thread revival.



brty said:


> (5th-May-2011) So_Cynical,
> 
> I have observed that we often have the same buying point on quite a few stocks, due to buying support, however this is not what I would deem to be 'good support' which is what I look for. Good support is support that is reached for the first time after a series of higher highs and higher lows. What you have here is what I call 'poor support' as the previous low was not on the way to a higher high, but a lower high. What I have found is that 'by separating 'support' into 'good support' and 'poor support', the probabilities of trades working are greatly enhanced.
> I would have* $3.50- $3.80 as the 'good support' level for PTM.*
> 
> brty




Good call brty 

The 3.50 > 3.80 area has proven to be support even thought the stock did trade for 1 day at under 3.50.

I have 3 parcels...and im reluctant to buy more as i like to limit myself to 3 parcels, my average price is 4.48 currently an unrealised loss of 14.58% easy to see how 1 more average down at around 3.65 would of been nice...that opportunity may come around again.

 4.73
 4.39
 3.95 
~


----------



## tech/a

So Cynical
Can you just run me through the trades.
How many at what level
And your thinking going forward.

I note you have added to losses and tied funds up in loss for months.
How do you equate this in your thinking?

How many of these do you have going?

Why did you not sell at the second buy level instead of buying more--- is it that hard to ake a loss?


----------



## brty

So_Cynical, 

I consider that spike down below "good support" to be a warning that the reaction may not be great and the likelyhood of further decline a high probability.

Currently I am in 97% cash after some disastrous trading on my part. I am down 6% for the financial year and cannot see anything that currently warrants going long in. The current situation in markets reminds me of the line from the Kenny Rogers song 'The Gambler'...

know when to walk away and* KNOW WHEN TO RUN*.

brty


----------



## skc

tech/a said:


> So Cynical
> Can you just run me through the trades.
> How many at what level
> And your thinking going forward.
> 
> I note you have added to losses and tied funds up in loss for months.
> How do you equate this in your thinking?
> 
> How many of these do you have going?
> 
> Why did you not sell at the second buy level instead of buying more--- is it that hard to ake a loss?




It's very hard to take a loss when you quote your trading statistics in closed trades only! A bit like those insolvent European banks not recognising their loss on the Greek debt. I look at my trading account marked-to-market everyday...and that's the best way to trade imho.

To be fair, PTM is a decent company that is cyclical. The share price will rise in the next bull market. If one is buying with his/her own money then he/she will suffer mostly opportunity cost partly compensated by (hopefully) ongoing dividends. 

But the same can't be said to those averaging down in shares that are in structural decline or are running into liquidity events. 

I think anyone attempting to average-down should at least learn the ability to distinguish between cyclical downturn or terminal illness...


----------



## So_Cynical

tech/a said:


> So Cynical
> Can you just run me through the trades.
> How many at what level
> And your thinking going forward.
> 
> I note you have added to losses and tied funds up in loss for months.
> How do you equate this in your thinking?
> 
> How many of these do you have going?
> 
> Why did you not sell at the second buy level instead of buying more--- is it that hard to ake a loss?




Thing to keep in mind tech is that im sitting on a 14.58% unrealised loss that's probably closer to 10.5% after dividends and franking credits, overall not a big deal. I didn't sell at the second level because that's not what i do....thinking going forward is that at some point in the future ill exit this in profit or at least break even with dividends.



brty said:


> So_Cynical,
> 
> I consider that spike down below "good support" to be a warning that the reaction may not be great and the likelyhood of further decline a high probability.




That was that crazy down 150 points then back up 200 day...PTM wasn't the only stock to suffer a flash crash that day.





skc said:


> *It's very hard to take a loss when you quote your trading statistics in closed trades only!* A bit like those insolvent European banks not recognising their loss on the Greek debt. I look at my trading account marked-to-market everyday...and that's the best way to trade imho.
> 
> To be fair, PTM is a decent company that is cyclical. The share price will rise in the next bull market. If one is buying with his/her own money then he/she will suffer mostly opportunity cost partly compensated by (hopefully) ongoing dividends.
> 
> But the same can't be said to those averaging down in shares that are in structural decline or are running into liquidity events.
> 
> I think anyone attempting to average-down should at least learn the ability to distinguish between cyclical downturn or terminal illness...




As per usual skc, i cant argue with any of the above 

My closes trade stats are good because i have alot of open losers (especially in August) but ive recovered somewhat and now the whole portfolio is actually in profit 2.6%

To be fair my closed trade stats also don't include my open (and part open) winners like. 

EVG 121%
PFL 90% 
HDF 88%
BPT 76%
SND 68%

The next bullish run up will be when i reap the big rewards of timing and time in the market...as for now ill have to suffer though with the 20 odd % jump in $ dividend yield that ive managed to produce by selling/part selling winners and averaging into losers.


----------



## Boggo

skc said:


> But the same can't be said to those averaging down in shares that are in structural decline or are running into liquidity events.
> 
> I think anyone attempting to average-down should at least learn the ability to distinguish between cyclical downturn or terminal illness...




Either way you are taking an unnecessary risk skc, you will not find out if it has a terminal illness until its too late, why bother ?
If its going down its costing you money and you cannot tell where the bottom is - simple.




So_Cynical said:


> Thing to keep in mind tech is that im sitting on a 14.58% unrealised loss that's probably closer to 10.5% after dividends and franking credits, overall not a big deal. *I didn't sell at the second level because that's not what i do*....thinking going forward is that *at some point in the future ill exit this in profit or at least break even with dividends.*




Thats gambling, why even bother in the first place ?
How much of an _unrealised_ is acceptable to you ?

Sorry guys, I just can't get my head around the concept of increasing exposure and risk by buying into something that is decreasing in value and then trying to apply reasoning of any sort to such decisions just seems like you are searching for emotional justification.


----------



## RandR

Boggo said:


> Sorry guys, I just can't get my head around the concept of increasing exposure and risk by buying into something that is decreasing in value and then trying to apply reasoning of any sort to such decisions just seems like you are searching for emotional justification.




I think averaging down can be useful ... IF the right stocks are chosen.

The following companies, I would happily average down into...

COH - cochlear
BKL - Blackmores
RHC - Ramsey Healthcare
REH - Reece
CSL - CSL
WOW - Woolworths
CPU - Computershare
ABC - Adelaide Brighton
CBA - Commonwealth Bank
QBE - QBE
BHP - BHP
CCP - credit corp
ZGC - Zicom

That is based upon a history of consistent growing earnings over a long period of time, a decent ROE over a long period of time, and a decentish yeild. 

IMO (strictly)

1.) If one was to take a 5+year timeframe (minimum). 
2.) Position there sizes appropriately. (an absolute must)
3.) Reinvest dividends to further increase there positions in the above companies.
4.) Do the appropriate research to make sure its mostly or only sentiment driving the downtrend.

It would be pretty farking hard to come out of that timeframe, and that selection of companies with a loss ... even more so If you took appropriate hedging through the use of options, or even just set aside a certain amount to put into Australian bonds.

The possible looming correction could present an opportunity for me to pick up companies like those above, at incredibly low prices. An opportunity I will try not to miss. Whether that is achieved by averaging down, reading a chart, or calculating an entry point and MOS, does it really matter  if the result is the same ?


----------



## Boggo

RandR said:


> The possible looming correction could present an opportunity for me to pick up companies like those above, *at incredibly low prices*. An opportunity I will try not to miss. Whether that is achieved by averaging down, reading a chart, or calculating an entry point and MOS, does it really matter  if the result is the same ?




Could you repost that list of stocks above with the "incredibly low prices" alongside each one.
What is an incredibly low price today is likely to be expensive tomorrow.

I watched the ABC 24 Finance program this morning and they had a gentleman on there who has been and investor for 50 years and has recently lost about 30% of his investment on Leighton Holdings.
He is now involved in starting a class action against LEI for inadequate disclosure etc etc.

Seriously, think about it for a minute, something is failing to perform, is decreasing in value and is costing you money but you average down and hang on and then its their fault


----------



## tech/a

> *The possible looming correction could present an opportunity for me to pick up companies like those above, at incredibly low prices*. An opportunity I will try not to miss. Whether that is achieved by averaging down, reading a chart, or calculating an entry point and MOS, does it really matter if the result is the same ?




Two vastly different methods of trading.
Cant compare each. 

My take on Averaging down is that if your wrong about direction from the get go why hold it.
And if your wrong from the get go and keep getting it wrong why through good money after bad.
If its that easy to find that highlighted in Black why not simply wait for *THOSE *opportunities---and if they prove wrong get the hell out until you can see that the market agrees with your analysis.

If its dropping in price and your expecting it to gain in price --*YOUR WRONG*!
Drop in the casino and try using Martingale theory on any game in the house.
Unless you have the capital backing of a small country your doomed.

*It doesnt matter that your wrong but it does matter how long you remain wrong.*

Even if your sure those selected will perform.


----------



## satanoperca

tech/a said:


> *It doesnt matter that your wrong but it does matter how long you remain wrong.*




Stop giving all your secrets away for free. But then again some people will never understand what you have written.

Cheers


----------



## tech/a

satanoperca said:


> Stop giving all your secrets away for free. But then again some people will never understand what you have written.
> 
> Cheers




I have to admit thats from* NICK RADGE *Im not that clever.


----------



## satanoperca

tech/a said:


> I have to admit thats from* NICK RADGE *Im not that clever.




I hope he doesn't have it trade marked.

Cheers


----------



## Wysiwyg

RandR said:


> I think averaging down can be useful ... IF the right stocks are chosen.
> 
> The following companies, I would happily average down into...
> 
> COH - cochlear



COH 20% discount to Friday price.


----------



## Wysiwyg

tech/a said:


> Two vastly different methods of trading.
> Cant compare each.
> 
> My take on Averaging down is that if your wrong about direction from the get go why hold it.
> *It doesnt matter that your wrong but it does matter how long you remain wrong.*



How long is it one is wrong?? One day if the price remains the same or drops 3%? One week if the price remains the same or drops 3%? 
Prudent to give the trade some room to move in my opinion. So it does not matter how long you are wrong. That saying can boost broker coffers with higher stock trade turnover.

Nice saying for when the market is declining.


----------



## skc

So_Cynical said:


> As per usual skc, i cant argue with any of the above
> 
> My closes trade stats are good because i have alot of open losers (especially in August) but ive recovered somewhat and now the whole portfolio is actually in profit 2.6%




Didn't know you are so agreeable!  I was actually hoping you'd pick up on what I was saying... I think your position in PTM has a chance of coming back, but I think it's important to recognise that GFF and APN are undergoing structural, permanent changes for the worse and the fact that they were trading much higher in the past has no bearing on their price into the future.



Boggo said:


> Either way you are taking an unnecessary risk skc, you will not find out if it has a terminal illness until its too late, why bother ?
> If its going down its costing you money and you cannot tell where the bottom is - simple.




I don't really average down. I always thought those average down are just lazy... I much rather research and buy a different share than buy something I've already got. But I do believe there is nothing wrong with "the theory of average down" - i.e. buying companies when they are cheaper even though you already have a position. The underlying thing that's wrong is simply the trader/investor's analysis. And if the analysis is wrong then he/she will lose money on the next pick anyway. 

Most people average down because they refuse to believe (or fail to recognise) they are wrong and most average down tragedies come from doing so without due regard to over-arching risk management (i.e. overall position size). 

So I do advocate no average down as a blanket rule is most suitable for most people But if one was to average down at all, at least only do so when it is right...


----------



## tech/a

Wysiwyg said:


> How long is it one is wrong?? One day if the price remains the same or drops 3%? One week if the price remains the same or drops 3%?
> Prudent to give the trade some room to move in my opinion. So it does not matter how long you are wrong. That saying can boost broker coffers with higher stock trade turnover.
> 
> Nice saying for when the market is declining.




Good traders will know how and why their trading profits so they will know exactly how long is too long.

This saying is designed for those traders who feel the pain of the loss they have sustained yet can't bring themselves to realize the loss. Those that bottom draw the ones they should have sold ages ago. Who think only those fools who are selling such a bargain---- value stock--- can possibly be wrong.

Its a nice saying for those who dont understand it and why it's critical to long term success.


----------



## So_Cynical

Boggo said:


> Sorry guys, I just can't get my head around the concept of increasing exposure and risk by buying into something that is decreasing in value and then trying to apply reasoning of any sort to such decisions just seems like you are searching for emotional justification.




The thought occurred to me the other day that we all want to buy everything cheaper, cheaper flights, cheaper cars, Insurance, tv's, holidays...we look for savings and bargains, go to our favourite car yard and try and talk the salesman down because the guy up the road has offered you a better price on the same flash new car.

We want to buy our dream house cheaper...we want everything cheaper and i want to buy my shares cheaper...if ive chosen to own shares in XYZ and i have an opportunity to buy more shares in XYZ at a lower price then why wouldn't i do that? why would/should i be afraid or fearfully of that?

I cant think of a single thing i don't want to buy cheaper.


----------



## skc

So_Cynical said:


> I cant think of a single thing i don't want to buy cheaper.




Hookers... the cheaper they are, the more discease they carry.

Potentially the same with some shares.


----------



## So_Cynical

skc said:


> Hookers... the cheaper they are, the more discease they carry.
> 
> Potentially the same with some shares.




Like for Like


----------



## Wysiwyg

tech/a said:


> Good traders will know how and why their trading profits so they will know exactly how long is too long.



Yes, since it a subjective saying then the 'good trader' would know how long is long enough. After all, whom it "matters" to, is the trader themselves.

I am averaging down at the moment.


----------



## danbradster

Wysiwyg said:


> Yes, since it a subjective saying then the 'good trader' would know how long is long enough. After all, whom it "matters" to, is the trader themselves.
> 
> I am averaging down at the moment.




Everybody should be averaging down now with their long term funds / super.  In 2-5 years ASX 4000 will have been a distant memory, an opportunity not to have been missed.  Sure, the market could fall more to 3500 with bad news out of Europe, if it does then people should work hard to find more money to average down further...  Pick only good companies of course.

Are people expected to know when the market will bottom?  No.  So averaging down is the way to go.  Use PE as a benchmark to measure value...


----------



## matty77

So what do people think about averaging down for long term investments, and I am talking long term stocks held for at least 5 years.

I am going to start averaging out on all of my long term portfolio, short term stocks will get sold or I just wont average out on them.

Like others have said, I cant predict the bottom, but what I do know is that probably 50% of my long term stocks are now cheaper than what I had paid for them, like I said I am not into trading these stocks, purely buy and hold.

I think in this scenario averaging out can be a great benefit, especially it you have a long term view AND quality stock that doesnt usually have lots of ups and downs.

Just to note, I will still be averaging up on some and down on others, not just averaging out on the loosers.

Thoughts?


----------



## tech/a

If people are averaging down into trades now rather than BUYING new positions after waiting for opportunity to knock.

*Then those averaging down I would argue are just guessing the market*.

Personally I sold out of long term portfolio back in 2007 with the ASX at 6000 ish
Havent had a longterm portfolio since and only trade short term discretionary.
Infact currently only indexes--Futs.

But thats what I do--many others fortunately do a lot differently!


----------



## damien275x

What stupid advice, if you have done proper research and understand the fundamentals that are likely to drive your chosen stock price higher in the medium to long-term, and the price falls, you SHOULD be buying more, not selling up.

I have averaged in on most of my positions. Whenever they drop, I buy more. Why? I understand what I am investing in. You would only sell if there was a game changer, and usually nothing changes, the market just swings the other way for a while. If you sell purely because they go down, you probably shouldn't have been in to begin with because you lack financial intelligence. 

Investing isn't risky
Investing in something you don't understand is.

A good rule my grandfather gave me is that if people disagree and tell you it's a bad idea, you're probably on the right track, because 99% of investors are just idiots. Don't listen to them


----------



## tech/a

damien275x said:


> because 99% of investors are just idiots. Don't listen to them




A very astute observation.
I certainly agree.


----------



## Boggo

damien275x said:


> What stupid advice, if you have done proper research and understand the fundamentals that are likely to drive your chosen stock price higher in the medium to long-term, and the price falls, you SHOULD be buying more, not selling up.
> 
> I have averaged in on most of my positions. Whenever they drop, I buy more. Why? I understand what I am investing in. You would only sell if there was a game changer, and usually nothing changes, the market just swings the other way for a while. If you sell purely because they go down, you probably shouldn't have been in to begin with because you lack financial intelligence.




Great advice 
I averaged down once (AED), best (and most expensive) lesson I have ever learned.

These guys tried it too, didn't work very well for them either...

_James Packer became one of the original shareholders in One.Tel when it was established in 1995 by Mr Rich and his colleague Brad Keeling.
Later, Mr Packer introduced his father Kerry Packer's Publishing and Broadcasting and Rupert Murdoch's News Corp to the telco business.

When One.Tel collapsed, PBL and News lost a combined $1 billion._

Read more: http://www.news.com.au/business/one...ch/story-e6frfmbi-1225800268330#ixzz1o8ElxHjD

Weekly chart below, look at it every time you decide to avearge down would be my


----------



## Ves

Boggo said:


> Weekly chart below, look at it every time you decide to avearge down would be my




What if you turn the chart upside down?


----------



## Solar

Boggo said:


> Great advice
> Weekly chart below, look at it every time you decide to average down would be my




Why go against the trend? Sell the long trade, accept a small loss and go short.

Solar


----------



## So_Cynical

So_Cynical said:


> (11th-September-2011)
> I have 3 parcels...and im reluctant to buy more as i like to limit myself to 3 parcels, my average price is 4.48 currently an unrealised loss of 14.58% easy to see how 1 more average down at around 3.65 would of been nice...that opportunity may come around again.
> 
> 4.73
> 4.39
> 3.95
> ~




Just to near (still in the trade) wrap this thread up..i did get another chance to buy PTM cheap and did so, bringing my average price down to 4.25...since then the PTM share price has rallied hard and closed on Friday at 4.41

So as usual my averaging down experience has been a positive one, nerve racking, time consuming and annoying but eventually positive....im still  in the trade and looking for 4.50 so i can get out of the 2 highest priced parcels for break even, 1 winner 1 loser...leaving the last 2 buys in substantial open profit at probably an average price of around 3.90.

My chart from the PTM thread below.
~


----------



## tech/a

So_Cynical said:


> Just to near (still in the trade) wrap this thread up..i did get another chance to buy PTM cheap and did so, bringing my average price down to 4.25...since then the PTM share price has rallied hard and closed on Friday at 4.41
> 
> So as usual my averaging down experience has been a positive one, nerve racking, time consuming and annoying but eventually positive....im still  in the trade and looking for 4.50 so i can get out of the 2 highest priced parcels for break even, 1 winner 1 loser...leaving the last 2 buys in substantial open profit at probably an average price of around 3.90.
> 
> My chart from the PTM thread below.
> ~




You have taken 2 yrs to get just above break even.
In that time you have been incorrect 4 times.
You must be trading very small parcels.
If you traded for an income you'd be eating a lot of baked beans!


----------



## sinner

How's your averaging down experience with APN going?


----------



## Ves

The fairly generous franked dividend on PTM ($0.37 in total for the first entry) probably makes his trades look a shade better.


----------



## skyQuake

Not to mention 'emotional capital' committed. Everyday watch that p/l gap grow wider and wider. A constant drain and worry. 

Or take the easy way out. Don't watch it at all!


----------



## So_Cynical

tech/a said:


> You have taken 2 yrs to get just above break even.
> In that time you have been incorrect 4 times.
> You must be trading very small parcels.
> If you traded for an income you'd be eating a lot of baked beans!




PTM is one of 22 stocks i hold so its not all about 1 stock...first and last parcel big, the other 2 small...trading profits currently make up about 20% of my yearly income with dividends and distributions making up about 12% ~ i eat baked beans once every couple of weeks. 



sinner said:


> How's your averaging down experience with APN going?




APN is my biggest loser down 42% at the moment..a disaster for sure, terrible timing and 1 of 22 stocks i hold....currently 14 winners 8 losers. see below to get an idea of why my strategy is profitable.
~


----------



## burglar

So_Cynical said:


> ... i eat baked beans once every couple of weeks.
> ...
> 
> ~



You poor thing!
Come to my house, I get three meals a day!!


----------



## tech/a

So_Cynical said:


> PTM is one of 22 stocks i hold so its not all about 1 stock...first and last parcel big, the other 2 small...trading profits currently make up about 20% of my yearly income with dividends and distributions making up about 12% ~ i eat baked beans once every couple of weeks.
> 
> 
> 
> APN is my biggest loser down 42% at the moment..a disaster for sure, terrible timing and 1 of 22 stocks i hold....currently 14 winners 8 losers. see below to get an idea of why my strategy is profitable.
> ~





I saw one of your tables a few months ago.
Ill have to find it again.
In it were some shockers where you let 100s of % winners fall back to small % and even losers.
When I have time Ill find it and post comments.
All is not as rosy as it seems.
I to am Cynical!


----------



## So_Cynical

tech/a said:


> I saw one of your tables a few months ago.
> Ill have to find it again.
> In it were some shockers where you let 100s of % winners fall back to small % and even losers.
> When I have time Ill find it and post comments.
> All is not as rosy as it seems.
> I to am Cynical!




LOL here's another one for ya...this one is closed trades this financial year.

Seriously i had no idea it looked this good...i dont click the closed trades tab to much.  

I forgot to point out that the table in my above post is open trades all time...everything i have open, some big positions but most small as some profit has been taken on most of them so i can recycle my capital.
~


----------



## tech/a

So_Cynical said:


> LOL here's another one for ya...this one is closed trades this financial year.
> 
> Seriously i had no idea it looked this good...i dont click the closed trades tab to much.
> ~




So
Can you explain to me why your stats at the bottom of your posts
Shows an expectancy of 67c in the dollar?
Doesn't add up on the two tables you've posted up.


----------



## So_Cynical

tech/a said:


> So
> Can you explain to me why your stats at the bottom of your posts
> Shows an expectancy of 67c in the dollar?
> Doesn't add up on the two tables you've posted up.




The expectancy comes out of one of the Stator stats pages...its an all time stat where the table above is this FY, i imagine my expectancy on closed trades for this FY would be a bit higher....just had a look and its $2.48

And i though it had been a bad year. :dunno:


----------



## tech/a

So_Cynical said:


> The expectancy comes out of one of the Stator stats pages...its an all time stat where the table above is this FY, i imagine my expectancy on closed trades for this FY would be a bit higher....just had a look and its $2.48
> 
> And i though it had been a bad year. :dunno:




Exactly
So what's right or are we just posting up stuff for effect.


----------



## So_Cynical

tech/a said:


> Exactly
> So what's right or are we just posting up stuff for effect.




Exactly what?

My signature contains my all time closed trades stats and expectancy...eerrr just like it says?

Statistics: 82 Closed Trades since July 07, Winning Trades: 68, Losing Trades: 13, Expectancy/$1 Risked: $0.67


----------



## Trembling Hand

So_Cynical said:


> Statistics: 82 Closed Trades since July 07, Winning Trades: 68, Losing Trades: 13, Expectancy/$1 Risked: $0.67




So_Cynical are you thinking there will come a time where this strategy will start to turn negative?


----------



## Mistagear

So_Cynical said:


> LOL here's another one for ya...this one is closed trades this financial year.
> 
> Seriously i had no idea it looked this good...i dont click the closed trades tab to much.
> 
> I forgot to point out that the table in my above post is open trades all time...everything i have open, some big positions but most small as some profit has been taken on most of them so i can recycle my capital.
> ~




Cynical,
Thank you for sharing your results, as impressive as they may be, I
wonder if you would do me a favour. 

Of the trades you listed in the above post.

If you averaged down any of those results, would you please calc the difference if you had 
a) Sold the original position at say 5% loss instead of holding
b) Re-invested the full amount of proceeds from the first sale at the lower price, along with  the subsequent second purchase (the average down ).

This should have you holding a greater number and at a lower average than you achieved by averaging down, and would show exponentially greater profits than were achieved.

I would be grateful if you could show the difference in the results here or I could compile if you prefer.
Thanks in advance.


----------



## So_Cynical

Trembling Hand said:


> So_Cynical are you thinking there will come a time where this strategy will start to turn negative?




This year has been a bad year even if the results don't really show it..yoy i turned 2 or 3 times as many trades last year compared to this year...im stuck in 7 trades that have tied up a lot of capital but 5 of them are coming good now, close to break even or in small profit.

The system is working....and achieved a significant $ amount long term milestone on Friday so all 100% on long term target.



Mistagear said:


> Cynical,
> Thank you for sharing your results, as impressive as they may be, I
> wonder if you would do me a favour.
> 
> Of the trades you listed in the above post.
> 
> If you averaged down any of those results, would you please calc the difference if you had
> a) Sold the original position at say 5% loss instead of holding
> b) Re-invested the full amount of proceeds from the first sale at the lower price, along with  the subsequent second purchase (the average down ).
> 
> This should have you holding a greater number and at a lower average than you achieved by averaging down, and would show exponentially greater profits than were achieved.
> 
> I would be grateful if you could show the difference in the results here or I could compile if you prefer.
> Thanks in advance.




Ok i know what your getting at and hard to argue against that...IF all my actions were done over and i had taken a 5% loss on my first parcel on all the trades that went against me id probably be 10 or 15% better off...maybe more.

And if i had planned my entry's better by staging my entry's (smaller first parcel) id be way ahead to...If i had held my IIN trade for just another 3 weeks i could of get 10% more.

And if i had sold my biggest loser (APN) at the bottom (Aug-Sept) and split that money between my 3 next biggest losers id be way ahead too..

And there's a 100 other what ifs...i call it as i see it, its a broad strategy that works and im very conscious of keeping it working, not being perfect...though of late ive been thinking that some sort a software alert system could help me be more disciplined.

After-all everything can be improved hey.


----------



## skc

So_Cynical said:


> LOL here's another one for ya...this one is closed trades this financial year.
> 
> Seriously i had no idea it looked this good...i dont click the closed trades tab to much.
> 
> I forgot to point out that the table in my above post is open trades all time...everything i have open, some big positions but most small as some profit has been taken on most of them so i can recycle my capital.
> ~




These percentages look pretty fantastic. 

You said many times you like to recycle capital and establish free carry. And many examples you've provided show you establish your free carry at much smaller % profits.

Would I be correct in saying that the percentages represent the free carry portion?

E.g. Inital buy 10,000 units @ $1. Sold 9,000 @ $1.1. Remaining 1000 sold at $3.00. 

Does the percentage in your table refers to +200% for the last sale, or ~30% for the average sale price?


----------



## So_Cynical

skc said:


> These percentages look pretty fantastic.
> 
> You said many times you like to recycle capital and establish free carry. And many examples you've provided show you establish your free carry at much smaller % profits.
> 
> Would I be correct in saying that the percentages represent the free carry portion?
> 
> *E.g. Inital buy 10,000 units @ $1. Sold 9,000 @ $1.1. Remaining 1000 sold at $3.00*.





Yep spot on...all the big spectacular winners are selling out of 3 positions, selling the free carry and usually a capital amount of roughly the same size, sometimes a bit more, sometimes a bit less.

The $ profit of the top 4 winners would average at a little over 2K...if i had held the original investment all the way thru, wow big money..but i simply didn't have the capital to do that.



skc said:


> Does the percentage in your table refers to +200% for the last sale, or ~30% for the average sale price?










Each entry is a parcel, a trade .. 8 stocks in total with the largest dollar amount belonging to the -64.24% loser : but not by much.

Funny hey cos the -64.24% loser and the 308.27% winner are actually the same sized parcels in the same stock


----------



## Mistagear

So_Cynical said:


> This year has been a bad year even if the results don't really show it..yoy i turned 2 or 3 times as many trades last year compared to this year...im stuck in 7 trades that have tied up a lot of capital but 5 of them are coming good now, close to break even or in small profit.
> 
> The system is working....and achieved a significant $ amount long term milestone on Friday so all 100% on long term target.
> 
> 
> 
> Ok i know what your getting at and hard to argue against that...IF all my actions were done over and i had taken a 5% loss on my first parcel on all the trades that went against me id probably be 10 or 15% better off...maybe more.
> 
> And if i had planned my entry's better by staging my entry's (smaller first parcel) id be way ahead to...If i had held my IIN trade for just another 3 weeks i could of get 10% more.
> 
> And if i had sold my biggest loser (APN) at the bottom (Aug-Sept) and split that money between my 3 next biggest losers id be way ahead too..
> 
> And there's a 100 other what ifs...i call it as i see it, its a broad strategy that works and im very conscious of keeping it working, not being perfect...though of late ive been thinking that some sort a software alert system could help me be more disciplined.
> 
> After-all everything can be improved hey.




I actually thought it would highlight the essence of the subject of whether to average down or not.
The trades done were your actual trades, the only difference would be to take a stop rather than hold as price declined.
The method of re-entering at a lower level rather than averaging down, I feel is a hugely better alternative.
Your impression that you may have been "10 or 15%" better off, is most likely well short of the actual difference between the two methods. Would have been a good opportunity to highlight how easily the outcome can be improved and how risk to capital can be severely reduced at same time.
Even if you decide not to post the result, I urge you to calculate the different result for your own benefit in future.


----------



## burglar

Mistagear said:


> ...
> Even if you decide not to post the result, I urge you to calculate the different result for your own benefit in future.




I have tried to use averaging down and also this jumping out and back in.

I found averaging down to be slower, more deliberate, less stressful.
It appears to be reasonably profitable when the market is moving forcefully (as opposed to what it does currently)!

Agreed, the other way is more profitable, but hell ... it is hard on the nerves.


----------



## skc

Mistagear said:


> Cynical,
> Thank you for sharing your results, as impressive as they may be, I
> wonder if you would do me a favour.
> 
> Of the trades you listed in the above post.
> 
> If you averaged down any of those results, would you please calc the difference if you had
> a) Sold the original position at say 5% loss instead of holding
> b) Re-invested the full amount of proceeds from the first sale at the lower price, along with  the subsequent second purchase (the average down ).
> 
> This should have you holding a greater number and at a lower average than you achieved by averaging down, and would show exponentially greater profits than were achieved.
> 
> I would be grateful if you could show the difference in the results here or I could compile if you prefer.
> Thanks in advance.




This exercise will only produce skewed results.

As So_C only averages down when the share price has fallen, the sample size will only include all stocks that offer him more attractive entry price down the track. You do that sum then of course he'd be better off. 

What it won't capture is any share that he may have sold out (say for a 5% loss) but never quite fall further to trigger this theoretical re-entry. If the stock took off after his sale, then he's worse off.

So to assess the benefits or otherwise of your suggested strategy, he needs to do that for ALL his positions, not just the ones which he averaged down.


----------



## Mistagear

skc said:


> This exercise will only produce skewed results.
> 
> As So_C only averages down when the share price has fallen, the sample size will only include all stocks that offer him more attractive entry price down the track. You do that sum then of course he'd be better off.
> 
> What it won't capture is any share that he may have sold out (say for a 5% loss) but never quite fall further to trigger this theoretical re-entry. If the stock took off after his sale, then he's worse off.
> 
> So to assess the benefits or otherwise of your suggested strategy, he needs to do that for ALL his positions, not just the ones which he averaged down.




Totally fair comment


Burglar


> I found averaging down to be slower, more deliberate, less stressful.




Everyone is different, I find the longer I remain on the wrong side of a trade, the more stressful it gets.
I prefer to be out of the market while while it goes against me. My usual method is to trail a contingent re-entry order, obviously it depends on individual circumstance, but my stops are breaks of support(imo) so if I remain keen to re-enter  I leave the order in the market and move it closer to the action when I think price has found a new support.
Worse outcome is I pay a round trip brokerage and end up owning it again at a slightly higher price than if I had held on, however the method has potential to give a far superior profit that to average down
The absolute best part, it safeguards my capital from a prolonged trend against me, and usually allows me to concentrate on other opportunities instead of stressing over increasing losses


----------



## Julia

Mistagear said:


> T
> Worse outcome is I pay a round trip brokerage and end up owning it again at a slightly higher price than if I had held on, however the method has potential to give a far superior profit that to average down
> The absolute best part, it safeguards my capital from a prolonged trend against me, and usually allows me to concentrate on other opportunities instead of stressing over increasing losses



Agree absolutely.


----------



## burglar

Mistagear said:


> Totally fair comment
> 
> 
> ...




I owned an LH Torana with a 4 speed Aussie gearbox .... I rarely mist a gear.
It was retired at age 22 years due to rusted out quarter panels.

I hope this helps!


----------



## So_Cynical

skc said:


> This exercise will only produce skewed results.
> 
> As So_C only averages down when the share price has fallen, the sample size will only include all stocks that offer him more attractive entry price down the track. You do that sum then of course he'd be better off.
> 
> What it won't capture is any share that he may have sold out (say for a 5% loss) but never quite fall further to trigger this theoretical re-entry. If the stock took off after his sale, then he's worse off.
> 
> So to assess the benefits or otherwise of your suggested strategy, he needs to do that for ALL his positions, not just the ones which he averaged down.




^Agree^

My trades are to random to apply the level of discipline Mistagear his suggesting..when i have free capital its either enough for a  large average down or re-entry, a new position (stock) or a small average down...usually i allow myself maybe 3 ot 6 days to do something, a re-entry gets first priority, an average down second priority and a new stock third...i try and take advantage of the biggest opportunity i see at that time.

Often a week later its a different opportunity i see that takes preference...that last average down in PTM was something i really really wanted to do, knew it could be the 1 trade that makes all the difference with that whole position...i short list then choose.

I don't have the discipline to Buy XYZ and take the loss 2 or 3 times while looking for bottom.


----------



## burglar

Mistagear said:


> ... burglar
> 
> 
> Everyone is different, I find the longer I remain on the wrong side of a trade, the more stressful it gets. ...




I can stay on the wrong side of a trade forever. Here's why.

I can afford to lose all of my bet. If I couldn't afford it, I wouldn't bet it.
I write it off completely at the moment I place a buy order.


----------



## Mistagear

burglar said:


> I owned an LH Torana with a 4 speed Aussie gearbox .... I rarely mist a gear.
> It was retired at age 22 years due to rusted out quarter panels.
> 
> I hope this helps!




Everyone is different, I bought mine in 1979 just after it had won the Aust Touring Car Championship, I have often missed gears (My Nic" is fact not fiction)
It is not retired, continues to run in Historic races and has no rust in any panels.



> I can afford to lose all of my bet. If I couldn't afford it, I wouldn't bet it.
> I write it off completely at the moment I place a buy order.




Unlike my trades, each time I race  am forced to risk losing all of my car, it may be written off completely.
Fortunately I can plan limited risk when I trade.


----------



## waza1960

I use averaging down in short term trading including automated strategies but I guess since this thread is in the Medium/Long Term Investing forum it may be better to discuss short term averaging down in a new thread...


----------



## burglar

Mistagear said:


> Everyone is different, I bought mine in 1979 just after it had won the Aust Touring Car Championship, I have often missed gears (My Nic" is fact not fiction)
> It is not retired, continues to run in Historic races and has no rust in any panels.
> 
> 
> 
> Unlike my trades, each time I race  am forced to risk losing all of my car, it may be written off completely.
> Fortunately I can plan limited risk when I trade.




I'm too old to race now, ...

Trading is all I do. I do it badly (methinks!) 
But, win lose or draw, enjoy it immensely!


----------



## GG999

Something I don't understand about this

Supposing a long term investor spends days analyzing the fundamentals of a company and decides it's a great buy for a long-term hold at the current price. But just before buying a large batch of shares she remembers the accident last year that caused memory problems, and checks whether she already has a holding in the company. 

And yes, she discovers that she already has a small holding, and unfortunately bought at a higher price. Because she thinks that averaging down is such a bad idea, she decides not to buy. And because she doesn't like to hold on to losing positions, she sells the original package.

How can a minor event a year or two ago that couldn't possibly have an effect on the future prospects of a company change someone's decision from buying shares in that company to selling its shares instead?


----------



## jimmyizgod

I wouldn't recommend trading with memory problems... the money she was going to spend on purchasing shares would probably be better off invested in private health insurance, and seeking out a specialist.


----------



## Country Lad

GG999 said:


> Because she thinks that averaging down is such a bad idea, she decides not to buy. And because she doesn't like to hold on to losing positions, she sells the original package.
> 
> How can a minor event a year or two ago that couldn't possibly have an effect on the future prospects of a company change someone's decision from buying shares in that company to selling its shares instead?




Averaging down is indeed a bad idea, however I don't think your case really qualifies as that.

Averaging down is generally a case of falling in love with the company and not willing to admit that the share is not going according to plan and watching it continuing to drop in price.  The bad idea part is not only to continue to hold the falling share but then to buy more as it is falling instead getting out and buying other shares which are going up.

Yours is a different case.  She hasn't been watching it go down and buying more.  Being a year or 2 later, it could very well be a case of changes in management/direction making it a different company to what it was previously.

I do not average down a falling share price under any circumstance but in this case, I would have treated it as a new investment.  

Anybody trading with a bad memory should be keeping extensive notes.

Cheers
Country Lad


----------



## Klogg

Country Lad said:


> Averaging down is indeed a bad idea, however I don't think your case really qualifies as that.
> 
> Averaging down is generally a case of falling in love with the company and not willing to admit that the share is not going according to plan and watching it continuing to drop in price.  The bad idea part is not only to continue to hold the falling share but then to buy more as it is falling instead getting out and buying other shares which are going up.




I don't agree entirely. In the short term, the valuation of a company (refering to Value Investing only) may not be realised, but over a year or two it will.

I averaged down a LOT (as in, many parcels purchsed after a SP decrease) with TGA and a little with RCG - both up over 30% now for me in approximately a year (yes, the markets gone up a lot too).
That being said, my purchase prices were only decreasing by approx 5-10% at most.

In my view, if I'm that confident in a company, I'll average down (I only own 6 companies atm, so I may be very selective).
Perhaps I was just lucky, but that's been my experience with it so far.


----------



## Country Lad

Klogg said:


> I don't agree entirely. In the short term, the valuation of a company (refering to Value Investing only) may not be realised, but over a year or two it will.




 In 30 years playing this game I have never bothered about valuing a company.  Ask 10 brokers or economists to value a company and you will get 10 different answers.  My view is that it is pointless doing a valuation as the value is clearly defined by the market.  Those 10 may value it differently, but right now the value put on it by the market counts.

From there it is entirely market sentiment which will change the valuation.  What the company does from now and how the market moves will determine the value in the future.  That is why my primary indicator is market sentiment.

Cheers
Country Lad


----------



## leyy

Agreed.

I've only averaged down one stock in my life time which was 3 years ago.

Very costly mistake and will never do it again. I averaged down 3 times on the same stock and lost in excess of 70% of the equity.

Now I have stopped averaging down my portfolio is much more profitable and i cut my losers asap and deploy capital elsewhere.

Having said that I "Average up alot"


----------



## So_Cynical

Country Lad said:


> Averaging down is indeed a bad idea, however I don't think your case really qualifies as that.
> 
> Averaging down is generally a case of falling in love with the company and not willing to admit that the share is not going according to plan and watching it continuing to drop in price.




LOL i can say with absolute confidence that im not in love with APN...actually far from it.  

CL - if averaging down is such a bad idea, how is it that i have so many stocks that have come good? of the list below, every single stock went against me, the vast majority of them by more than 5% , every single stock was purchased in a down trend and yet 84% of them have turned around.

I find comments like "falling in love with the company" and "not willing to admit" condescending and way to simplistic, in fact comment like those demonstrate a complete lack of understanding for the reasons to average down and instead support misleading generalisations.

In my opinion.

---

Below is a screen shot of the % profit and loss by stock of my whole current (open) portfolio...stocks are marked and not marked, to indicate where averaging has and hasn't taken place, also where profit has and hasn't been taken at some previous point in time....clearly demonstrating that like all investment decisions there are 2 sides to the out come.
~


----------



## pacestick

worked for me   on a couple of occassions but you have to be absolutly certain that the company is going to come right and not be restricted by your own time frames  otherwise its throwing good money after bad .
This is how it worked on acn for me

1321 shares at $1.00
2223 shares at 0.225
8226shares at 0.091

 sold the lot to DLS  takeover at 0.285


----------



## Bill M

I averaged down with many of my holding during the GFC in 2009. I am a long term dividend income investor and buying during that time was one of the best investment decisions I ever made. I completely detached myself from all the doom and gloom merchants and bought what I thought was good solid stocks at ridiculously low prices. If it happened again I would do exactly the same thing, it is paying for my retirement now, cheers.


----------



## Ves

Country Lad said:


> In 30 years playing this game I have never bothered about valuing a company.  Ask 10 brokers or economists to value a company and you will get 10 different answers.  My view is that it is pointless doing a valuation as the value is clearly defined by the market.



Where you see confusion or misconception, I see opportunity from this situation.


----------



## burglar

So_Cynical said:


> ... if averaging down is such a bad idea, how is it that i have so many stocks that have come good? ...




You have patience in abundance, a prerequisite virtue when averaging down.
Some debate you would have done better if only you had done this or done that ...
These alternative strategies require different virtues (gallantry as an extreme example).

Know yourself, know your strategies and good luck to your family!


----------



## So_Cynical

pacestick said:


> worked for me   on a couple of occasions but you have to be absolutely certain that the company is going to come right *and not be restricted by your own time frames* otherwise its throwing good money after bad .




And not be restricted by your own time frames... that's the key to it all, time and having it work for you.



burglar said:


> *You have patience in abundance, a prerequisite virtue when averaging down.*
> Some debate you would have done better if only you had done this or done that ...
> These alternative strategies require different virtues (gallantry as an extreme example).




Absolutely agree...its a prerequisite for what i do and i suppose that goes for everyone else that profits from time, patience, fear and the need of others to preserve capital.


----------



## Trembling Hand

So_Cynical said:


> clearly demonstrating that like all investment decisions there are 2 sides to the out come.




So_Cynical there is a time where a certain approach works like..... well "magic". BUT the only certainty that I now know about trading that I have learnt from over 11 years of extremely active trading (thats is 100,000s of real trades with real money with a very vast array of systems) is after about 3 or so years they just break. 

They do.

Right when you really start to define what you are good at and step up the size. This isn't just personal experience by the way. Traders that I know who have been around longer than 2 market phases are very adaptable. Ones that refuse to be honest with how the market phase is rewarding them are the ones now not trading.

Just saying


----------



## So_Cynical

Trembling Hand said:


> So_Cynical there is a time where a certain approach works like..... well "magic". BUT the only certainty that I now know about trading that I have learnt from over 11 years of extremely active trading (thats is 100,000s of real trades with real money with a very vast array of systems) is after about 3 or so years they just break.
> 
> They do.
> 
> Right when you really start to define what you are good at and step up the size. This isn't just personal experience by the way. Traders that I know who have been around longer than 2 market phases are very adaptable. Ones that refuse to be honest with how the market phase is rewarding them are the ones now not trading.
> 
> Just saying




If your implying that the last 3 or 4 years was a great 'time' to average down, and i think that is what your saying, then i would have to agree...it certainly would not of worked (broadly speaking) in the 4 years that preceded it, 2005/6/7/8...in fact it would of been disastrous from a 2009/10/11/12 perspective, but in 2018 perhaps it wont. 

I did 'step up in size' in late 2010 just as the market started to roll over, shocking timing that resulted in me getting stuck in about 7 trades, 4 of which in still stuck in...2 of them just coming good now.


----------



## Trembling Hand

So_Cynical said:


> If your implying that the last 3 or 4 years was a great 'time' to average down, and i think that is what your saying, then i would have to agree...it certainly would not of worked (broadly speaking) in the 4 years that preceded it, 2005/6/7/8...in fact it would of been disastrous from a 2009/10/11/12 perspective, but in 2018 perhaps it wont.




Yep thats what I'm saying. You have to be ever vigilant in how much of your success is due to just good/lucky timing. Pretty hard to do actually. Especially when you are being richly rewarded for a certain approach. There is a tendency to think you're hot **** and you'll be driving the Ferrari in a few years. Very hard to stop seeing the market in that same light that has been so good to you. I wasted all of 2010 when the bots locked up the futs markets after being in paradise form 2007 to late 2009. Hard to realise the golden goose is dead until its carcass is rotting.



So_Cynical said:


> I did 'step up in size' in late 2010 just as the market started to roll over, shocking timing that resulted in me getting stuck in about 7 trades, 4 of which in still stuck in...2 of them just coming good now.




Amazing how often that happens.


----------



## burglar

Trembling Hand said:


> ... Amazing how often that happens.




Happened to me, no don't feel sorry for me!
I had it coming, I was self-delusional !

It happened to my biggest holding 
(No coincidence, ... in hindsight)

The biggest loss is not monetary! 
It is time.


----------



## sydboy007

I suppose the question you need to ask yourself is why is th eprice on a downward trend.

If you a re a trader and less interested in fundamentals and more in the trend, then buying against the trend wont make you money.

If you intend to buy for the long term, *not buy and forget*, then you need to write down why you bought the company in the first place, and decide if those reasons are still valid.

I decided to take this course with my SMSF.  Each investment I make lists a number of reasons as to why I bought the shares / bond etc.  This will then hopefully help me to be far more rational should the market fall / take off.  If I read anything I think relevant to my investment thesis I add this to my journal.  I want to minimise my fear and greed. 

In my personal investments I averaged down with BSA last year.  I originally bought for the high yield - over 10% grossed up - and with their latest profit figures the share price was hit hard.  On digging a bit deeper into the net profit fall I saw that it was due totally to the expiring of some tax credits they used to get.  Actual revenue and profit was still increasing.  My reason for investing was sound, though I now factored in that the payout ratio may be too high at 80%, but the share price fall meant that if the div ratio fell back to what it was before then the current price would offer me a similar grossed up div yield, so i bought a second tranche of shares.  A few months later and the hunt for yield has provided me with a 15% capital gain, and I'll still make over 10% on my money.

Don't let your purchase price be an anchor.


----------



## herzy

sydboy007 said:


> Don't let your purchase price be an anchor.




This is exactly what it is about (or should be about) for fundamental investors - each time you 'average down' must be seen as a new investment decision: at these prices, is this a company I want to invest in?

If nothing fundamental has changed, the decision is easy for fundamental investors - they clearly thought it was a good buy before; now, it's a better buy... 

A completely independent decision to your original purchase.


----------



## burglar

herzy said:


> ... now, it's a better buy...




I think you have mixed your metaphors!

To be completely independent, you *cannot *think it is now a better buy!


----------



## Julia

burglar said:


> I think you have mixed your metaphors!
> 
> To be completely independent, you *cannot *think it is now a better buy!




Which metaphors?


----------



## herzy

burglar said:


> I think you have mixed your metaphors!
> 
> To be completely independent, you *cannot *think it is now a better buy!




Sorry if I was unclear - of course something can be a better buy than it was previously, even if it is an independent purchase. If I see TLS today at 4.45, and remember the time I decided not to buy at 2.80, I can easily say 'Then was a better time to buy than now' - even if I buy now, it's still an independent decision. 

Vice versa, if TLS drops tomorrow to 2.80, and I have an average buy price of 3.56 (having bought on the last dip), I can look at the decision and say - the fundamentals haven't changed, divvy just got better than my previous purchase price, and so now is a better buy than it was previously. 

My decision to buy x TLS shares at 2.80 is still completely independent: although I happen to already hold (and hence am 'averaging down'), that is irrelevant - I would be purchasing TLS at 2.80 irrespective of my other holdings, due to divvy/future prospects/whatever else. In that sense, it is an independent (although better!) buy. Making a comparison between a current and previous purchase does not render my purchasing decision dependent on my previous decisions.


----------



## herzy

Julia said:


> Which metaphors?




Also pertinent.


----------



## burglar

Julia said:


> Which metaphors?




Sorry, everybody, to have even mentioned the Mixed Metaphor
I should have said that I sense a contradiction.


----------



## burglar

herzy said:


> Also pertinent.




"independent is not available in the financial dictionary".
I have searched the dictionaries!
I cannot find what I meant, except an overwhelming sense that "independent" does not mean what you hope it means.

I sense a contradiction.
"Cheaper" is a comparative word. 
I don't believe "independent" is a comparative?

Tell me I am mistaken!!


----------



## herzy

burglar said:


> "independent is not available in the financial dictionary".
> I have searched the dictionaries!
> I cannot find what I meant, except an overwhelming sense that "independent" does not mean what you hope it means.
> 
> I sense a contradiction.
> "Cheaper" is a comparative word.
> I don't believe "independent" is a comparative?
> 
> Tell me I am mistaken!!




You are mistaken. Independent means one is not dependent on the other. This is, indeed, different to drawing a comparison (which I did). 

*This is a crucial point - I do not 'average down' to try to recoup my losses*. I buy again, because I would buy anyway (irrespective or INDEPENDENTLY) from my other holdings. That is because, in my opinion, it is even better value (cheaper) than it was when I had also previously decided it was good enough value to buy. 

Had I not bought, and been unfamiliar with the stock, I would also buy now based on a value analysis. That is what I mean by independent.


----------



## burglar

herzy said:


> You are mistaken. Independent means one is not dependent on the other. This is, indeed, different to drawing a comparison (which I did).
> 
> *This is a crucial point - I do not 'average down' to try to recoup my losses*. I buy again, because I would buy anyway (irrespective or INDEPENDENTLY) from my other holdings. That is because, in my opinion, it is even better value (cheaper) than it was when I had also previously decided it was good enough value to buy.
> 
> Had I not bought, and been unfamiliar with the stock, I would also buy now based on a value analysis. That is what I mean by independent.




Ok Here goes! One more stab at clarifying what I meant!

I buy a testra share.
I buy another at a lower price.
Now I have two testra shares!
They are both dependent on testra's share price action, testra's reports and testra's future (earnings, outlook, whatever ... )
With so much depending on testra's performance, I am really glad of the extra yield!!


----------



## Boggo

burglar said:


> Ok Here goes! One more stab at clarifying what I meant!
> 
> I buy a testra share.
> I buy another at a lower price.
> Now I have two testra shares!
> They are both dependent on testra's share price action, testra's reports and testra's future (earnings, outlook, whatever ... )
> With so much depending on testra's performance, I am really glad of the extra yield!!




I buy a APN share.
I buy another at a lower price.
Now I have two APN shares!
They are both dependent on APN share price action, APN's reports and APN's future (earnings, outlook, whatever ... )
With so much depending on APN's performance, I am really glad of the extra yield *at 16.9 %* (sounds great eh) !!

But I am down 50% on the share 
The reality when the price continues down 

Averaging down is the domain of the "I can't be wrong" brigade !


----------



## RottenValue

> Averaging down is the domain of the "I can't be wrong" brigade !




You may be right, however if the stock truly was a bargain when it was originally purchased then the rational course of action would be to buy more as it is now even more of a bargain.

The secret is to determine whether the price has fallen because of some change in fundamental business reality or it has been caused by a short-term variation in supply and demand (which could be caused by any number of individual perceptions of macro economic musings, market rumours, whatever Roger or Motley Fool are pushing today, etc).  In the end, you either belong to the Mr Market knows everything camp or Mr Market is often an idiot in the short-term.

So sometimes I "average down" and sometimes I sell out.  It depends on my view on why the price has fallen.  

My experience has been happy so far.  

I guess that makes me a member of the "I cant be wrong" brigade.


----------



## burglar

RottenValue said:


> ... So sometimes I "average down" and sometimes I sell out.  It depends on my view on why the price has fallen.
> 
> My experience has been happy so far.
> 
> I guess that makes me a member of the "I cant be wrong" brigade.




Hi RottenValue, 

You don't appear to be a member of the "I cant be wrong" brigade.
My experience had been happy until I did pick the wrong company.
I'm still happy. But I'm not wealthy!

When you are so far in front that your averaged-down open trades 
cannot dent your accumulated profits you can name your brigade.
Meanwhile you need to be ever vigilant, you need to know stuff ... 
you need to be ahead of the game!


I quite like: "The not so Terribly Rich Club".


----------



## Bill M

Boggo said:


> Averaging down is the domain of the "I can't be wrong" brigade !




No it is not. It has nothing do with "I can't be wrong". It in my case it has got more to do with buying ridiculously cheap sound companies with high dividends that have had no real change in their business. Buying a life long income that provides me with a fully funded retirement plan that is solely derived from stock dividends and rental property. It does not require me to sit in front of a screen for endless hours worrying about whether the stock I just bought has gone up or down a few cents. What kind of retirement would that be?


----------



## So_Cynical

Boggo said:


> Averaging down is the domain of the "I can't be wrong" brigade !




For some perhaps, a small minority i would think....but its a crock really, because the price has fallen and the purchaser was/is wrong, just as wrong as the trend follow who locks in the 5% loss when a stop gets hit.

Just different ways of managing being wrong.


----------



## tech/a

Bill
I remember having a discussion with a dear friend 5 yrs ago
Health was her thing. Fittest person I knew. But she was diagnosed
With Breast Cancer. She said to me she was going to cure it naturally.

I said to her. You get one chance at this have the surgery your
Fcuking with your life. She died 2 yrs later.

You've mentioned your retirement revolves around your investments.
Find a book " The Crisis of Crowding "
You get one shot at self funded retirement---stuff it up we don't get another chance.

Averaging down works when it works
But when everything fails and remains failed ----- 
Could never happen?

Have a read it's better than surgery.


----------



## herzy

Depends what you define as wrong. Obviously buying cheaper is better, but if you're buying for yield with a 5+ year time span, i wouldn't define it as a complete failure if the stock drops buy 10% (just as I wouldn't count it as a success if it rose 10%). It does, however, represent better yield - although, as Boggo pointed out, also greater risk/less diversification.


----------



## burglar

Hi Bill M,
From everything I have read, you have done your average-downs and got a perfect 3-point landing!
But I would like to know, Bill, have you stopped flying or no?


----------



## Julia

burglar said:


> Hi RottenValue,
> 
> You don't appear to be a member of the "I cant be wrong" brigade.
> My experience had been happy until I did pick the wrong company.
> I'm still happy. But I'm not wealthy!



So when you get it wrong you're just as happy as when you get it right?




> When you are so far in front that your averaged-down open trades
> cannot dent your accumulated profits you can name your brigade.



What are you saying?   Try to express it in words most people will understand.



> Meanwhile you need to be ever vigilant, you need to know stuff ...
> you need to be ahead of the game!



Again, what on earth are you actually trying to say here?


----------



## Bill M

tech/a said:


> Bill
> 
> Averaging down works when it works
> But when *everything fails and remains failed* -----
> Could never happen?
> 
> Have a read it's better than surgery.




I am so sorry to hear about your friend.

Thanks for the lead on the book, I had a look at some of the reviews on Amazon, most were positive.

I really don't think everything will fail and remain failed, the world will always go on just like it has after every other crash or correction or is this time different?


----------



## Boggo

To average down you are gambling with the assumption that you are right and then rest of the market is wrong and the when it continues further into the red (you included) you now believe that you are even more right and the market is completely wrong.

Sure, many stocks do or may eventually turn back up but generally only at half the pace that it has fallen at (and a 50% fall requires a 100% gain).

The only time you can say that something was a bargain is when it has bottomed and is now in an established uptrend.

Telstra *was* a bargain in Nov 2010 and again in March 2011 but there is no way that you tell it was a bargain at those levels until the trend reversed.
There are numerous posts both on here and elsewhere about Telstra being a bargain on the way down to those levels, in hindsight all wrong and at the time just wishful thinking bordering on gambling.

How many on here remember the Onetel and Harris Scarfe etc bargains ?

Some replies above refer to short term downturns and effects of stop losses etc, there is no simliararity between how those are handled to protect capital vs continuing to add to a losing position in the hope that the market is wrong and you are right.

Aside from averaging down, having money tied up and decreasing in value in a downtrend while it could be making money elsewhere must surely be a factor, and remember, you actually do get a dividend on uptrending stocks too.

I will take an uptrending stock with a decreasing dividend yield anyday over a downtrending stock with and increasing yield.

My biggest losses and lessons were a result of both holding losers and averaging down, luckily they were years ago and at a time when I could recover, learn and move on.


----------



## Boggo

burglar said:


> Hi Bill M,
> From everything I have read, you have done your average-downs and got a perfect 3-point landing!




A three point landing is NOT a perfect landing


----------



## Bill M

burglar said:


> Hi Bill M,
> From everything I have read, you have done your average-downs and got a perfect 3-point landing!
> But I would like to know, Bill, have you stopped flying or no?




Oh mate it hasn't been easy sailing. I blew up a lot of cash in few dud investments. I also wouldn't call my averaging down perfect, far from it. I can't pick bottoms or the tops but I did well out of my 2009 purchases. If I didn't do them then I would be much worse off financially now.

Stopped flying? No not yet, but I am winding down my direct share investments. To me when I stop flying it will be the day that I have enough money in the bank to live off the interest and I don't have to take risks anymore. I'm still a couple years away from that so in the mean time still looking for those opportunities.


----------



## Julia

Bill M said:


> Stopped flying? No not yet, but I am winding down my direct share investments. To me when I stop flying it will be the day that I have enough money in the bank to live off the interest and I don't have to take risks anymore. I'm still a couple years away from that so in the mean time still looking for those opportunities.



If interest rates keep falling, you may find that couple of years is somewhat longer.  It's a very different story getting 3% (which is entirely possible at retail level) compared with the 8% available briefly three years or so ago.

I totally support your aim, though.  I've found the stress-free life of being out of the market is hugely conducive to a happy life.

Best of luck.


----------



## burglar

Julia said:


> So when you get it wrong you're just as happy as when you get it right?
> What are you saying?   Try to express it in words most people will understand.
> Again, what on earth are you actually trying to say here?



Hi Julia,
I just had to check if we were in the beginners lounge.
I'm incredulous, speechless even!!





Deep breath, here goes ...

a.) I'm a happy-go-lucky creature. Check my avatar!

b.) It's called "portfolio heat", if I remember correctly! 
I did try to express it in words most people will understand.

c.) Averaging down is inherently dangerous.
Boggo explains it so much better!


----------



## burglar

Boggo said:


> A three point landing is NOT a perfect landing




How so?


three-point landing
n
1. (Engineering / Aeronautics) an aircraft landing in which the two main wheels and the nose or tail wheel all touch the ground simultaneously
2. a successful conclusion


Ohh, I see! 
A tautology?


----------



## skc

The most serious mistake people make on average down is they throw risk management out of the window. And with value / fundamental investmenting, the key to risk management is position size.

Even if you average down for the right reason, you still need to make sure it is within your position size parameters. And the position size must be considered as capital deployed (not capital realisable after the original parcel has fallen 25%).

The problem with this approach is that it means your original parcel is not full size. If the position goes up for you without ever looking back, your probfits are lower than otherwise if you simply put on the full size. 

An extreme example of bad averaging down:
I read a sad story on another forum about how one "investor" who's mid 40s (or something like that) with the only asset in his name to be Lynas shares bought at $2+. I can't remember what his "average price" was, and LYC may or may not ever come back... but regardless you simply never want to put yourself in such a situation.


----------



## odds-on

skc said:


> The most serious mistake people make on average down is they throw risk management out of the window. And with value / fundamental investmenting, the key to risk management is position size.
> 
> Even if you average down for the right reason, you still need to make sure it is within your position size parameters. And the position size must be considered as capital deployed (not capital realisable after the original parcel has fallen 25%).
> 
> The problem with this approach is that it means your original parcel is not full size. If the position goes up for you without ever looking back, your probfits are lower than otherwise if you simply put on the full size.
> 
> An extreme example of bad averaging down:
> I read a sad story on another forum about how one "investor" who's mid 40s (or something like that) with the only asset in his name to be Lynas shares bought at $2+. I can't remember what his "average price" was, and LYC may or may not ever come back... but regardless you simply never want to put yourself in such a situation.




Hi Skc (and anybody else),

In your experience trading on the ASX, do you think there have been many opportunities to go “all in” on a position? Not necessarily put ALL your money into the position but say 50% of your net worth. The reason I ask is that many of the successful businessmen I have read about it became successful due to very concentrated positions in stocks or businesses. Why bother putting 0.2% of your net worth at risk when the game is to make money?..I can think of two international shares I am still kicking myself for not taking a position.....the wise monkey on my shoulder was screaming at me to buy....and I did not...

I personally do not have a problem with averaging down on selected positions (e.g. long term core portfolio large cap dividend paying companies)

Cheers

Oddson


----------



## skc

odds-on said:


> Hi Skc (and anybody else),
> 
> In your experience trading on the ASX, do you think there have been many opportunities to go “all in” on a position? Not necessarily put ALL your money into the position but say 50% of your net worth. The reason I ask is that many of the successful businessmen I have read about it became successful due to very concentrated positions in stocks or businesses. Why bother putting 0.2% of your net worth at risk when the game is to make money?..I can think of two international shares I am still kicking myself for not taking a position.....the wise monkey on my shoulder was screaming at me to buy....and I did not...
> 
> I personally do not have a problem with averaging down on selected positions (e.g. long term core portfolio large cap dividend paying companies)
> 
> Cheers
> 
> Oddson




Never. If I am running my own business and I have control over what happens... then sure go in big as that's the only way to make it work.

But we are talking about listed companies here. There are simply things that you don't have full knowledge of including crazy things from the left field (like the entire board being killed by a plane crash). I do not want to be in a position that increases the chance for my net worth to be decimated by bad luck...  

The average investor feels the need to go all in because they don't see enough opportunities. But as you get more experienced in the market, chances are opportunities appear think and fast and you are more likely to struggle to catch them all, as opposed to worry about when the next one will come along.


----------



## tech/a

odds-on said:


> Hi Skc (and anybody else),
> 
> In your experience trading on the ASX, do you think there have been many opportunities to go “all in” on a position? Not necessarily put ALL your money into the position but say 50% of your net worth. The reason I ask is that many of the successful businessmen I have read about it became successful due to very concentrated positions in stocks or businesses. Why bother putting 0.2% of your net worth at risk when the game is to make money?..I can think of two international shares I am still kicking myself for not taking a position.....the wise monkey on my shoulder was screaming at me to buy....and I did not...
> 
> I personally do not have a problem with averaging down on selected positions (e.g. long term core portfolio large cap dividend paying companies)
> 
> Cheers
> 
> Oddson




*Actually I agree 100 %*

but NOT averaging down into a position and not exposing yourself to catastrophic risk.


----------



## McLovin

skc said:


> The average investor feels the need to go all in because they don't see enough opportunities. But as you get more experienced in the market, chances are opportunities appear think and fast and you are more likely to struggle to catch them all, as opposed to worry about when the next one will come along.




Yes. I have 19 stocks at the moment. I try and limit myself to 20, but in the last few weeks I've found a few new stocks worth looking at. There's opportunity out there you just need to dig, dig, dig.

There's also the tendency when you start out to find a great company and think wow, this is going to make me a fortune and then think well if I put in $x I'll make nice money but if I put in x+y it will change my life when it goes up. Leverage seems to be seen the same way.


----------



## tech/a

McLovin said:


> Yes. I have 19 stocks at the moment. I try and limit myself to 20, but in the last few weeks I've found a few new stocks worth looking at. There's opportunity out there you just need to dig, dig, dig.
> 
> There's also the tendency when you start out to find a great company and think wow, this is going to make me a fortune and then think well if I put in $x I'll make nice money *but if I put in x+y it will change my life when it goes up. Leverage seems to be seen the same way*.




You only have to get it right once to alter your life perminently.

Caveat :- _but NOT averaging down into a position and not exposing yourself to catastrophic risk._


----------



## McLovin

tech/a said:


> You only have to get it right once to alter your life perminently.
> 
> Caveat :- _but NOT averaging down into a position and not exposing yourself to catastrophic risk._




Sure but I'd hazard that for a newbie investing or trading something that turns out to be life changing will come down to pot luck rather than any great insight. I'd say this holds for even experienced traders/investors. Compounding returns is a far better way to increase wealth than going for one big hit; Don Bradman only hit six 6's in his entire career but his average is almost double the next nearest.


----------



## tech/a

McLovin said:


> Sure but I'd hazard that for a newbie investing or trading something that turns out to be life changing will come down to pot luck rather than any great insight. I'd say this holds for even experienced traders/investors. Compounding returns is a far better way to increase wealth than going for one big hit; Don Bradman only hit six 6's in his entire career but his average is almost double the next nearest.




Yes I agree my thinking was along the exact same lines. (not one shot but compounding) One strong Bullrun would do it like 2001-2008
Or one crash like 2008/9 Short the index with enough even 10 contracts would be massive.

Each can be seen but you cant be sure exactly on timing.
You can average into them as its clear that the "luck" is in your favor.
How massive that luck is only time tells.

But if you put yourself in front of luck often enough youll find it.
Others will just think your lucky.


----------



## odds-on

I do not worry about whether the next one will come along, I do worry about how many I can accurately assess over the course of my lifetime. Fair enough if you think are the investing version of a Don Bradman, some people are not, most are probably the investing version of the fat kid who goal hangs during lunchtime soccer.


----------



## McLovin

odds-on said:


> I do not worry about whether the next one will come along, I do worry about how many I can accurately assess over the course of my lifetime. Fair enough if you think are the investing version of a Don Bradman, some people are not, most are probably the investing version of the fat kid who goal hangs during lunchtime soccer.




I don't think I'm Don Bradman, I just think it's easier to let things compound than try and pick a single big winner. Most value investors seem to think the same (Schloss, Buffett, Marks etc). Of course on the other side of the coin there's Phil "you only need one Motorola in your life" Fisher.

Compounding really is a wonderful thing.


----------



## RottenValue

tech/a said:


> But if you put yourself in front of luck often enough youll find it.
> Others will just think your lucky.




This one I do like, good to see that a TA and FA can agree very occasionally


----------



## burglar

burglar said:


> Hi Julia,
> I just had to check if we were in the beginners lounge.
> I'm incredulous, speechless even!!
> 
> 
> 
> 
> 
> Deep breath, here goes ...
> 
> a.) I'm a happy-go-lucky creature. Check my avatar!
> 
> b.) It's called "portfolio heat", if I remember correctly!
> I did try to express it in words most people will understand.
> 
> c.) Averaging down is inherently dangerous.
> Boggo explains it so much better!




This must be a really good topic!

Despite everything I posted here, 
I have tried 'averaging down' again!


Mixed results, I'm afraid.


----------



## So_Cynical

I have probably averaged down in 80% of the stocks i have bought and come out with profit 90% of the time.

No leverage, Being prepared to wait and not getting carried away are key ingredients to successful averaging...and you have to be brave without being stupid.


----------



## nulla nulla

So_Cynical said:


> I have probably averaged down in 80% of the stocks i have bought and come out with profit 90% of the time.
> 
> No leverage, Being prepared to wait and not getting carried away are key ingredients to successful averaging...and you have to be brave without being stupid.




Many years ago, I averaged down with AMP. Eventually I capitulated, having lost faith, and sold. I lost a bundle. AMP has never recovered to my initial entry levels but has lifted and fallen enough times over the last four years for me to recover my funds by buying on the dips and selling on the highs. Having recovered our funds, we have moved on from AMP.  If I average down now, it is only in those shares where the spread can be measured in cents not dollars and the volumes traded can support a recovery/profit.


----------



## burglar

So_Cynical said:


> I have probably averaged down in 80% of the stocks i have bought and come out with profit 90% of the time.
> 
> No leverage, Being prepared to wait and not getting carried away are key ingredients to successful averaging...and you have to be brave without being stupid.




I have been brave, ... but now, I have to be patient too?


----------



## So_Cynical

burglar said:


> I have been brave, ... but now, I have to be patient too?




Miners? and Mining services? its gona take a long time to turn around.


----------



## joku

In 2006 - 2009 I underperformed the accum index somewhat significantly. My averaging down experience in this time was very bad.

In 2010 - 2013 I outperformed the accum index very significantly. My averaging down experience in this time was good.

I think averaging down has a tendency to reflect general investment ability, but with a dangerous extra dose of emotion thrown into the mix. I think med/long term investors are largely doing themselves a disservice though by making too much of a fuss about averaging down. You should veru much respect the emotional baggage issues presented but otherwise averaging down is neither here nor there and only distracts from real underlying issues of what went right/wrong.


----------



## burglar

So_Cynical said:


> Miners? and Mining services? its gona take a long time to turn around.




I suggest mid January - end February 2014!

Is that sufficient patience?


----------



## burglar

So_Cynical said:


> Miners? and Mining services? its gona take a long time to turn around.




FCN ... Payday?


----------



## Trav.

I found this old thread after struggling with my average down addiction. Some great discussion and varied opinions. Things I will be focusing on initially

- better risk management - Set max loss % and stick to it. (maybe 20% on spec stocks)
- better timing on entry - Research more thoroughly and don't get sucked in with the hype

Still learning but overcoming my own short comings is proving more difficult than first thought.

Cheers


----------



## Wysiwyg

Buy up trending stocks at support level and place a stop loss below that support level?


----------



## So_Cynical

Wysiwyg said:


> Buy up trending stocks at support level and place a stop loss below that support level?



That's something else, has no place in this thread.


----------



## Wysiwyg

Trav. said:


> I found this old thread after struggling with my average down addiction. Some great discussion and varied opinions. Things I will be focusing on initially
> 
> - better risk management - Set max loss % and stick to it. (maybe 20% on spec stocks)
> - better timing on entry - Research more thoroughly and don't get sucked in with the hype
> 
> Still learning but overcoming my own short comings is proving more difficult than first thought.
> 
> Cheers



You are on the wrong path if you think that is better risk management. Percent stop loss is a failed approach. If you want to overcome average down to greater loss addiction and the associated missed opportunity then choose the proven path of trading with the trend and give the average down denial game away.


----------



## barney

Trav. said:


> I found this old thread after struggling with my average down addiction. Some great discussion and varied opinions. Things I will be focusing on initially
> 
> - better risk management - Set max loss % and stick to it. (maybe 20% on spec stocks)
> - better timing on entry - Research more thoroughly and don't get sucked in with the hype
> 
> Still learning but overcoming my own short comings is proving more difficult than first thought.
> 
> Cheers



Howdy Trav ….. Averaging down is not a problem within itself …. @skc  above (post 161) put it in a nutshell.

Lots of traders dollar cost average their trades/entries to spread the volatility ….. Its when you do it and how much of your capital you do it with that determines whether its a mistake or not.

I nearly always accumulate positions, which is just a fancy way of saying I average down because I know I'm not clever enough to pick the best entry most of the time  …. 

Do you have any examples of trades where you have averaged down you could post up? 

Discussing trades gone wrong with other traders can often be helpful …..  Cheers.


----------



## barney

Wysiwyg said:


> You are on the wrong path if you think that is better risk management. Percent stop loss is a failed approach. If you want to overcome average down to greater loss addiction and the associated missed opportunity then choose the proven path of trading with the trend and give the average down denial game away.




There is some truth in what you say WYS ….. averaging down for the wrong reasons is a losing game …   

I have no problem with averaging down trading Stocks but when I tried to be a Forex Lord, averaging down nearly always failed in the long run.


----------



## Wysiwyg

barney said:


> There is some truth in what you say WYS ….. averaging down for the wrong reasons is a losing game …
> 
> I have no problem with averaging down trading Stocks but when I tried to be a Forex Lord, averaging down nearly always failed in the long run.



Hey Barney. I notice you joined this forum near the same time as me.  Surely we both have amassed great experiences since then. For a value investor, averaging in or building a position on well established companies that have been unjustifiably oversold and time is not an issue (investors live 50 years longer than traders ). Trading stocks anti trend is something I suggest only experienced traders do. Trading anti trend and averaging down is something I suggest only experienced traders do. Having a two or three stage entry for the whole quantity is something I do but brokerage costs for the year are higher. The cut off point remains the same for the full quantity. I love the reflection of traders in charts and I love an over sold stock. 

It can be done but the right stocks and the right position size and the right stop loss and the right time are of importance for traders.


----------



## barney

Wysiwyg said:


> Hey Barney. I notice you joined this forum near the same time as me.  Surely we both have amassed great experiences since then.
> 
> It can be done but the right stocks and the right position size and the right stop loss and the right time are of importance for traders.




Totally agree WYS …. 

Averaging down in the wrong hands can get ugly …. and even in the right hands it doesn't always work out.   It can have its advantages if used correctly of course, but any method of trading falls into that category.

PS We have been around a while haven't we  …. Cheers M8.


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## tech/a

Why would you average down on the premise it will go up!
Why not average up? If that’s the way it’s moving why wouldn’t you want more of it!

If it’s NOT GOING UP wait until it does THEN invest.
If you can’t tell when that is or your worried about missing a few cents
Learn what to look for.
If you get it wrong —- you’ve got it wrong —- putting more money into wrong 
In the hope it will become right ——-???

The most stupid form of trade management I know of.


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## Trav.

Thanks for all the responses.

Example of my latest average down experience. No rhyme or reason just chasing my money. Event that started the down trend was a delay with the PFS. Got sucked in to buy on the expectation of news. Now stuck in a holding pattern until PFS is released later in the year. 

Trades & Chart

13 Jul 2018 Buy 0.135
20 Jun 2018 Buy 0.175
19 Jun 2018 Buy 0.175
28 May 2018 Buy 0.225





Thanks again for your time.


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## Trav.

I just wanted to add that I do average up when the opportunity arises,

NUH Trades.

22 May 2018 Buy 0.082  
16 Apr 2018 Buy 0.095  
13 Apr 2018 Sell 0.100  (SL triggered)
10 Apr 2018 Buy 0.110  
15 Mar 2018 Buy 0.099  
06 Feb 2018 Buy 0.055  
31 Jan 2018 Buy 0.063  
24 Jan 2018 Buy 0.068  
08 Jan 2018 Buy 0.068 

Just need to find the balance when playing in the spec end of the asx.


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## Country Lad

Trav. said:


> ......No rhyme or reason just chasing my money. Event that started the down trend was a delay with the PFS……….. Got sucked in to buy on the expectation of news.





Trav, as you can see from my post early in this thread, (*https://tinyurl.com/yc8ks4nk),*
I haven’t ever averaged down as I think it should be renamed as “doubling down on a mistake”.

You probably just need to change your mindset as a start, to one of buying a share only when there is a positive reason to do so.  That may be because of a positive trend, chart showing positive moves, strong momentum in the price/trading, positive news or any other reason that gives a high probability of the share price increasing.

Your buy of 28 May was just a tad early (only by about .5 or 1 cent) as it was not yet a breakout.  Buying because of anticipation of a PFS is risky because it may not be positive news, a delayed PFS is even more risky as the reason for the delay may not be good.

So, my comment is – buy for a positive reason.  Not while the price is going down and you are buying when others are selling. There is always a reason for the drop and that is never positive.  That should help change the current mindset.


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## barney

tech/a said:


> Why would you average down on the premise it will go up!
> Why not average up? If that’s the way it’s moving why wouldn’t you want more of it!
> 
> If it’s NOT GOING UP wait until it does THEN invest.
> If you can’t tell when that is or your worried about missing a few cents
> Learn what to look for.
> If you get it wrong —- you’ve got it wrong —- putting more money into wrong
> In the hope it will become right ——-???
> 
> The most stupid form of trade management I know of.




@Trav.  …. Just to clarify a couple of things on my interpretation of "averaging down"  

Tech's post above, if you are trading using *technical analysis*, is 100% correct ….. buying a distressed Spec stock because its getting cheaper is generally a recipe for a larger loss and certainly not what I am advocating.

If you incorporate Fundamental analysis into your trading decisions, which I assume you are, you might approach a given trade with a different plan …. In saying that, sensible T/A still needs to be adhered to.

Averaging down in its traditional interpretation has issues when trading Specs, however averaging down, or up for that matter, by *accumulation* of a Stock around a pre determined price range/value area is perfectly rational to me … Hope that makes sense. If not, ask and I'll elaborate

As long as sensible position sizing and money management are adhered to and a healthy respect for price action, you wont go too far wrong whether trading momentum breakouts or accumulation plays Cheers.


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## tech/a

So
Your suggesting that stock xxx has a bargain price value of $18
So it’s currently trading at $12
You buy any time it trades lower say $12,10,8 etc averaging in.
Or am I missing something


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## barney

tech/a said:


> So
> Your suggesting that stock xxx has a bargain price value of $18
> So it’s currently trading at $12
> You buy any time it trades lower say $12,10,8 etc averaging in.
> *Or am I missing something*




*Tech* …. 

Trying to explain things on a Forum is often open to misinterpretation etc as I'm sure you have experienced. 

I'm happy to continue a conversation on this topic as I think it could be interesting, but I first need to make sure, regarding my last post, that you understand exactly what my last post (which I took a long time deliberating over to try and make the wording clear) was trying to say … 

1) Firstly, I was referring to *Spec* Stocks ….

2) I told Trav that averaging down in the traditional sense on Spec Stocks is generally a poor decision. 

3) Adding Fundamental analysis to a trade makes it potentially different to a pure T/A trade

4) Accumulation around a perceived value area/Range is actually determined by technical analysis of the Chart in question 

So basically, I'm not advocating "averaging down" willy nilly … I'm talking about 

1) Reading a chart that is showing signs of potential (T/A)

2) Researching the Fundamental aspects of the Company in question (F/A)

3) Assessing whether I see an under valued Stock

4) Trade the Stock according to its perceived value *and* price action


Points 1 and 2 are interchangeable in an "accumulation" strategy whereas a purely T/A trading strategy is 1 and only 1   

PS If I take a position in a Spec Company I see as undervalued yet the SP drops below an obvious trading range or a Fundamental report/announcement comes out to extinguish trader enthusiasm, I'm *not going to average down/accumulate* more of that because the *value area/sentiment has changed* ….  

The trade can be invalidated by either T/A or F/A in an accumulation strategy … its discretionary, not cut and dry.

Hope that all makes it clearer … Cheers.


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## tech/a

Nope.
Averaging down to me is

Buying at Price X 
Price drops a lot so I buy more to
Average my price at a lower price.
I keep doing this in the hope that IF price 
Rises I can recoup and or profit as the 
Figure need to do this is much lower than
My original failed buy.

Coating the process by any number of conditions
Doesn’t negate what your doing 
Spec or larger cap.

Friend of mine who invested $40000 in a stock only to see it collapse 
70 % did exactly that finally investing $ 78000.
Still kept going lower so he stopped trading for a living 
18 mths later his broker ( in the day of full service broker )
Called to tell him price had spiked and he was in profit.
He pocketed $230k profit.

15 yrs later the guy is fully broke and lives off welfare.

It’s a very common dumb thing that traders do.
How lucky do you feel??


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## barney

tech/a said:


> Nope.
> Averaging down to me is
> 
> Buying at Price X
> *Price drops a lot* so I buy more to
> Average my price at a lower price.




Thanks for the reply Tech ….. 

Firstly ... sad story on your M8 …… and probably far too common.

You may have read one of the Posts I wrote where I described/admitted to basically losing $100K early in my trading …. of borrowed money!! Lol …. (funny now …. not really of course)

I often think in hindsight … if that trade that I inadvertently risked the house on (literally) had actually come off, I would have likely gone on to lose even more because I had no idea what I was actually doing at the time .... so the large loss may have actually helped!  Scary but true 

Just to confirm … When you say *"Price drops a lot"* …. for an accumulation strategy, that would signal a failed trade/cut your losses etc ….. *ie Chart signals still have to be respected *… 

A poor averaging down strategy would disregard the chart/truth and buy more .... that is where the downside can become exponential and where it differs from accumulation. 

I know I've convinced you to become an accumulator now haven't I … Okay maybe not


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## tech/a

I accumulate but only on the way up
I don’t have time or inclination to sit in
A trade and wait!


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## barney

tech/a said:


> I accumulate but only on the way up
> I don’t have time or inclination to sit in
> A trade and wait!



Totally understand Tech …. You are running a large business ….  Time is limited … you have employees (my sympathies!)   Cheers.


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## tech/a

It’s not that 
It’s age


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## barney

tech/a said:


> It’s not that
> It’s age




You're still only 45 aren't you … that's about what you were when I joined ASF


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## tech/a

I wish


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## So_Cynical

Trav. said:


> Thanks for all the responses.
> 
> Example of my latest average down experience. No rhyme or reason just chasing my money. Event that started the down trend was a delay with the PFS. Got sucked in to buy on the expectation of news. Now stuck in a holding pattern until PFS is released later in the year.
> 
> Trades & Chart
> View attachment 88417




You bought in on the up, so its like your entering as a trend follower then instead of selling out you try and average down and catch bottom without waiting for a bottom, it all looks very random.


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## Wysiwyg

A trader can play the market this way but it is futile. Time waiting to get back above water and the potential to never get back above water are the main deterrent for savvy traders.


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## Value Hunter

I do not look at my decisions as "averaging down" or "averaging up" per se as I consider each decision is independent of the last.

I may buy a stock and then six months later I may buy more at a higher price because I have fresh cash to invest and the shares are good value.

I may also buy shares and then 4 months later buy more shares at a lower price because the shares are undervalued and I have cash to invest.

Sometimes I buy more shares at a higher price and other times I buy more shares at a lower price.

The fact that the share price has risen or fallen since my previous purchase has almost no bearing in and of itself on my decisions its the price to value relationship and the fundamentals (and my personal balance sheet position) that determine if I buy, sell or hold shares.


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