# Dollar Averaging - Good or Bad?



## roland (24 June 2008)

I've just noticed on another stock forum that most are heavily against cost averaging and wondered what ASF members think of this tactic and whether it has worked for them or not.

Just recently, I have noticed that this method is no longer working for me. In fact all it is doing is reducing my capitol base and amplifying losses.

I'm finding it challenging not to cost average and to put the stock into a bottom draw, or just to bail.

There are some obvious answers to this technique and it would relate to the quality of the investment and future prospects. 

In hindsight, it is easy to see the mistake of this procedure if the SP continues to fall - of course, much better to buy at the bottom.

Have others found more success in bailing, then to buy back at the lower price, or to hold the original investment and add?

Something that muddies the water is the issue of a stock that has a decent dividend yield. As the SP falls the dividend yield percentage often improves. I have found that long term holds, such as my managed funds do in fact give me a chance at improving my dividend yield which adds to the compounding effect of re-investment.

Then of course we have the threat of the SP falling so far that the dividend yield percentage is no longer achievable by the company we have invested in and the playing rules are changed under our feet.

I'm not really doing very well here with this bear market and look forward to some comment.


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## SGB (24 June 2008)

*Re: Dollar Averaging, Good or Bad?*



roland said:


> I've just noticed on another stock forum that most are heavily against cost averaging and wondered what ASF members think of this tactic and whether it has worked for them or not.
> 
> Just recently, I have noticed that this method is no longer working for me. In fact all it is doing is reducing my capitol base and amplifying losses.
> 
> ...




Yes roland, 

I will never Dollar Cost Ave again on a Small Speck Play.

I’m too embarrassed to name the stock, but I first bought it about this time last year and instead of letting it go for an early small loss, my ego forced me to hang onto it because I didn’t want to be proven that I had made a mistake. 

As the year went on I continued to buy small amounts and eventually sold all of the parcels last week for a 20k loss. 
I’m not sure how a blue chip would go but I defiantly wouldn’t be recommended it to smaller caps.

Lesson learnt. I now accept that being wrong every now and again is o.k. and protecting capital is more important than having a bruised ego.

SGB


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## So_Cynical (24 June 2008)

*Re: Dollar Averaging, Good or Bad?*

Averaging is fine as long as u are picking the right stock at almost the right time, i imagine that 
many have been burnt buying 4 or 7 weeks ago only to see XYZ fall back to near 52 week lows.


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## brettc4 (24 June 2008)

*Re: Dollar Averaging, Good or Bad?*

I think it depends on your goal for the stock.
I you are holding long term, really long term 10+ years and are looking at primarily income from the dividend, Dollar Cost Averaging can work provided the stock goes up over the long term, which history tells us it should.

For a short or medium trade, I don't think it is the best way. You should have had your exit strategy in place from the start.

Brett


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## SGB (24 June 2008)

*Re: Dollar Averaging, Good or Bad?*



brettc4 said:


> I think it depends on your goal for the stock.
> I you are holding long term, really long term 10+ years and are looking at primarily income from the dividend, Dollar Cost Averaging can work provided the stock goes up over the long term, which history tells us it should.
> 
> For a short or medium trade, I don't think it is the best way. You should have had your exit strategy in place from the start.
> ...




Yes see ya point Brett,

But my point would be now is how do you know what a good stock is these days? 

2 years ago I was trading CNP for around 6.00, BNB around 18.00,

Do you continue to DCA BHP on todays price?

For me now its about stoploss, but having said that each to their own and I respect what ever strategy you use.

cheers

SGB


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## brty (25 June 2008)

Hi,

Dollar cost averaging can work on a portfolio of stocks, or an index fund. However on any individual stock it is a gamble.

To buy more of an individual stock as the price declines, usually means that you do not have a exit strategy should the brown stuff hit the proverbial.

The example I love best is Pasminco, a good large miner with a fantastic asset in the century zinc mine. Management 'managed' to lose billions hedging, the share price slowly eroded from ~$2 to a few cents when it was liquidated. I knew people who 'averaged' their price all the way down to zero.

brty


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## tech/a (25 June 2008)

Strange isnt it---human nature.
The natural instinct in quantifying a bargain.

When infact adding to positions which are powering ahead are by far the safer more profitable option.
In my experience

Currently

GCL
FLX
MCC

Over the years.
Ones I quickly remember being involved in.

QBE
ASX
ALL
UTB


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## cuttlefish (25 June 2008)

I don't agree with dollar cost averaging.  I do agree with accumulation around technical support points for building larger long term fundamental positions and also reduction if price falls through technical support points with a view to increasing again at lower prices. 

(with all the fundamental criteria and any related news being the overriding factor).



For a long term fundamental investor the worst thing to do imo is accumulate/average down after bad fundamental news.  Don't sit there holding and hoping and adding more money as your dog grows more and more fleas.   

Before adding to a losing position, also consider trying the psychological exercise of selling your entire holding and then buying it straight back - you might find that once you've sold it you see the stock in a different light and decide to put your money elsewhere.   (of course this could be a risky thing to do if the stock is volatile, or your position is large compared to liquidity, or there is news imminent etc.).


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## Julia (25 June 2008)

cuttlefish said:


> For a long term fundamental investor the worst thing to do imo is accumulate/average down after bad fundamental news.  Don't sit there holding and hoping and adding more money as your dog grows more and more fleas.




Colourful expression, Cuttlefish!  Hope it helps drive the point home.


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## MichaelD (25 June 2008)

The problem with dollar cost averaging is that it only works when it works. When the stock you are averaging down keeps on going down...and down...and down...and never recovers, your capital takes a fatal or near fatal hit.

"The market can stay irrational longer than you can stay solvent"

(Or to put that another way - if trading conditions over the last 12 months haven't convinced you that dollar cost averaging is unwise then nothing will).


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## Temjin (25 June 2008)

Like brettc4 said, the dollar cost averaging technique would only be suitable for those who are looking to invest in a basket of shares in the long term. Therefore, are mostly suitable only to most mums and dads who CANNOT and DO NOT have the skills/experiences to time their trade, nor the psychological build up to do it as well.

I.e. That means most average ppls out there.


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## cuttlefish (25 June 2008)

Julia said:


> Colourful expression, Cuttlefish!  Hope it helps drive the point home.




thanks!   me too - and no offense intended to the living breathing four legged variety!


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## kenny (25 June 2008)

I've never quite understood the advantage of Dollar Cost Averaging.

The usual Managed Fund sales spiel of regular contributions into the market theoretically meaning one doesn't hopefully miss out on the best recovery days which are the ones that drive the long term returns.

But regular contributions regardless of market forces or external factors seems as illogical as buying according to a regular timing interval irrespective of price.

I assume the regular additions are using funds assigned to equities as part of an asset allocation strategy. Sometimes Cash or other asset classes are more compelling as investment options.

At the end of the day, with my fragile psyche at work, an exit strategy as simple as a stop loss means "Sleep at Night" sanity.

Cheers,

Kenny


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## So_Cynical (25 June 2008)

I don't get u guys..seriously there more to making money in shares than the 
simplicity of the stop loss/cut and run mentality.

for example my trades in CPU or the last few months...entered into on the assumption 
that at under $8 a share it was good (value) buying.

31-01-2008. BUY CPU (300 @ 7.92)
it fell further...i brought more.
07-02-2008. BUY CPU (300 @ 7.65)
3 and a half months later.
23-05-2008. SELL CPU (475 @ 9.61)
left the profits in.

Can someone explain how this is a bad thing.


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## roland (25 June 2008)

So_Cynical said:


> I don't get u guys..seriously there more to making money in shares than the
> simplicity of the stop loss/cut and run mentality.
> 
> for example my trades in CPU or the last few months...entered into on the assumption
> ...




I think the point most were making was that it is good when it works and bad when it doesn't - well, that makes sense.

I could give you an example where it didn't work. Without a list of buys, I followed BBP down until I sold and made a hige loss. Even now it hasn't recovered.

The thread here was to field experiences with dollar averaging and the results are as expected - on a good stock, it works well as in your case, on a dog stock it may or may not work, depending on your financial ability to follow it down and the ability of the stock to turnaround.

I guess one resultant "bottom line" is, yes it will reduce your overall cost of per share value - but depending on the stock, it may not be a good strategy.


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## tech/a (25 June 2008)

So_Cynical said:


> I don't get u guys..seriously there more to making money in shares than the
> simplicity of the stop loss/cut and run mentality.
> 
> for example my trades in CPU or the last few months...entered into on the assumption
> ...




*SURE*

Let us in on the next 10 your involved in using the same strategy.
In REALTIME.
You'll be glad to know that it will become SELF explanatory.


Sorry if I seem Cynical!


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## AlterEgo (25 June 2008)

So_Cynical said:


> I don't get u guys..seriously there more to making money in shares than the
> simplicity of the stop loss/cut and run mentality.
> 
> for example my trades in CPU or the last few months...entered into on the assumption
> ...




If CPU kept going down and:
a. never recovered
b. took many years to recover
c. went bankrupt

In any of those cases you'd have lost twice your original investment. And don't say it can't happen - just look at all the supposed 'blue chips' that have gone out of business over the years! If you kept buying more and more and more as it fell...... well you get the picture. You may never recover from a loss of that magnitude.

But we've all probably done it at some point. It can work sometimes, but sooner or later you'll get one that doesn't recover and get burnt really badly! We've all been there, done that, but hopefully learnt a very valuable lesson from the experience. I know I did!


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## So_Cynical (25 June 2008)

Just wanted to demonstrate how it can work in your favor, what u are buying 
and when u are buying is of course critical.

I have a few shares that i haven't averaged down with...due to confidence 
factors and a feeling that the time is not right.

I missed out on getting back into CPU on the recent down swing by 6 cents  
(8.25) thought it would fall further...CPU back up to 9.54 today and im spewing.

I'm thinking ill average down into SUN this week - under $12.60 see how we go.


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## DionM (25 June 2008)

Roland,

Your post strikes a chord with me.  I too have chased BBP down - though not to the same extent as you (only did it once) and I have not sold up.

What I have learnt is that I would only be comfortable with DCA if I was doing a staged entry into my final parcel size ... rather than using it to try and average down an already large position.

E.g. if I wanted 3000 units total, I would only use DCA and buy say 3x1000 lots if I thought the SP was fluctuating a lot (and I still wanted in).

Probably the wrong use is to buy 3000, see SP fall, buy another 1000, and so on ... trying to reduce the entry cost but at the same time, increasing losses if the price fell more.

If I used the staggered approach, I would have the benefit of the lower SPs or even putting the staggered buying on hold if things went crazy (or sell out).

I have used this method recently when buying CNP - I took a nibble at an amount I liked, then it dropped more, I took another nibble.  Then I stopped, and set my stop loss ...


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## AlterEgo (26 June 2008)

So_Cynical said:


> I'm thinking ill average down into SUN this week - under $12.60 see how we go.




And what's your exit strategy if it all goes wrong? Do you have a stop loss?

What will you do if SUN drops to $12? Sell, or buy more?

And if it continues to slide to $11.50? Sell, or buy even more?

And if it slips even furthur to $11, sell or buy even more still?

$10?

$9??

$8???


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## MichaelD (26 June 2008)

"It's a good company, so..."



AlterEgo said:


> What will you do if SUN drops to $12? Sell, or buy more?



Buy more


AlterEgo said:


> And if it continues to slide to $11.50? Sell, or buy even more?



Buy more


AlterEgo said:


> And if it slips even furthur to $11, sell or buy even more still?



Buy more


AlterEgo said:


> $10?



Buy more


AlterEgo said:


> $9??



Buy more


AlterEgo said:


> $8???




See, now there's this bottom drawer in my desk...


(for humour impaired readers this is not to be taken seriously)


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## peter2 (26 June 2008)

The bottom draw is another place where the SUN doesn't shine.


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## zaz (26 June 2008)

AlterEgo said:


> And what's your exit strategy if it all goes wrong? Do you have a stop loss?
> 
> What will you do if SUN drops to $12? Sell, or buy more?
> 
> ...




If you a) view a stock as a part ownership in a business b) you value that business and c) it's selling for less than your valuation then any opportunity to buy it at an even bigger discount is fantastic. If there is a substantial drop all you can do is re-evaluate and if your assumptions haven't changed then just take advantage of the markets irrationality. 

If you have a high degree of confidence in your valuation and the facts haven't changed then the answer at every price on the way down is buy more & buy even more. The only limiting factor is your degree of confidence in your valuation. "The market is there to serve you not inform you".


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## tech/a (26 June 2008)

zaz said:


> If you a) view a stock as a part ownership in a business b) you value that business and c) it's selling for less than your valuation then any opportunity to buy it at an even bigger discount is fantastic. If there is a substantial drop all you can do is re-evaluate and if your assumptions haven't changed then just take advantage of the markets irrationality.
> 
> If you have a high degree of confidence in your valuation and the facts haven't changed then the answer at every price on the way down is buy more & buy even more. The only limiting factor is your degree of confidence in your valuation. "The market is there to serve you not inform you".





This *unfortunately* is a well healed view.

When the majority of "Owners" dont agree with *YOUR* valuation and the price continues to fall,insanity prevails with those who not only hold but buy more.
*YOU* rationalise your position and your pending loss (But its only a loss if i take it!!---wrong wrong wrong---go to a bank looking for a few bucks and tell them you have a share porfolio which initially held $200k of stock at purchase but now if liquidated is only $100k and see if they value your holdings as $200K!) by insisting that the market is irrational.
Holding--rational??? Buying More rational???
Pumping money into a *belief* of ones* OWN* valuation which is continually proven wrong---irrational---you bet.

If a stock drops 50% from purchase you must be a pretty poor valuer of a stock to get it that wrong.
Dont forget also that many of these holders who are selling ar no mum and dad investors. They are big money trades often in the millions in a few trades.
YOUR valuation is better than their's---really!

Cut your loss early then wait for all those irrational "Owners" to agree with your valuation that this stock is *NOW* Undervalued.
Go visit the NSL thraed where Y/T carried out some intense "Valuation" back in March May--its all there to read.
See what happens when all the owners agree with your analysis.
See the* POWER* of buying as a stock *RISES* not falls!

Rationalised---Irrational thinking stands a mile out!


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## nizar (26 June 2008)

Just a thought on the thread topic.

I have a mentor, and also somebody I consider a good friend, who invests for the very long term.

His portfolio now is quite substantial (my estimates tell me $3m+) and he encourages dollar cost averaging.
He is now in his 50s, and started his portfolio about 30 years ago.

What he did was buy "solid" bluechip companies and keep on buying them.
He put a certain % of his earnings into the same stocks every month -- but would buy a substantial parcel during corrections (He was a buyer of BHP the day after that 7% drop).

He admits to have taken a beating from his "solid" banking shares, but he isn't fussed. He "knows" that in the longterm that the portfolio will recover.

In fact, he says the market as a whole "has" to recover. "I mean, people aren't just gonna stop spending money?!" was the exact quote.

Now in my opinion the reasons why this method works for him is as follows:

*He has only ever invested in top200 companies, businesses he believes are likely to always remain profitable and are fundamentally sound (He holds BHP, CSL, MacBank, CBA, another top bank, etc).
Yeah I know there are and have been some dogs in the top200; eg. HIH, AMP, TLS. But compared to non-top200 stocks, there are less dogs (and consequently less champions).

*His portfolio value is probably about 15-20% of his net worth. He's not that fussed about day to day volatility as he has several income streams and his assets are diversified.

*He checks his portfolio only very occassionaly is prepared to hold for the very long term. This means less psychological stress during drawdowns.

Though I don't agree with his approach (my research shows more active trading is more profitable), it certainly has worked for him.


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## tech/a (26 June 2008)

Nizar

In the very longterm I do conceed---same applies to property.
However you need 2 things.

Very deep pockets and TIME.
What I cant understand is why people cant be smarter in getting on a longterm out performer.
IE If I buy 2000 @ $20 and 6 mths time its $10 I could have bought 4000
or been using my money more efficiently.
And why even an investor would watch shrugging his shoulders as his holding halves in value and consequently his capital.
IE sell at $20 then buy back 4000 at $10 if already holding at a profit.

Passive indifference!


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## motorway (26 June 2008)

nizar said:


> Just a thought on the thread topic.
> 
> but would buy a substantial parcel during corrections (He was a buyer of BHP the day after that 7% drop).
> 
> .




http://invest-faq.com/cbc/strat-dol-val-avg.html

Sounds more like Value Averaging 

motorway


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## zaz (26 June 2008)

tech/a said:


> This *unfortunately* is a well healed view.
> 
> When the majority of "Owners" dont agree with *YOUR* valuation and the price continues to fall,insanity prevails with those who not only hold but buy more.!




The price doesn't fall because of the majority of stock holders. It rises or falls based on the marginal holders. Those that are selling or buying right now set the price. It's incredibly rare that the majority of stock holders would be trading their stock at any given time (or generally even in any given year).



> *YOU* rationalise your position and your pending loss (But its only a loss if i take it!!---wrong wrong wrong---go to a bank looking for a few bucks and tell them you have a share porfolio which initially held $200k of stock at purchase but now if liquidated is only $100k and see if they value your holdings as $200K!) by insisting that the market is irrational.
> Holding--rational??? Buying More rational???




Price and value simply are not the same thing. The bank will only lend to me based on what they could sell stock for on the day. Well that's fine & reasonable because that's their business. Again it's no reflection on the value of the stock, simply on the price.



> Pumping money into a *belief* of ones* OWN* valuation which is continually proven wrong---irrational---you bet.
> 
> If a stock drops 50% from purchase you must be a pretty poor valuer of a stock to get it that wrong.




A valuation defines what a company is worth. The marginal buyer and seller define the price. Just because a few people trading happen to agree a price it doesn't mean that the valuation is wrong. If a number of people decide to sell at once because they read some news article then the price may go down; the value of the company is based on their future cash flows. An estimate of future cash flows doesn't change on a daily or generally even on a monthly basis. Prices change by the second. They're just not the same thing.



> Dont forget also that many of these holders who are selling ar no mum and dad investors. They are big money trades often in the millions in a few trades.
> YOUR valuation is better than their's---really!



Often yes! Many of these "big money trades" do all sorts of silly things. They buy stocks at the end of quarters so they can report that they are holding whatever is popular (even if they didn't make any money on holding it). They sell when everyone else is selling because they don't want the Career Risk of holding an unpopular stock. They trade because they have a quarterly performance goal to reach. All of which has nothing to do with valuation. Some of them do analyze companies and value them. In which case maybe my valuation is better or maybe not. But as the price goes down my margin of safety increases not decreases.



> Cut your loss early then wait for all those irrational "Owners" to agree with your valuation that this stock is *NOW* Undervalued.
> Go visit the NSL thraed where Y/T carried out some intense "Valuation" back in March May--its all there to read.
> See what happens when all the owners agree with your analysis.
> See the* POWER* of buying as a stock *RISES* not falls!
> ...




There are plenty of us making plenty of money buying part ownerships in business and buying more and more as the market offers us a better and better deal. 

I'm replying for those reading who may be trying to make their mind up. I'm pretty sure yours is already made up!


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## tech/a (26 June 2008)

> I'm replying for those reading who may be trying to make their mind up. I'm pretty sure yours is already made up!




True to a larger extent it is.
Ive seen many fail using this method you see them come and go here all the time.
Similar to the Martingale gambler at the Roulette wheel.
However I agree that long term holding of good stock can give high return in the long run.
Those with a short term view even 5 yrs may find it difficult to increase their capital using the Averaging down method,particularly in a non trending market as we have here and likely to have for sometime (Relative to the last 10 yrs).

There was an exercise which lasted 2 yrs where ducati (a poster here) attempted to prove to me that value buying could out perform or at least match my long running Trading method shown next door ( On "the Chartist forum") Its been going now 6 yrs.
However after 2 yrs without averaging down it was way way behind,during one of the most bullish periods.

If someone would like to run a like demo averaging down Id be happy to be proven wrong.
Evidently there are some very undervalued stock at the moment during this "Correction"

ZAZ?



> There are plenty of us making plenty of money buying part ownerships in business and buying more and more as the market offers us a better and better deal.




I see a vast difference in Averaging down to buying a good performing stock on pullbacks within a trend.
As an example buying ZFX from the $20s down.
But then again I suppose you'll tell me ZFX was never valued at more than $10---


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## So_Cynical (26 June 2008)

AlterEgo said:


> And what's your exit strategy if it all goes wrong? Do you have a stop loss?
> 
> What will you do if SUN drops to $12? Sell, or buy more?
> 
> ...



Yes the SP can fall...but look at the chart, it goes up to...in time.

I'm not in a hurry and have no time pressure...ill hold till it comes good, because it will come good.

TOL is looking great value.


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## AlterEgo (26 June 2008)

So_Cynical said:


> Yes the SP can fall...but look at the chart, it goes up to...in time.




That's called HOPE. Maybe it will, maybe it won't. You can't possibly know that for sure. Maybe it's down in price because the "insiders" know something that you don't. Perhaps it has some sub-prime exposure that isn't widely known yet. Or could be down because of some other reason. The fact is that you don't know WHY it is down in price, and by the time you eventually find out it'll be too late. Selling at a SMALL initial loss is like taking out 'insurance'. It's insurance against the possibility that you may be wrong. You can always buy it back at a later date, or lower price, later on, when the trend is UP.



So_Cynical said:


> I'm not in a hurry and have no time pressure...ill hold till it comes good, because it will come good.




It MAY come good, and even if it does, how long will it that take? 6 months? 6 years??? To hold some stock (which would represent a SUBSTANTIAL part of your portfolio since you kept buying more and more as it fell) for several years just to eventually break even or make a slight profit is just madness!

You mention TIME pressure. IMHO TIME is a VERY important factor that many overlook. It's not what percent profit you make that's important, it's what percent profit you make PER UNIT OF TIME that matters, ie. %PA. eg. a 20% gain on a stock may be a great return if you got it in 2 months, but it'd be a very poor return if it took 10 years to get that profit.


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## vishalt (26 June 2008)

It really depends on what you are dollar cost averaging. 

If you bought BHP at $48, then averaged at $40 and $32, and the stock went to $50 etc you'd be pretty happy?

If you're doing with a speculative stock or a smaller stock who's balance sheet is getting trapped or something is seriously wrong, you're gone.

I never dollar cost average with anything I'm not sure with. 

I'm using this technique for Westpac/Woolworths/ASX but not smaller shares like SP Ausnet, Beach Petroleum or AWE.

I also think its the best strategy for funds and indexed ETFs like SPDR200/50, the index CANNOT collapse. However just make sure you keep an eye out on the State Street to see nothing is wrong with them lol. 

I mean if you dollar cost averaged the S&P500 at its 2000 peak at 1500 or whatever as it went down to 750, you'd be making money today. 

Whereis if all you did was hold onto the one parcel you bought, you wouldve borken even just last year when the US market made record highs, and now you'd be in the ****ter again.

Good stocks/indexes = dollar cost average (BHP/Woolworths/CommBank/Westpac/SPDR200)
Bad stocks or stocks you're starting to get unsure off = nono (BabcockBrown/Macquarie/Challenger etc)


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## Trembling Hand (26 June 2008)

Averaging down seems like a way to either break sensible money management rules OR/AND a way to miss a killing on your winners while loading up on losers.

If your tactic is to get in at full size on first purchase and it drops you are adding even more and more, making a loser a a huge holding probably to big. The other thing you could do is make a partial purchase first but what then if it starts to run hard You have a winner but only a tiny position. If you wait to average down you will never get it again and if it keeps running its hardly going to pay you much because you are holding a tiny amount.


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## AlterEgo (27 June 2008)

Well I've never traded an index, but I can see that could work with averaging down. I'd never do it with a single stock though. Many supposed 'blue chips' have gone bust over the years, and the reason behind the falling stock price generally hasn't become public knowledge until it's ceased trading, ie. too late to sell. Generally when a stock falls substantially in price, there is a very good underlying reason for the fall. Just because YOU don't know of the reason, doesn't mean that a reason doesn't exist. You or I can't know the company anywhere near as well as the company directors for example. We are not Warren Buffett. Many insiders may be privy to information that we don't know about.


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## So_Cynical (27 June 2008)

AlterEgo said:


> Many supposed 'blue chips' have gone bust over the years, and the reason behind the falling stock price generally hasn't become public knowledge until it's ceased trading, ie. too late to sell.




As a percentage how many...im guessing less than 3% per year average go bust...leaving us 
with 97% continuing, stable, well run company's. 



AlterEgo said:


> Generally when a stock falls substantially in price, there is a very good underlying reason for the fall. Just because YOU don't know of the reason, doesn't mean that a reason doesn't exist. You or I can't know the company anywhere near as well as the company directors for example.




Depends what u call substantial...in my experience stocks go up and down all the time on 
mostly nothing...in fact most of the movements, in most stocks are on nothing.

Don't over estimate the company exec.....i don't.

The market decides what XYZ is worth on any given day, the challenge is to use 
that to your advantage...with some luck ill get some buy orders filled tomorrow.


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## tech/a (27 June 2008)

> The market decides what XYZ is worth on any given day,




Sorry I dont understand.
I thought "The Market" was irrational.
So your saying EVERYDAY the market irrationally values a company while the Fundamental analysts rationally values and buys more when under his valuation.

So these irrational components of the market---their valuation of the stock they entered and or sold is different---irrationally so---than yours or anyone elses which is lower than yours.

Whos valuation is correct?
Yours or day to day market participants---witth their valuation if still low 1,3,6,mths down the track still be in correct?---according to the buyer who is still averaging down.


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## MichaelD (27 June 2008)

tech/a said:


> Whos valuation is correct?



Doesn't matter so long as your trading method allows winners to run sufficiently to make up for the losers.

As you well know, it ain't the analysis that makes the money, it's the trade management after entry that makes the money.


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## cuttlefish (27 June 2008)

The more I read these debates the more pointless they seem.  Short term its predominately psychology that dictates the direction of stock prices, longer term its value.  

Stock valuation is relative - i.e. 'value' only exists in a context - a stock might show value compared to its sector peers, or to the market as a whole, or to other investment classes (bonds, cash, property).

Valuation also takes place in a macro economic context so it is also affected by changes in commodity prices etc.   

Therefore value is also quite dynamic - in reality it is as dynamic as price but nobody really assesses it that way.

True value is bankable - therefore the only true value stocks are those that generate an income now that greatly exceeds the income available from other asset classes and that are highly likely to continue to generate the same or better income in the coming years based on the company factors and current and likely future macro economic factors.  

Thus, for example, a stock that is solely a Zinc producer is changing in value as the Zn price outlook changes.  Its true value - i.e. the income its generating - is going to fall as the Zinc price falls.   Whether someone decides to average down or cut their losses would be based on their outlook for Zinc prices but the simple view I would take is that the immediate reality is that their income is going to fall so were I a holder of a Zinc producer I would have been reducing or exiting the holding as Zinc prices fell. 

(unless of course their production levels were going to increase to counter it, or they had a new development coming on stream that would counter and exceed it, or they'd identified significant cost savings etc. etc. but you get the general picture.)   

(And note this is not a comment specifically on ZFX that was mentioned somewhere above as I haven't done any kind of assessment on ZFX and don't know the stock in any detail).


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## AlterEgo (27 June 2008)

So_Cynical said:


> As a percentage how many...im guessing less than 3% per year average go bust...





I haven’t counted them, but it’d be a minority. That’s not the point though. If you started your portfolio by dividing your money equally between say 10 different stocks. Then kept buying more and more of one of them as it fell – so now it represents 30% of your initial capital instead of the original 10%. If it goes bust, or never recovers, you’ve now lost 30% of your portfolio. How many years will it take you to recover from that?!

Now consider applying a stop-loss. You’d have only lost 1% of your total capital instead of 30%. It’s a lot easier to recover from a 1% loss than a 30% one. To recover from a 30% loss you need to make a 43% gain. How likely is it that you’ll be likely to achieve that?!

The stock going bust is the worst case scenario I agree. A much more likely possibility is that the stock continues to fall much further than you expected it to, and takes much longer to recover than you expect, dragging down your overall portfolio performance with it. You will never out perform the market in the long term by applying this approach. I suspect you’d receive a better return with your money in a high interest savings account.


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## tech/a (27 June 2008)

MichaelD said:


> Doesn't matter so long as your trading method allows winners to run sufficiently to make up for the losers.
> 
> As you well know, it ain't the analysis that makes the money, it's the trade management after entry that makes the money.





Well Michael I cant see Dollar Averaging---averaging down as sound M/M.

Someone mentioned TOL.

I'm no fundamentalist but they believe that the company is getting close to good buying.
Past history may well give them this impression.
Currently its tanking---Fuel costs,Drop in demand.This is going to effect the bottomline that which the analysis is based upon.

In 12 mths time as youve been averaging down the stock could well--due to economic factors beyond its control---be valued way under your initial valuation---then what youve bought all the way down to a level which is NOW true value.

The market know this and as such the price tanked well before the fundamentals showed the altered value in the balance sheet.

Which takes care of Cuttlefishes --this is a rediculous arguement.
I agree its is just as stupid as averaging down.

But prove me wrong people.


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## aleckara (27 June 2008)

I think that dollar cost averaging isn't really about the money as such. I think it can be a trading technique that can make money, but there are assumptions in that technique:

1) The company isn't hiding anything, and you have accounted for likely economic changes
2) The overall trend is up for the stock, and you simply bought at a peak (didn't pick the dips correctly and there is a slight trading dip).
3) You are looking at accumulating a business share more so than generating trading income/cash and you are doing it with income from another source (like your job instead of upfront capital - hence Mum and Dad investors particuarly are comfortable with this strategy).
4) I think that this is a very bad strategy if you are geared in your investments in any way.

I have been guility of this trading technique in the past but  haven't done it that aggresively. What I do is look at it impartially at the time it has dipped. Is it likely to go down further? (If I'm not sure I don't buy). If I'm sure it will go down further I sell my existing holding. The funny thing is that when I have done this I have made a profit. Just try not to convince yourself that there is value "everyone will always need electricity" for example for BBP isn't a good argument because you are discounting the price people are willing to pay for that product.

So in other words it is a trading technique but it needs to be combined with tech analysis info, fundamental analysis info and an understanding of the market currently and why. Soemthing most people don't really understand too much.


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## AlterEgo (27 June 2008)

Let’s consider this theory that some people believe that all ‘blue chips’ will eventually recover from their falls. Take AMP for example, it has recovered from it’s low’s, but is still HALF the price it was 10 years ago! How do you think your portfolio would be looking right now if you kept averaging down on each drop? Not very good I’d imagine.


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## tech/a (27 June 2008)

Just on AMP.

My Father now 85 asked at the time it was listed--what to do with his free 6000  shares.
I told him to sell them at listing.
The only time Dads ever done something I suggested.
He got $24.18.

He to this day still enjoys a scotch on the topic.


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## cuttlefish (27 June 2008)

tech/a said:


> Well Michael I cant see Dollar Averaging---averaging down as sound M/M.
> 
> Someone mentioned TOL.
> 
> ...




I agree with your example here Tech.  

Without knowing the specific details of TOL but as a general concept if holding a transport stock that is highly dependant on oil prices as an input cost then clearly a rising oil price scenario is a macro factor that will affect this stocks ability to generate the income levels it has in the past. 

Thus in the early stages of oil price rises these sorts of stocks should be reduced or offloaded and then the decision made to buy back in when it returns to a value outlook - i.e. when oil prices have fallen again, or when they have clearly demonstrated their ability pass the input costs on to the market and still maintain margin, market share and growth.

So averaging down into this hypothetical transport stock would not be sensible and its a good example of why averaging down as a general approach is often a very poor investment/trading strategy - as has been pointed out it would have the effect of increasing the exposure to a stock that has a negative outlook.

On the other hand the opposite situation can and does occur - a good stock that has an improving outlook due to macro factors will get sold down due to overall negative market sentiment or will rise at a slow rate that is not consistent with its rapidly improving value look (where I'm defining value as income generation ability compared to other asset classes).


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## aleckara (27 June 2008)

AlterEgo said:


> Let’s consider this theory that some people believe that all ‘blue chips’ will eventually recover from their falls. Take AMP for example, it has recovered from it’s low’s, but is still HALF the price it was 10 years ago! How do you think your portfolio would be looking right now if you kept averaging down on each drop? Not very good I’d imagine.




Then I would argue that they are wrong. When a blue chip falls like that my limited chart knowledge tells me it isn't a sure bet and I stop. I would of probably bought AMP when it stopped falling and brought my average down at its low when I could see it was going up again. It's all about whether your willing to take on that increased risk being exposed to that stock. I see cost averaging as being a coincidence, not an strategy for the sole purposes of it being a strategy. (i.e if it is a good idea take it- if not then don't). Different situations call for different trading strategies.


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## Synergy (27 June 2008)

The thing with averaging down for me is that every trade, regardless of whether you already hold the stock or not, needs to be an indipendent decision.

I think our minds view stocks we hold very differently to those we don't. If you see a stock in a nasty downtrend, you don't want to buy it. But if you hold that stock, for some reason you feel the need to buy more. 

I'm pretty sure this relates back to the 'always needing to be right' theory. If you average down, there is in theory more chance of being right on that stock. You lower your buy price, so it needs to rise a smaller amount before you are back in the money. But is that a better decision than entering a new stock, that is probably more liekly to rise??

I have the same opinion on pyramiding, although with pyramiding, you already have a larger than average position in that stock because it's already risen. Buying even more means you are even further increasing the risk of holding that stock.


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## Trembling Hand (27 June 2008)

No one has explained how you money manage Averaging down yet??

Please someone???

Anyone

:run:


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## tech/a (27 June 2008)

> Buying even more means you are even further increasing the risk of holding that stock.




I can average into a rising stock (pyramid) without increasing risk.
I cant average down---continually---without increasing risk.

Seems there needs to be some visiting of Risk for some here.
In particular mitigation of.


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## AlterEgo (27 June 2008)

“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let that thought be written indelibly upon your mind.” – Jesse Livermore


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## barney (27 June 2008)

I actually don't see DCA as the bad guy here.  Its more about the position size employed which can/will get you into problems (I speak from experience on that one ) 

3 rules if you like to DCA which may actually make trading less of a risk imo ..

1) Make sure as much as is possible that the stock is fundamentally sound (No off the wall specs)

2) Istead of taking the full position size up front, only purchase say one third of the shares ............ This gives the stock more breathing space, and your stop loss can be relaxed accordingly to still fit sound MM priciples 

3) If the stock drops, but doesn't hit your stop loss, you only DCA if the trend reverses back to the positive direction. If it continues down and you get stopped out, you will lose a smaller % of your capital (Some discretion is obviously required)

Once you have two thirds of your desired position open, the stop loss will obviously need to be tightened ( but still not as tight as it would have been if the full parcel was purchased originally) ............ Just my observations, so should all be taken with a grain of salt ..... "Would you like fries with that"


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## tech/a (27 June 2008)

Just some comments here Barney!



barney said:


> I actually don't see DCA as the bad guy here.  Its more about the position size employed which can/will get you into problems (I speak from experience on that one )
> 
> 3 rules if you like to DCA which may actually make trading less of a risk imo ..
> 
> ...


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## barney (27 June 2008)

tech/a said:


> Just some comments here Barney!





Pre curser .... I'm pretty crap at this "quoting" previous posts etc ... so for the point of the exercise, I have posted Tech's comments in RED, mine in Black, and my quotes from the previous post in GREEN ........... DOH !!:homer:

G’day Tech, As always, appreciate your comments. I guess what I’m getting at here is “my” form of Dollar Cost Averaging …….. Everyone needs to formulate their own plans of attack 


How do you do that when at the time of buying your analysis says its a good thing---you dont buy stock expecting the Average down--do you?

Perhaps we should actually do just that!! Smaller position sizing at the outset may actually be a better form of trading ……… If we are “generally” correct about the stock but it retraces, we then increase our position with a better average cost (bear in mind I’m talking more about blue chips here … not specs) …….. If it fly’s as we’d hoped, then at worst we have a smaller opening position …………. After that, pyramiding becomes a bonus option 

3) If the stock drops, but doesn't hit your stop loss, you only DCA if the trend reverses back to the positive direction. If it continues down and you get stopped out, you will lose a smaller % of your capital (Some discretion is obviously required)

So how do you determine positive direction?

Technical Analysis is all we have ……….. If the trend is up, buy … if down, sell … Of course everyones T/A may not be of the same standard .. (mine is improving, but a long way from being great)

Stopped out---Ehh thought there wasnt any use of stops thats why you find yourself in a position of averaging down in the first place.

That’s where I think DCA is misused/misunderstood ………… If the DCA is “pre-planned”, a stop SHOULD still be in place, but instead of putting all our eggs in the one basket (full position size) …….. we should consider a partial position to “test” the water (assuming T/A is not an exact science, and fluctuations are part of the game) 

Hope that all makes sense 


PS As an edit to finish ............. Can I say that if you are going to DCA, then your total $ "committment" to any given stock should be NO MORE than what you may have considered as an initial "committment" to that stock (based on standard MM principles of 1-2% of capital etc) ............ Its hard to explain stuff via typing on a website, but basically DCA to me means allocating "X" amount of $ to a stock, and then "spreading" the risk (if necessary) to achieve the desired result ................ 
A stop loss is still necessary ............. F/A and T/A are both still necessary ............ If all are incorporated into the DCA, then it should be no more risky than any other form of trading  .............. However, averaging down based purely on price is a recipe for disaster ..... I know, cause I've been there big time !!  ............... Cheers.

PPS  In no way am I trying to support my opinion as being correct .... it is simply my observation from a mathematical point of view ............. Maths I was good at ... Trading I'm ..... mmmm ...... "do you want fries with that??"


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## BSD (28 June 2008)

The maximum downside from averaging down is 100%

The upside is unlimited.

All depends on your ability to value a stock does it not?

Or dumb luck?

The two concepts are often confused. But too much leverage can make it all go wrong too (Livermore as an example may not be a great role model unless you are prepared to go broke 4 times before killing yourself). 


Averaging down is just a decision to buy more of something you already own. Another independent investment. The fact you already own it is irrelevent. 

It could be a coincidence, but all of the largest and most successful positions I have carried were 'averaged down' at some point. In fact averaging down in time of market panic has been the best strategy I have ever employed.

For example, some of the Opes Prime selling created some of the finest opportunities I have ever taken advantage of and all of them required averaging-down a position. Loading up on stocks trading at 40% discounts because a bucket shop was going down the toilet have locked in some great numbers in an otherwise poop market.

*Looking behind the price action, as opposed to simply reacting to it, makes more sense to me. *

Not everyone has a investment timeframe measured in days. 

So if your ability to value something properly is not in question - fill your boots when the stock is down for reasons not affecting your valuation. 

But, if you don't actually have a valuation and are just long a stock because of a tip or an interesting chart - then run like hell when it drops.


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## nizar (28 June 2008)

BSD said:


> The maximum downside from averaging down is 100%
> 
> The upside is unlimited.




This is true of going long any stock. Averaging down has nothing to do with it.


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## Trembling Hand (28 June 2008)

BSD said:


> The maximum downside from averaging down is 100%




LOL. 

What is the loss of not putting that good money into a stock that is running.

What a joke!!


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## BSD (28 June 2008)

No joke

The point is that it is not the act of averaging down that is the problem/opportunity - it is the selection and subsequent performance of the investment. 

I would no sooner put money into a stock because it had fallen than I would because it had risen. Some people tend to have their good money in stocks before they run.


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## tech/a (28 June 2008)

BSD said:


> No joke
> 
> The point is that it is not the act of averaging down that is the problem/opportunity - it is the selection and subsequent performance of the investment.
> 
> I would no sooner put money into a stock because it had fallen than I would because it had risen. Some people tend to have their good money in stocks before they run.





You confuse me. Above is a contradiction?
My interpretation of AVERAGING DOWN.
Is that your buying more stock at prices below your initial buy,your NOT adding to a position which is already in profit.
By doing this your adding to risk not diminishing it.
Your adding to opportunity cost as TH points out---you have funds tied up attempting to dig you out of a hole.

If your valuation is correct the point at which your initial buy was taken will be taken out. Chasing it down this could take months--if not years.--could take a week---you just don't know. What you do know is that its NOT moving in the direction of your analysis.

Taking Barneys Idea of smaller initial position sizing Id be doing the EXACT opposite--setting a stop and taking a SMALLER loss.
Putting it on my watch list for either 
(1) Looking for an END to the correction then buying again at low risk.
(2) Setting a buy again at the point of my failed initial entry.

Averaging down doesn't have stops as far as I'm aware---why on earth would you buy more as a stock is approaching a stop?

Buying pullbacks in an already profitable stock is another thing entirely.



> I would no sooner put money into a stock because it had fallen than I would because it had risen. Some people tend to have their good money in stocks before they run.




Yet you condone placing money in a stock which is falling---in fact more than once---averaging down.
Doesn't make sense.

So you wouldn't put money in a rising OR falling stock and according to you ---don't be one of those that puts money in a stock BEFORE they run

Doesn't leave any further option--that I can see.


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## Trembling Hand (28 June 2008)

BSD said:


> No joke
> 
> The point is that it is not the act of averaging down that is the problem/opportunity - it is the selection and subsequent performance of the investment.
> 
> I would no sooner put money into a stock because it had fallen than I would because it had risen. Some people tend to have their good money in stocks before they run.




Can you PLEASE tell me how you do this in regards to money management. 

You buy a stock thinking it is going to go up. it does. do you buy more or have you got enough? If you have enough in regards to position size then surely buying more lower if it happened to drop can only mean 2 things.

1. If stocks take off after your 1st purchase you will not have a very big holding.

2. You are taking on too large a size for your account in what till this point is a loser.

How do you avoid loading up on rubbish while not having full size position in a stock that run?


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## motorway (28 June 2008)

http://www.studyfinance.com/jfsd/pdffiles/v13n1/marshall.pdf




> As the title suggests, this paper compares two “formula” or mechanical investment techniques, dollar
> cost averaging and a relatively new proposal, value averaging, to a form of random investing to
> determine if any technique yields superior investment performance. Results indicate that value
> 
> ...




as to dollar cost



> “Does DCA yield
> superior investment performance compared to a purely random investment technique?” They found, with 99%
> confidence, that there is no statistical difference in the IRRs achieved by each technique.
> 
> ...




While I use neither mechanical system

I think there is  some insight  in this
 comparison between DCA & VA





motorway


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## BSD (28 June 2008)

We are obviously talking about different types of investment styles. I am not disagreeing with your styles, just noting mine. 

I am a firm believer that a lot of investment success is dumb luck and hence I always make sure that a large majority of my net wealth is managed by a number of other people else both passively and actively.

So in this context, my 'style' of investing being discussed here is not applying to 100% of my funds. This is relevent to discussion of money management and position size. 

I look for plays to be in for a number of years with big upside based on my fundamental analysis. 





tech/a said:


> Is that your buying more stock at prices below your initial buy,your NOT adding to a position which is already in profit.
> By doing this your adding to risk not diminishing it.
> Your adding to opportunity cost as TH points out---you have funds tied up attempting to dig you out of a hole.






tech/a said:


> If your valuation is correct the point at which your initial buy was taken will be taken out. Chasing it down this could take months--if not years.--could take a week---you just don't know. What you do know is that its NOT moving in the direction of your analysis.




I dont mind having funds tied up. My style relies on large swings over years not next week. My view is that the price will meet the valuation. Often the event that precipitates price meeting value is a takeover or some other instant event. 

My results through this style have by far and away compensated me for not trying to back the fastest horse everyday.

I noted earlier that price action does not come into my calculations, only the drivers of the price. I am more interested in understanding why the price is moving and if it is not something that affects my valuation of the stock - I dont care either way. 

The Opes Prime forced sell down as an example. Plenty of ugly price action based on nothing more than a forced seller - a wonderful opportunity. It just happened to be a case of 'averageing' down. 

Whether it took a week or six months to clear the stock it was always going to happen. Just wait for the crossing to go through and get set. 




tech/a said:


> Taking Barneys Idea of smaller initial position sizing Id be doing the EXACT opposite--setting a stop and taking a SMALLER loss.
> Putting it on my watch list for either
> (1) Looking for an END to the correction then buying again at low risk.
> (2) Setting a buy again at the point of my failed initial entry.




I have different money management to most. In the last five years I would have invested in less than 15 stocks. I would never have owned more than 4 stocks at one time and for a long time 1 share represented 90% of my portfolio.  

When you hit a 25 bagger and are happy to hold for the longer term - this is something that occurs. I guess I dont value piece of mind as being worth turning a 25 bagger into a 18 bagger by paying so much tax. 

In the context of the time and upside, if something falls 5% after purchase, I dont see it as a 'failed entry'



tech/a said:


> So you wouldn't put money in a rising OR falling stock and according to you ---don't be one of those that puts money in a stock BEFORE they run
> 
> Doesn't leave any further option--that I can see.




My point is that I do not buy or sell based on price action - very different from a lot of people here. I will typically 'build' a position over some time and this would more than likely involve buying on down days 

Friday case in point, WTF does the Dow being down 300 points have to do with the value in 2012 of a mine in Africa? Buggerall, but it moves the price and provides an opportunity to buy cheaper. 




Trembling Hand said:


> Can you PLEASE tell me how you do this in regards to money management.
> 
> You buy a stock thinking it is going to go up. it does. do you buy more or have you got enough? If you have enough in regards to position size then surely buying more lower if it happened to drop can only mean 2 things.
> 
> ...




I don't mind averaging up. Typically a liquidity thing, but also a result of increased confidence in a call. As I noted, I don't mind getting very large into something as a % of my account. 

I don't buy rubbish. I spend a long time evaluating something before purchase. I am constantly fascinated by the prices people pay for questionable assets because the market is 'hot'. Not a game I play.

Probably bordering on 'off topic' but essential in explaining my original point that averaging down is neither 100% bad or good. Not all averaging down is people chasing losses and not everyone chases short term trends.


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## tech/a (28 June 2008)

BSD.
I do understand and accept *your* point. (being your very own).

However 99.999% of people who average down do so in a feable attempt to mitigate risk.


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## heredownunder (28 June 2008)

Isn't Dollar Averaging is similar to betting 'double or nothing'?
Everytime you lose, you 'double up', so in the end you are suppose to win?

The only time this doesn't work is when the share price keeps going down and you lose, and you lose, and you lose, until you have nothing left!

Take the case of 28-year-old trader Nicholas Leeson who lost £827 million (US$1.4 billion). The Barings Bank trader made an ever-mounting and ill-fated gamble on Japanese stock prices and interest rates. It just kept going down!

Know the company and the environment. Just because a stock goes down doesn't mean its cheap. Its going down for a reason. Find out why.

Perhaps look to buy stocks that are always going up. Like Fortescue Metals. Or, wait for them to have a pull back.

For instance, Woodside Petroleum had been consolidating for over a year. I had been tracking it for ages. My theory was that energy was going to get a lot more expensive. Then it went up from about March 2007, in a big way. Up 35%! Natural Gas was going up in price. I missed the up swing and was kicking myself for missing out. Then there was the big dip in August 2007. I put all the money I had waiting for this and bought the stock. Within 12 months this stock will have doubled.

Look, wait, learn. Then buy.


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## ithatheekret (30 June 2008)

Trembling Hand said:


> No one has explained how you money manage Averaging down yet??
> 
> Please someone???
> 
> ...




I sure can't .

From where I see it , Dollar-cost averaging fails to overcome major declines .

It's difficult to make profits when you buy on the downside using any plan , and any systematic long-term dollar-cost averaging has wallys buying on the downside of a plummeting share price ......... and if they stick to the theory half of them wouldn't even know because you don't need a chart for the method , it's a periodical investment option . One that might periodically work in say a mega bull market like we had in the 80's , even then it's a flawed project . If a shares headed south there has to be a valid reason why and they obviously don't know what it is if they're buying into a falling share price . It's always a long climb up the ladder , going down is usually three times as fast , one you beaut way to lose money IMHO .


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## MichaelD (30 June 2008)

There are trend followers who buy dips - retracements in an overall uptrend. I'm not one of them, but this seems to be not unreasonable, and could be (mis)described as dollar cost averaging.

Dollar cost averaging falls down when you are buying something all the way down to zero, when the trend is against you.

As always, it's actually the money and risk management that protects you - admitting at some point that you are wrong and keeping your loss manageable.


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## tech/a (30 June 2008)

Micheal.

This is where I see so many employing this "Idea" go wrong.
They never admit their valuation is wrong.
Infact a fall only serves as a confirmation that the market is wrong and their valuation is right---hence buy some more at even MORE discounted pricing (V their own valuation).

Eventually the fundamentals reflect the market valuation and then most STILL wont agree.

Anyway we are all convinced of our own methodologies.


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## rub92me (1 July 2008)

AlterEgo said:


> “It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let that thought be written indelibly upon your mind.” – Jesse Livermore



And another one from good old Jesse: "Of all speculative blunders there are few greater than trying to average a losing game". But hey, what did he know .


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## clayton4115 (2 July 2008)

you all talk about buying individual stocks when you talk about dollar cost averaging,

what about dollar cost averaging the index? i am currently buying the index (stw) on its way down, there is no way the index will become zero, the long term trend is up in any stock market, so i keep buying when it keeps going down, i still have another $100,000 to be put into STW, just being patient as i am putting in in drips and drabs as the market wont be going anywhere in the next 12 months.


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## barney (2 July 2008)

tech/a said:


> Anyway we are all convinced of our own methodologies.




Tech, I think this is a valid point, and one which only a seasoned/well worn trader can appreciate .............. (I consider you seasoned, and myself "well worn"!!! LOL) 

Regarding DCA techniques .......... Personally, I have my own slant on this concept, .......... and I tend to "use" it on a smaller time scale, and only on a 2 tier (maximum 3 tier) scale .............. Perhaps my understanding of DCA is also not the accepted norm??

This afternoon I DCA'd an index trade on the XAO ............. I entered with one contract, and averaged down on the second contract at minus 20 pips ............ risky ... yes, but my % of capital was still well in hand, and I saw that my initial entry had not been invalidated even though the slippage had put me in the red .............. I exited the trade for +10 pips .... Lucky ... maybe .... but that is mathematics .... sometimes its friendly ... other times ... 

My question is, ........ do the more seasoned traders on ASF "never" top up or "average down" on a trade, if they see an anomoly in the price action (I'm talking shorter time frames here obviously) ?? ............. because, from my limited understanding of the market, it is almost impossible to pick either a short term or medium term bottom/entry for either a stock or an index!! ............. 

Entering a trade with a smaller initial amount and either "averaging down" to a given point (important that the "given point" be noted prior to the trade!!),  or pyramiding up when the trade is in profit seems a more sensible plan to me ............. Anyone understand what I'm babbling  on about here??

PS Just read your post Clayton ............. perhaps I'm not alone  LOL


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## tech/a (2 July 2008)

barney said:


> Tech, I think this is a valid point, and one which only a seasoned/well worn trader can appreciate .............. (I consider you seasoned, and myself "well worn"!!! LOL)




I'm both--in what capacity---is the question.



> Regarding DCA techniques .......... Personally, I have my own slant on this concept, .......... and I tend to "use" it on a smaller time scale, and only on a 2 tier (maximum 3 tier) scale .............. Perhaps my understanding of DCA is also not the accepted norm??
> 
> This afternoon I DCA'd an index trade on the XAO ............. I entered with one contract, and averaged down on the second contract at minus 20 pips ............ risky ... yes, but my % of capital was still well in hand, and I saw that my initial entry had not been invalidated even though the slippage had put me in the red .............. I exited the trade for +10 pips .... Lucky ... maybe .... but that is mathematics .... sometimes its friendly ... other times ...
> 
> My question is, ........ do the more seasoned traders on ASF "never" top up or "average down" on a trade, if they see an anomoly in the price action (I'm talking shorter time frames here obviously) ?? ............. because, from my limited understanding of the market, it is almost impossible to pick either a short term or medium term bottom/entry for either a stock or an index!!



............. 


Ive done it once. Had a position with my son who liked BLG as he works in the field. dropped from the day he bought in (With my $$s) The pain got to great as did the guilt so he wanted to wipe the slate. When I found a bottom on VSA and a targe that looked achieveable I bought in and sold out,got the $$s back.Thats my sole experience




> Entering a trade with a smaller initial amount and either "averaging down" to a given point (important that the "given point" be noted prior to the trade!!),  or pyramiding up when the trade is in profit seems a more sensible plan to me ............. Anyone understand what I'm babbling  on about here??
> 
> PS Just read your post Clayton ............. perhaps I'm not alone  LOL




Pyramid up I do all the time.


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## So_Cynical (2 July 2008)

tech/a said:


> *SURE*
> 
> Let us in on the next 10 your involved in using the same strategy.
> In REALTIME.
> ...




Ok REALTIME challenge accepted.

28-02-2008 SUN (160 @ 14.45)
01-07-2008 SUN (165 @ 12.45)

Ill post when i sell.


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## niknah (2 July 2008)

Here's a cool dollar cost average simulator for the S&P 500...

http://www.moneychimp.com/features/dollar_cost.htm

sometimes it works better than buying it all in a lump, sometimes it doesn't.


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## roland (2 July 2008)

niknah said:


> Here's a cool dollar cost average simulator for the S&P 500...
> 
> http://www.moneychimp.com/features/dollar_cost.htm
> 
> sometimes it works better than buying it all in a lump, sometimes it doesn't.




Interesting results, but only valid for mechanical dollar averaging, most would be choosing dips which would change the outcome dramatically


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## tech/a (2 July 2008)

So_Cynical said:


> Ok REALTIME challenge accepted.
> 
> 28-02-2008 SUN (160 @ 14.45)
> 01-07-2008 SUN (165 @ 12.45)
> ...




Excellent So Cynical.
Just let me know your next 9

Total $4,366.
Date 2/07/08

So based on this position size "potentially" you could need $50,000 to run 10 trades.
Will be interested in return % lets say V T/T results over the same period in terms of % only.

T/T current balance as of friday last $457,263
Here if anyone has no idea what I'm talking about.

http://www.thechartist.com.au/forum/ubbthreads.php?ubb=showflat&Number=64178&page=1&fpart=22

I'm sure people will need deep pockets and I suspect return will indeed be interesting over whatever period you wish to run this.Months/Years are fine.

Thanks for the input.


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## MRC & Co (6 July 2008)

Was just reading the Linda Bradford Raschke interview in "The New Market Wizards" and thought it interesting to see here is one professional who DOES pyramid in as a position moves against her.

She picks market direction.

She has a high win %.  

Goes to show, you can use just about anything in the trading world, as long as it fits your personality and you make it your own niche.


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## So_Cynical (6 July 2008)

tech/a said:


> Excellent So Cynical.
> Just let me know your next 9
> 
> Total $4,366.
> ...




Yes, well, Ive come to realize that what i do isn't strict dollar averaging...more a little 
averaging down with no regular commitment...and no more than 2 bites of the cherry.

Ive also come to realize that stop loss orders are a great way to prevent getting into 
a position were u have think about averaging down.


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## tech/a (6 July 2008)

EXCELLENT again.

So its been a worth while exercise.
Something positive has been found.


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## julius (6 July 2008)

MRC & Co said:


> Was just reading the Linda Bradford Raschke interview in "The New Market Wizards" and thought it interesting to see here is one professional who DOES pyramid in as a position moves against her.
> 
> She picks market direction.
> 
> ...




So does Frank Dilernia, and he kills the market.


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## tech/a (6 July 2008)

> She picks market direction.




Frank doesnt actually.
He calculates levels where rotation and price may move.


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## Frank D (6 July 2008)

Tech,

Actually I do pyramid in markets depending on whether its a bear market or bull market.

If it's a bear market, I split entry levels and positions sizes.

For example  I trade BHP in 4 lot positions, and each bank in 2 lot positions.

I also use partial exit strategies on the way up also.


I take a position at monthly level looking for a reversal pattern back into the 50% level and exit,  if the position moves against me, and look for the next level based on a higher timeframe and re-enter the level look for a rotation, which just means I wait a little longer.

The higher the timeframe level the larger position.

If I think the market has it a low, then i'm all in.

BTW, please don't tell others what I do or don't do. There is a good reason why Julius says I do.

cheers,
Frank


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## redsmartie (6 July 2008)

tech/a said:


> However 99.999% of people who average down do so in a feable attempt to mitigate risk.




Have a goal, I believe in having a target goal, if a person was to decide on a certain target of accumulation then a risk strategy would be commendable. For example you buy no more than 2,000 BHP between now and $50 or if it falls below $35, than make the target 2,500. Then it's about on target or off target and averaging down becomes less painful.


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## gav (7 November 2008)

Just finished reading all 4 pages here.  Definitely raised some points I hadnt thought of... but I still think dollar cost averaging would work over the very long term, especially if you started now.  For a young person without a lot of capital, you could put say $4K into xyz every 2nd month (and try and pick the lows) and build yourself a good postion, then move onto another stock (or do multiple stocks concurrently).  This way you would not miss out on any large jumps in share prices that may happen if instead you wait it out and save up $20K before buying in.


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## johenmo (8 November 2008)

gav said:


> Just finished reading all 4 pages here.  Definitely raised some points I hadnt thought of... but I still think dollar cost averaging would work over the very long term, especially if you started now.  For a young person without a lot of capital, you could put say $4K into xyz every 2nd month (and try and pick the lows) and build yourself a good postion, then move onto another stock (or do multiple stocks concurrently).  This way you would not miss out on any large jumps in share prices that may happen if instead you wait it out and save up $20K before buying in.




Gav raises an interesting idea for someone with little money.  But it is fraught with danger.  Why?  Because if you have few $ & choose the wrong company then you could lose it as it plumments away, if yr dollar avging down.

Maybe a limited approach in a bull market is "safer"?  So I'd say "in certain defined circumstances, it can work.  But not as a blanket rule".  Though most people's super works on this basis, does it not?

We did it once and that was with a fund where the currency went against us (we were in NZ at the time and the NZ $ strengthened).  Allowing for time we broke even.


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## skyQuake (8 November 2008)

The problem with Dollar cost averaging is that once in a blue moon, you will lose. And lose big. In fact, you are guaranteed to lose mathematically in the long run. Those who averaged into Bear Sterns, AIG, Lehmans, CNP, ABS all have taken the full force of leverage that goes against you. Sure the odds are you'll break even more often than not, but a catastrophic loss could be just around the corner.

Nothing is too big to fail (as we have recently seen) and unexpected things can happen that will wipe out your account if you have averaged down... If you're leveraged, then the process will only be accelerated...
Look up *martingale* and *anti-martingale* systems.

Caveat: Averaging down in some commodities (unleveraged) poses less risks. For example if you buy a barrel of oil (consumable, non-renewable) I'm pretty sure you're gonna be able to sell it for a lot more than you bought it for somewhere down the track. If not you can always use it for your car.


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## jeflin (8 November 2008)

A big mistake for investors is that they cash out of one position with small losses but unfortunately get into another position and continue to sustain losses there. They are worse off by the broker fees. 

If the stock is right, I will rather buy on the dips and continue to average down. It is hard to time the market and consistently alternate between cash and stocks at the right time, else all of us will be millionaires.


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## Pairs Trader (8 November 2008)

I think dollar cost averaging is great in both short and long term trading. Of course you have to have a uncle point where you cut it loose, but you will never pick the exact top or bottom, so why not average? that way you will definately not get the worst price. I scale in and out of all my trades, its less stressful and gives you more flexibilty.


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## andrew08 (8 November 2008)

johenmo said:


> Gav raises an interesting idea for someone with little money.  But it is fraught with danger.  Why?  Because if you have few $ & choose the wrong company then you could lose it as it plumments away, if yr dollar avging down.
> 
> Maybe a limited approach in a bull market is "safer"?  So I'd say "in certain defined circumstances, it can work.  But not as a blanket rule".  Though most people's super works on this basis, does it not?
> 
> We did it once and that was with a fund where the currency went against us (we were in NZ at the time and the NZ $ strengthened).  Allowing for time we broke even.




If like myself you have limited capital then why not average into a LIC or ETF rather than a couple of specific companies?

I hold ARG and plan on adding to it in the DRP & SPP and at other times if the price is right. Returns may not be as great but its far less volatile, pays good dividends and beaten XAO by 2.5% over last 20 years. Not sure how much its beaten XAO by in this market. My plan is to invest majority of my capital in ARG or other LIC and average in. 

Then buy the odd spec or other stock if a see a chance to trade.


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## skyQuake (8 November 2008)

andrew08 said:


> I hold ARG and plan on adding to it in the DRP & SPP and at other times if the price is right. Returns may not be as great but its far less volatile, pays good dividends and beaten XAO by 2.5% over last 20 years.




2.5% in total or per year?

http://finance.yahoo.com/q/bc?s=ARG.AX&t=my&l=on&z=m&q=l&c=^aord

Doesnt look like its outperforming really...


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## tech/a (8 November 2008)

Dollar cost averaging = Very deep pockets.


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## andrew08 (8 November 2008)

skyQuake said:


> 2.5% in total or per year?
> 
> http://finance.yahoo.com/q/bc?s=ARG.AX&t=my&l=on&z=m&q=l&c=^aord
> 
> Doesnt look like its outperforming really...





ARG down 25% XAO down 40% for last 12 months.
ARG up 80% XAO up 60% for last 10 years

This wasn't meant to be about the merit of this stock. Was just trying to point out that if you didn't have a lot of capital this is a less risky investment if thats what your looking for.


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## rederob (8 November 2008)

tech/a said:


> Dollar cost averaging = Very deep pockets.




I guess it depends on what you define as dollar cost averaging.
In the present market I intend to invest around $5k per month in selected equities, in no particular order, with a view to a 3-5 year hold.
I expect these investments may do very little for some considerable time, and it's a risk I am prepared to take.
I suspect a global recession is as bad as it will get as I think world economies can stave off a depression with a bit of cooperation between them.
If I am about right, then investments made through 2009 are likely to turn the corner in 2010 or 2011.

So in the context of this thread, my version of dollar cost averaging is not on any particular stock, but into a depressed market that offers some low-priced equities that have a good probability of returning to profitability some years ahead.


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## roland (8 November 2008)

rederob said:


> I guess it depends on what you define as dollar cost averaging.
> In the present market I intend to invest around $5k per month in selected equities, in no particular order, with a view to a 3-5 year hold.
> I expect these investments may do very little for some considerable time, and it's a risk I am prepared to take.
> I suspect a global recession is as bad as it will get as I think world economies can stave off a depression with a bit of cooperation between them.
> ...




Others have argued, that it would be wiser to cost average after the market has turned and average into rising stocks rather than falling stocks so that each investment actually increases in value rather than accelerating your losses.

Having said that, I am guilty of cost avaeraging now with a similar outlook to yours. Some stocks are working out, some are not. Working with higher dividend payers does take some of the sting out of the trauma of a continually falling market .... but only just.


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## Reealjrd (8 November 2008)

Hello Friends,

Averaging is ok but some times not always. Yes if you are investing in this market than trade with an average.


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## rederob (8 November 2008)

roland said:


> Others have argued, that it would be wiser to cost average after the market has turned and average into rising stocks rather than falling stocks so that each investment actually increases in value rather than accelerating your losses.



It assumes a number of things.
First, that the stock chosen does proportionately better after the market has turned.
Secondly, that the stock chosen in the present downturn has (a lot) further to fall.
I think there are equities that have a low downside risk in the present market that deserve a strong consideration for long term investors.  I would put PDN in that category: Minimal debt, strong cash reserves, excellent uranium reserves, and a uranium market that has very little downside and a strong (known) upside.
I would avoid any equity that has a debt position that could not be covered by present cash flows, or refinancing arrangements that might not be covered in this tight market.
As the world will remain a strong consumer of energy, regardless of the economic climate, I will target energy-based equities ahead of all others over the next 6 months.
Having said that, I snuck into MRE and will have a substantial holding as a result of their recent 30cps offering.  If other "bargains" come along I will consider more speculative buys on a case by case basis.


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## tech/a (9 November 2008)

> So in the context of this thread, my version of dollar cost averaging is not on any particular stock, but into a depressed market that offers some low-priced equities that have a good probability of returning to profitability some years ahead.




Frankly I just cant be sure of that.
The economic landscape is changing so rapidly that good value today may well be very poor value in 12 mths time.
All I know is that I can control my trading on a daily timeframe nothing more.
Longterm for me is 6 hrs of the trading day.
I was a very long term compounding trader for many years.
World economics has dictated that I alter my view.

Consistent trading profit that I can bank is my own personal methodology at this time.
Id rather dolar cost average UP in a screaming bull market than DOWN in a bear market which is and will change the face of percieved value---sooner than later.

Each to their own Rederob.


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## MichaelD (9 November 2008)

So_Cynical said:


> 28-02-2008 SUN (160 @ 14.45)
> 01-07-2008 SUN (165 @ 12.45)




7-11-2008 SUN 8.85

Speaks for itself.

What's even more extraordinary here is that people are STILL talking about dollar cost averaging as if it's a good idea. Hasn't the last 12 months taught you anything? (I guess not).


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## johenmo (9 November 2008)

tech/a said:


> Id rather dolar cost average UP in a screaming bull market than DOWN in a bear market which is and will change the face of percieved value---sooner than later.




This sums it up for me - though the earlier comment about commodities may be relevant.  Not knowledgable enough re commodities.  Buying down reminds of the  adage "throwing good money after bad".  But as usual, there's no single/fixed rule or method.


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## rederob (9 November 2008)

tech/a said:


> Each to their own Rederob.



Agreed.
But that doesn't enlighten the thread!
Some equities may already have undershot to the downside and have been missed.
Examples: KZL at 50 cents, MGX at 32 cents and MRE at 19cents.
Some have minimal probable downside beyond recent cycle lows.
Examples: APA, PDN, PLA, OSH and LHG.
Others are trending to multi-year lows, have excellent long term prospects, and have a strong probability of recapturing their former highs on the turnaround.
Examples: Too many, but my favourite is SGM as it will bounce with the nickel price so can easily be tapped.

On the issue of waiting for the bull to return, and then re-enter strongly: I agree. I have set 20% of my cash to be reinvested to end-2009 and the remainder riding on the return of the bull.

I don't discount the probability of lower prices ahead for most equities.
Alternatively, I don't discount the probability that for some equities the low has already been locked down.
Furthermore, if I were giving advice right now it would be along the lines of stay out of the markets unless you have deep pockets, fast fingers or insider knowledge to die for.


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## The Edge (9 November 2008)

Saturday  8 November 2008

Bad, Bad, Bad!

It is not clear to me from where this "strategy"
derives, but I am guessing from the mutual fund
industry, during the 1960s forward, when there
was an unabated bull market, and fund brokers
"promoted" the notion of buying on a regular
basis, even during declines, because the market
keeps going up, and over a period of time....etc.

Naturally, this increased a broker's commisssion,
hs main objective.  That people may have made
money was incidental and certainly subordinate.

In reality, it is an abdication of one's financial
responsibilty, especially when one's funds are
limited, the responsibility of being in charge of
one's own fate, financial or otherwise.

Someone mentioned that it works only when the
trend is to the upside, a basic truism, and under
those conditions, this elementary approach will
work, but only under those specific conditions.

If one cannot determine what a trend is, then
caveat emptor.  The question to ask is, "How has
it been working?"  Especially lately.

Most everyone who has been dutifully following
this procedure for the past decade is under water.
Anyone doing it for the past few years has likely
"drowned."

There is absolutely nothing "safe" about such a
"mechanical" approach to investing, and to think
that over a period of "3-5 years" to expect to
come out ahead, even using today as a starting
point, is folly.

There is nothing that says stocks have reached
any bottom to the downside.  To believe that a
bull market, decades long, will correct in less than
a year admits of better odds at a casino.

Instead of investing in an application of a decling
method, fraught with potential risk, why not invest
in some time and a few books that explain what is
a trend, and how to take advantage of it.  Without
promoting anything for gain, an excellent primer
can be found in William O'Neil's book, How To Make
Money In Stocks.

Anyone who opts for the soundness of fundamentals
as a clarion call solution also ignores the reality of
what can happen in the markets, irrespective of how
"sound" the "fundamentals" are.  Many fundamentalists
have recently learned how subjective is their thinking...
a different argument, to be sure, but even that approach
can be myopic.

Right now, it could well be years, many years, before
another bull market in stocks begins to develop, let
alone blossom.

Just a few thoughts.


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## tech/a (9 November 2008)

rederob said:


> Agreed.
> But that doesn't enlighten the thread!
> Some equities may already have undershot to the downside and have been missed.
> Examples: KZL at 50 cents, MGX at 32 cents and MRE at 19cents.
> ...




There is a vast difference to a bottom and averaging down.
You mention KZL a stock I have traded several times since 52c on a very short term and at times intraday basis.

But here is some Averaging down theory for discussion.


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## rederob (9 November 2008)

Tech
I was never talking about "averaging down".
I am talking about some judicious dollar cost averaging into equities that may have already bottomed, or have little further downside risk.
For example, I presently have a buy on APA conditional on it hitting $2.55 again.  You have to go back 5 years to achieve that price and back then the dividend return was not strong. 

With regard to KZL and many other commodity stocks, don't expect a turnaround any time soon.  However, KZL is now trading at a price last seen when it was still a few years out from becoming a producer, and had a relatively small resource portfolio backing it up.  The company is many times more "valuable" now than it was 6 years ago and there is a good probability that value will be unlocked when the market turns.


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## tech/a (9 November 2008)

Could you explain to me the difference?


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## rederob (9 November 2008)

tech/a said:


> Could you explain to me the difference?



You answered yourself in post 94, above.


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## tech/a (9 November 2008)

Sorry---lost me.
That post appears to me to be at odds with your posts.
No problems.


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## rederob (9 November 2008)

tech/a said:


> Id rather dolar cost average UP in a screaming bull market than DOWN in a bear market which is and will change the face of percieved value---sooner than later.



Your post.
I trust you can tell the difference.


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## tech/a (9 November 2008)

Sorry then I seem to have clearly misread the crux of your posts.


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## So_Cynical (9 November 2008)

So_Cynical said:


> Ok REALTIME challenge accepted.
> 
> 28-02-2008 SUN (160 @ 14.45)
> 01-07-2008 SUN (165 @ 12.45)
> ...






MichaelD said:


> 7-11-2008 SUN 8.85
> 
> Speaks for itself.
> 
> What's even more extraordinary here is that people are STILL talking about dollar cost averaging as if it's a good idea. Hasn't the last 12 months taught you anything? (I guess not).




And what will be the SP of SUN be in 6 months or whatever...?

If i could afford to, i would be averaging down again...as i was 
clearly inpatient with the 1st average down and should of waited,
im also in a non leveraged position and have no time pressure, i can 
wait for the turnaround.

Ill post when i sell, and i will be in profit. 

As for proper dollar cost averaging...it clearly works over time, and clearly
is more profitable if u can get all the variables right....especially timing, and 
have no time pressure.

Having said all that...if anyone had been reguarly averaging into almost any 
stock over the last 4 years, they would now be sitting on a substantial loss.

Timing is everything.


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## jonojpsg (9 November 2008)

So_Cynical said:


> And what will be the SP of SUN be in 6 months or whatever...?
> 
> If i could afford to, i would be averaging down again...as i was
> clearly inpatient with the 1st average down and should of waited,
> ...





ASsuming that SUN is still around in 6 months time!!!!  This is the crux of averaging down (as opposed to up).  If you average down far enough, you're stuffed


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## MichaelD (9 November 2008)

So_Cynical said:


> If i could afford to, i would be averaging down again...




And there it is. The clarion call of the losing strategy that is averaging down.

Q. Why can't you afford to average down again?
A. Because all your capital is tied up in trades which are now worth a fraction of what they were when you entered instead of in cash or in trades that are moving in your favour.

Contrast this to pyramiding or scaling into a position that IS moving in your favour - I never have the problem of lack of cash when I'm pyramiding up a position.

ps I bet you didn't think SUN would be $8.85 now, did you? (C'mon, be honest with yourself.)


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## skyQuake (10 November 2008)

The very existence of this thread can tell you a lot about human psychology in the markets...


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## So_Cynical (10 November 2008)

MichaelD said:


> And there it is. The clarion call of the losing strategy that is averaging down.
> 
> Q. Why can't you afford to average down again?
> A. Because all your capital is tied up in trades which are now worth a fraction of what they were when you entered instead of in cash or in trades that are moving in your favour.
> ...




Honesty is something i don't have a problem with....no obviously i didn't 
think SUN or pretty much everything else would be where it is now....so 
considering bottom picking is impossible, im reasonably happy with what i 
payed for my positions.

Sure could of done better...but also could of payed much more, i actually 
almost took out a margin loan in March...dodged that bullet.

I just knew that pyramiding would get brought up here eventually..funny 
how u don't call pyramiding or scaling into a position...averaging up.


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## barney (10 November 2008)

I think DCA  gets a bad name through misuse rather than being a bad trading vehicle …. 

If used wisely, it can actually take a bit of heat out of a trade by :-
a) Lowering the initial potential loss via position sizing
b) Takes the pressure off those who’s Technical Analysis is ok, but not great, by making the Entry a little less critical. 

The main problems I see, are those using “averaging down” probably don’t have any entry and exit criteria.

An “Investor” might try something like the following …. Obviously a Trader would have a slightly different approach (Mainly shorter Time Frames)

1)	Each “lot” purchased should be no more than 2% of Trading Capital (ie $100,000 Account ….. Only purchase in $2000,00 “lots”
2)	You must still set a Stop Loss on the original purchase (Can be set pretty wide due to the lower amount of capital used to initiate the trade ….. (Perhaps up to 50% of T/V=$1000.00 ….. =1% of Capital ) 
3)	Only average down on heavyweights such as BHP, CBA, WPL etc. (Specs require a different approach)
4)	Only average down on Pivot lows which have signaled a reversal  (Possibly the most important rule imo……..N.B. You would never actually buy the second “Average Down” lot if the Technical Analysis criteria was not met (Pivot bottom- reverse etc)  ……  Therefore maximum exposure would still only be 2% of T/C if the stock goes belly up
5)	If the original purchase gets into profit quickly, simply average up …. When in profit, you can obviously use shorter time frames for the pivot lows to take advantage of the trend (Trading as opposed to Investing) 

All only my observations and opinions and obviously  Rules have to be fine tuned to suit the individual, but happy to be proven wrong ………. 

PS Personally, I’d be pretty wary of averaging down more than a second time ……….. That leaves the loss on a “belly up” stock at a maximum 4% Capital loss, which is bearable considering it won’t happen very often on heavyweight stocks.


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## MichaelD (11 November 2008)

So_Cynical said:


> I just knew that pyramiding would get brought up here eventually..funny
> how u don't call pyramiding or scaling into a position...averaging up.




OK, I'll call it averaging UP if that'll make you happy. The key word isn't averaging, it's UP versus DOWN.

SUN $7.89 - still happy with the price you paid?


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