Averaging down experience

[burglar]

Which metaphors?

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

 

[burglar]

Also pertinent.

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

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

Tell me I am mistaken!!

 

[herzy]

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

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

Tell me I am mistaken!!

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

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

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

 

[burglar]

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

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

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

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

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

 

[Boggo]

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

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

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

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

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

 

[RottenValue]

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

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

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

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

My experience has been happy so far.

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

 

[burglar]

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

My experience has been happy so far.

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

Hi RottenValue,

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

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


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

 

[Bill M]

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

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

 

[So_Cynical]

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

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

Just different ways of managing being wrong.

 

[tech/a]

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

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

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

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

Have a read it's better than surgery.

 

[herzy]

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

 

[burglar]

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

 

[Julia]

Hi RottenValue,

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

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

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

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

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

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

 

[Bill M]

Bill

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

Have a read it's better than surgery.

I am so sorry to hear about your friend.

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

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

 

[Boggo]

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

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

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

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

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

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

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

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

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

 

[Boggo]

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

A three point landing is NOT a perfect landing

 

[Bill M]

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

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

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

 

[Julia]

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

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

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

Best of luck.

 

[burglar]

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

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





Deep breath, here goes ...

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

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

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

 

[burglar]

A three point landing is NOT a perfect landing

How so?


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


Ohh, I see!
A tautology?