If that's the way, that's the way, aha aha. DCA I like it.

The reluctance to admit one was wrong (either wrong decision - wrong stock selection, buying the right stock but at peak earnings or declining earnings etc etc etc etc) leads to the start of Averaging Down and IF LEFT UNCONTROLLED, this ultimately magnifies the losses to extreme proportions.

Yup, the biggest risk in one's investment is the reluctance to admit one had screwed up. And they reckon Averaging Down coupled with a forgiving market will help them cover their losses.

Seen it way too often.


My 18 sen grossly inflated view.

It does not matter if trader or investor. Make a mistake, do the right thing by keeping the mistake small and manageable. Admit to it.

Some stocks, they just do not recover. For example, buy BAT in June 2015? The price then was 60++.

Average down?

How much money one got? BAT today? How much?

Like I said, average down... can die one!

Eh? Never meant to force anyone. just saying it as it is. Anyway, isn't this one just a public forum, where is best to share our few sen hopefully learn a few sen more.

Not a mistake? Oh well. nvm... hope you do not mind that my opinion shall differ.

anyway, lessons are best learned without losing our wealth and health.

and yeah... stocks are not like index funds.

one cannot say, I buy X company and I shall DCA invest in it for 2 years. Every month I buy 1,000 shares.

It just does not work this because unlike the index, individual company stocks differs greatly. Fundamentals of the company matters. Business economics of the said company matters. In 2 years stocks can easily go from boom to bust and don't recover. Good companies can run into deep problems. It happens. Haven't we seen it in the glory stocks of just recently? DCA them for 2 years? One could very well be digging the grave 24 times deeper.

and sadly most don't ask the most logical questions....

why did the stock fall after I buy?

is the market so nice to me that it gives me more and more discount?

am I so lucky?

or how about the most likely and most logical question: Did I fart up my stock selection so bad? Did I make a mistake?


could this be a much better way than buta buta average down all the way?



but yea... free discussion for learning and sharing purposes.





This post has been edited by Boon3: Jun 22 2022, 03:39 PM

Exactly that BOLDED part. AVERAGING DOWN into a losing stock is suicide. And from a small losing position, if one continues to AVERAGE DOWN, that small invested capital explodes exponentially and the losses gets larger.

Which is what I wanted to point out. The WHY the stock is important? Address that issue. Most of the time, we are the ones that screwed up.

Okay, talk is cheap. How about a stock that had been on decline (despite paying relatively good dividend year) since 2015. Let's examine this AVERAGING DOWN strategy. Buyer starts with 1,000 shares and each year, the buyer buys another 1,000 shares at the lowest price possible (let's assume this is possible). Like to see the end result?

Buyer starts 1,000 shares in 2015 at 65.67. Lowest price was 53.03.
If cut loss at lowest price (buyer loses 12.64)

But no..... the average down begins. Cause buyer doesn't want to know and understand why the stock is falling...

2015 starts 1,000 shares at 65,67
2015 buys 1,000 shares at 53.03.
2016 buys 1,000 shares at 40.52
2017 buys 1,000 shares at 31.75
2018 buys 1,000 shares at 22.47
2019 buys 1,000 shares at 14.34
2020 buys 1,000 shares at 9.31
2021 buys 1,000 shares at 11.89

Total shares becomes 8,000
Total invested becomes 248.98 !!! (from an investment of 65.67, the buyer has now invested 248.98 - !!!!!!!)

Today... the share last traded at 11.16
Which means the 8,000 shares is only worth 89.28
The losses now stands at 159.7!!!!

The bottomless pit!!!

Wasn't it better that one find out why the stock is falling? (Profits and dividends started declining in 2015!) ( One could have realized the mistake of buying a stock with declining profits/dividends. Admit it, sell and move on. AVERAGING DOWN made the situation so much worst!)

The chart below shows the buying points I selected.



but yeah, I know, I know this isn't an American stock but if I can simply pick a stock and highlight the danger, perhaps one should realize what investors like Warren Buffett keeps saying 'if you are in a hole, stop digging!' If Buffett can preach that, why not follow his good advice?

It's average down.

So that was an example of Continious Buying Method (CBM - I like this better - no need use the other sensitive one) or AVERAGE DOWN killed the 'investor'.

The investor bought 1,000 of the stock since 2015 and the buyer did a CBM - 1,000 shares of the same stock BUT at the lowest price each year (assuming the buyer possesses such skill. End result was terrifying to say the least.

How about Nvidia. One of the better tech stocks. Let's assume the buyer manages to buy 1,000 shares of the stock at the lowest price each year since 2018. Okay? Wanna see the interesting result?

2018 buys 1,000 shares at 55.36
2019 buys 1,000 shares at 33.87
2020 buys 1,000 shares at 51.44
2021 buys 1,000 shares at 124.62
2022 buys 1,000 shares at 158.8 (lowest price so far)

Starts of with 55.36
Due to the CBM, the investment exploded to 422.29
Average cost per chare becomes 84.45

Price of NVida now 163.60
Average winning per share is 79.14

Yes, with CBM the average winning per share is a nice 79.14.

But get this, what if the buyer did not do CBM?
The cost per share was 55.36
Which means the winning is actually 108.24

that's about 29 donated to the share heaven....


So is CBM good? (yalah... CBM no good - name no one. DCA name only Ong! LOL!)

and just imagine if the buyer did not get the lowest price each year...

Exactly... err... what lor?

First example, a long term CBM buy of a stock on a downtrend. 1,000 shares every year at the lowest price.

End result? The invested capital ballooned. Losses became much, much larger.

So how devastating CBM is? CBM allows the investor to buy and buy. Yes, average cost did become lower but what good did it do?


Todays example was Nvidia. Initial investment was 55.36. Thanks to CBM of buying 1,000 shares every year at the lowest price, the cost per share became 84.45.

Surely these numbers based on actual stocks showed the absolute weakness of CBM.

Buyer is just following... 1,000 shares every year at the lowest price. Nothing else. Which clearly begs the question, why isn't the fundamental of the stock important?
Common sense, say if you CBM a stock for 2 years, every 3 months buy once, when 2 years end, many things could go bad. Stock could fall. Stock fundamentals could deteriorate. Earnings could plunge.


If I had done a CBM buying of 1,000 shares of Netflix (Fang stocks), I believe the result is gonna be poor. (give me 10 mins... )



My 24 sen say? Average down is bad. Simply average up is just as bad. But yeah, my inflated views could be badly wrong.

Davidtcf

Here is Netflix using the same CBM, 1,000 shares each year at lowest price.

2017 buys 1,000 shares at 165.95
2018 buys 1,000 shares at 249.47
2019 buys 1,000 shares at 270.75
2020 buys 1,000 shares at 332.83
2021 buys 1,000 shares at 488.77
2022 buys 1,000 shares at 169.90

Buys 6,000 shares.
Total investment is 1677.67
Average cost is 279.611

Unfortunately share closed at 178.89.

Buyer using this CBM method would have lost big time in in Netflix!



So CBM good?

To be more precise, was thought by this one Auntie b4... she told me that buying correctly most of the problem and the most important one is 'should I buy more if the stock falls'.
She reasoned, if the share falls after you buy, it only means one thing Bo, it means I screwed up either with my stock selection or my buying price.

That was something I learned. Something which I felt had so much truth in it.....

WOW!

Thanks for layan me. hehe...

Yes, in short fundamentals is so important (and clearly Netflix is a good teaching example!!) when you buy a stock.

CBM is just a method of how one does the buying. One which I feel has so much weakness in it. Think about it. If you stretch this method out on a stock on a longer time frame, what's the biggest risk? The biggest risk of course is fundamentals. Fundamentals do change over time. Sometimes the company can be better but there aren't many of them around. There are many that go bust in a time frame, such as 15 years. Think about it... 15 years collecting the stock... and when you finish collecting, the business economics of that stock collapses! How then? You might end up collecting a 'bad' stock for 15 years!

Isn't it better in the simple NVIDIA case, the buyer does a proper due diligence? If 55+ is a damn good investment, ie as good as your own reasoning, why buy bit by bit?

no?


this is all I am saying. stock fundamentals is more important than the buying method.

It so much depends on who you are, really.

I wouldn't know if you are a better speculator, trader or investor.

But assuming you are an investor, reading the company numbers matters a lot. The balance sheet, the cash flow. Understanding the business economics. Is the company making more money. Profits is always important and profits without cash flow is BS. All pretty much basic investing.

And if course, understanding the risk.

And of course, do own dillegence. If I had told you average down is the way to go, look over actual data. Test it out. Does the number makes sense or am I simply talking crap....

etc etc...

GL

Cut loss is very important but then... remember the law of Aunties... if you keep cutting all the time, what are you gonna cut next?

Yup. I did say... If CBM was done on the index, I would have stfu.

And this is what makes the stock market bloody interesting... so stimulating


ps... We have the I, R and the C....which is all caused by the idiot who said.... MAGA.

I sure hope that it is my auntie and not yours

Fundamental strong as so many interpretations.

Especially if the company economics is cyclical.

Take Harta. Local glove stock. So said that it's the best managed. Cash rich etc etc.. but business economics has now changed for the worst, the stock will be hit just as bad as others.

I play only local stocks ya. So for me, Bursa Malaysia is the main goto website. And I read a lot. And I am a trader. Knowing your best skill set is so very important.

And it does help for you to try to look at stocks from a business perspective. Incorporate lots of common sense reasoning.

For example.. there are new snippets that DaGe and its chips news snippets...

https://www.bloomberg.com/news/articles/202...making-industry

So from a business perspective.. sooner rather later.. when China enters a business, be damn sure that a price war will happen.

Hence, one cannot be too gung ho on this business.

Ya.. something like this..