03-07-2011, 10:19 AM
MW allow me to use your portfolio as an example for discussion. Would u average down tat hong, swiber or erza? And why not?
However if u put your shoes into an young investor with 1-2 years of investing experience and no matter how much he has done his homework or look into long term AND if he average down he would probably wipe out his entire savings. Would u advise him to average down still? If u doubt him, he probably doubts himself as well. Koh is right about handling e paper losses psychologically. Imagine how much time spent on unneccessary worry on e stock performance and maybe hindering your other aspects of life. Opportunity costs does not come in the form from the index only, it can be also on other potential investments that u make pass just because u are irritated the red spot in your portfolio.
In general, if u fit what I described above and see opportunity to average down, I would advise u not to average down. If you believe you are right still, as like what MW has said if you invest long term enough and you have already predetermined a margin of safety on this security, you will earn your profit just not as much one day. Just do not add on the risks of it not happening as there are plenty possibilities events may happen (accounting fraud, change in management, account receivables bad debt, delist company, rights issue or placements etc). Alternatively, if u really insist to average down, post ur investment thoughts here in valuebuddies and most of expert investors would not mind to clarify your thoughts before u taking action. It happened to both me and Nick as well.
As of averaging up, I agree with MW as it entails similar risks and I had one bad experience that if u are not willing to look into the short term and continue to hold your profit thinking it will never end rising, average up may not be suitable for u. I believe average up should have a max investment span of 1 year only. Remember the higher the price goes, the ratios becomes more inflated, the higher your risk.
However if u put your shoes into an young investor with 1-2 years of investing experience and no matter how much he has done his homework or look into long term AND if he average down he would probably wipe out his entire savings. Would u advise him to average down still? If u doubt him, he probably doubts himself as well. Koh is right about handling e paper losses psychologically. Imagine how much time spent on unneccessary worry on e stock performance and maybe hindering your other aspects of life. Opportunity costs does not come in the form from the index only, it can be also on other potential investments that u make pass just because u are irritated the red spot in your portfolio.
In general, if u fit what I described above and see opportunity to average down, I would advise u not to average down. If you believe you are right still, as like what MW has said if you invest long term enough and you have already predetermined a margin of safety on this security, you will earn your profit just not as much one day. Just do not add on the risks of it not happening as there are plenty possibilities events may happen (accounting fraud, change in management, account receivables bad debt, delist company, rights issue or placements etc). Alternatively, if u really insist to average down, post ur investment thoughts here in valuebuddies and most of expert investors would not mind to clarify your thoughts before u taking action. It happened to both me and Nick as well.
As of averaging up, I agree with MW as it entails similar risks and I had one bad experience that if u are not willing to look into the short term and continue to hold your profit thinking it will never end rising, average up may not be suitable for u. I believe average up should have a max investment span of 1 year only. Remember the higher the price goes, the ratios becomes more inflated, the higher your risk.