Averaging Down

[flinger]

Why the need to average down?

Cos ... the stock went lower.

But why la did the stock go lower?

Bad market sentiments mah...

If the sentiment is bad, why didn't we see it coming? Didn't they teach prevention is much better than cure?

What's that two Sun Tzu's Art Of War, timeless concepts mentioned many, many, many times before?

Think before you act.
Act only when you have the confidence to win.

If we had thought and reasoned it out carefully, won't it help eliminate the need to buy more because the stock went lower?

Of course, some will say, lower prices means more offer. True. But how long can we continue to say 'drop more buy more'? Are our pockets really deep enough?

But even if our pockets is really deep and we can afford it, shouldn't we think what we are actually doing here? Think about the stock we are buying. What if the stock is only considered good in our own shallow opinion and what if our opinion is wrong?

Does two Wong make a Wright?

What if we make a mistake with our stock selection?

Dare we say we will never make a mistake with our stock selection?

Yes dear, what if we bought the wrong stock?

And if so, doesn't buying more means we are buying more of the wrong stock?

And if the wrong stock is caused by our initial investment mistake, buying more means buying more of our mistake?

And if so, by averaging down, aren't we saying we can correct our mistake by buying more of our mistake?

oO

Think about it...

Mr. Soros became rich because he insisted he knew when he was wrong.

Mr. Buffett knew the only the way to get off a hole is to stop digging.

Think about it.

What does one do when one make a mistake? Don't we want to rectify it? And isn't the best way to rectify it is by stop being wrong?

Yeah, instead of averaging it down, why don't we seriously consider if we did screw up with our stock selection or not?

And if we did... isn't cutting loss (ie rectifying our mistake) ... the logical thing to do?

And oh I do know... the tricky part here of course is.... determining if we are correct or we are wrong.

ps: Me? I am not a fan of the averaging down.

If you don't have trust in the company you are buying that you are not willing to average down when you have evaluated that fundamentally it is a sound company and it might be getting lower due to market sentiment, economy issues, trading etc.... then maybe you should not be buying the company stocks in the 1st place.

Ultimately, it all depends on your portfolio and if the company you want to average down needs addition at the current price.

If the particular stock has already fulfilled the % in my portfolio then I would not buy anymore even if it goes down.

If I do, then I am trying to earn some side money by trading the stock, which in that case is trading not investing.