Monday, September 15, 2014

Scaling In is not the same as Averaging Down


Scaling in is simply the building up a core investment or sizable trading position through a series of entries. 

It's usually practiced by those who have been humbled by the market and realised they are not so great at picking tops and bottoms. By spreading their entries, they hope to get a reasonably good average entry price - the shotgun approach.

This is the opposite of the 100% all-in entry normally practiced by those with a smaller portfolio or trading account. 

Having said that, there are of course exceptions where big investors and traders who are great at market timing, will just skip the scaling in process and go all-in with one big giant high conviction entry - the rifle approach.


Let's take the example of an investor who has a rule where no single stock position can be max more than 10% of his total portfolio as a risk management control.

This investor has high conviction on stock ABC. 

He allocates $50,000 for this stock ABC since his total portfolio is half a million dollars.

Since he likes to enter in multiples of $10,000, for broker's trade commission efficiency, he has 5 arrows for this stock ABC.  (Some people prefer 10 arrows, some 2 arrows, it's an individual's choice!) 

This firing of all his arrows may range from several days, weeks, months, and even years! It all depends on his criteria for entry.

The execution of Scaling in, depending on the entry price of the first arrow, may look like a combination of averaging up and averaging down. 

It can just as well be the case it's all averaging up or all averaging down in execution - the investor is agnostic whether he is buying at higher prices or at lower prices - just as long the criteria for entries are met. 


I shall stop here.

Readers, you have to figure it out yourself whether you can see the difference between Averaging down and Scaling in. 

It's entirely plausible and perfectly OK for you to say I am just engaging in wordplay - A rose by any other name is still a rose! 

And if your conclusion is derived from your own investing experience and/r trading track record, it's more POWER to you!

I'll say purge what you've just read and don't let me poison your mind. 


Don't you dare change a winning strategy just because of my personal musing nonsense!



P.S.  For traders, it may be easier for you since Scaling in is frequently found in trading's parlance. 

For investors who have never experienced a > 20% plus bear market, it could be harder for you since you could be mistaking Buying-the-dip in a rising bull market with Averaging down... 

LOL! Confused yet?



Tip for potential snake-oil salesperson wannebe:  If you can't win them over, confuse them!

 


Thursday, September 11, 2014

Average Down versus Scaling In versus Dollar Cost Averaging


Nothing draws in new batches of cannon fodder like the bull market of 2013 - be it STI or S&P.

I think its good to revisit this never ending average down topic once again.


Experienced investors and traders (lived through 1 bull/bear cycle) you can move along now. Nothing to see for you. You won't be where you are today without a well established opinion. Don't change a winning formula. Wink.


For newbies curious to hear the arguments from "lao qian beis" - Average down or up?
Read the crazy comments  

And for those above 21 and don't mind a more RA content - Whip-cream or leather whip?


Note: I never say listen to others; I merely said hear their arguments.

Once you have finished a complete bull/bear cycle, you would have your own answer. Nothing illuminates more than your own track record


Homework: Can you tell the difference between Average down, Scaling in, and Dollar Cost Averaging?

Are they the same?

Or are they miles apart in differences?





Monday, September 8, 2014

How Jim Rogers Fluked His Way To Success






A little knowledge can be a dangerous thing.


And if your idea of research and hard work is reading blogs, participating in forums, perusing the Business Times, and watching CNBC, just take a look at your portfolio. Something is missing right?


Cash rotting in bank anyone?




 

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