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Wednesday, 7 September 2011

Whip-cream or leather whip? (Average up or down?)


There are both technical and fundamental merits in averaging down or up into our equity positions. I would not dare venture into this arena as there are more skilled and competent writers who have thrown down their gauntlets and have dug into their entrenched positions.

Instead, I would like to contribute an erotic view of this discussion. (Hey you Sir, please put your pants back on. Stripping is not necessary.)

Let’s start from our childhood.

Can you remember what motivates you more? The pain or fear of getting whacked or caned for making “mistakes”; or the pleasure or joy of receiving compliments and encouragements for doing the “right” thing?

We are all different. Some of us prefer or react better to negative reinforcements; while some prefer or react better to positive reinforcements.


Average down

If we buy a stock at $10 and the market sends us a negative reinforcement by pushing the price down to $8 – what do you do? Buy more of course! Oooohhh baby… Whip me one more time! Lash! More! Do the deed, do the deed!

As you wish my Master! Market pushes the price down further to $6, and in a climatic rapture, you buy more! Pain is pleasure!

The lower the price come crashing down, the more excited you become.

Hey! You have a masochistic bent. Cut the crap about the technical or fundamental merits of averaging down, we both know what you really want – and it’s not about making money. You like the leather whip!


Average up

If we buy a stock at $10 and the market sends us a positive reinforcement by pushing the price up to $12 – what do you do? Buy more, silly! Honey, more whip-cream please? Slurp! Sweet! Can I have more?

As you wish my Highness! Market pushes up the price further to $14. In an orgy induced state of intoxication, you dived into the pool of whip-cream – you buy more! The joy of being proved right!

The higher the price escalates up, the more intoxicated you become.

Hey! You have a hedonistic bent. Cut the bull-shit about the advantages and logical merits of averaging up, we both know what you really want – and money is just a way to keep score. You like whip-cream!


P.S.  My inspiration for this post came about from commenting at Musicwhiz's blog. I was in my usual flippant mood. It just dawned on me that my comment can be a stand alone post itself!


          

16 comments:

  1. you make me feel like quitting trading.

    ReplyDelete
  2. Oh dear... What have I done?

    Please don't take what I say too seriously. I just talk "male chicken" only!

    ReplyDelete
  3. only kidding!

    in fact you are right on. i call it joy and pain. it is also the answer to the last question i ask you - emotion.

    to cut it short, you have to learn not to feel pain when you lose and feel happy when you win. i say try becos its impossible.

    ReplyDelete
  4. and you can only try it after you have found a good system, preferably a mechnical system that you can rely upon.

    ReplyDelete
  5. hay! not machines, its mechanical trading system haha.

    ReplyDelete
  6. Hmm... Maybe I should write a post to "make fun" of mechanical trading systems just to tickle you a bit ;)

    LOL!

    ReplyDelete
  7. Average down or Average up is for the professional players in the market. Average or beginners players better stay away from this game until the day you turn pros.

    ReplyDelete
  8. Hello CW8888,

    I share your:

    "We don't need to win back in the same manner that we have lost it " - Createwealth8888.

    Our paths are different; but they are similar.

    I better don't spoil the fun of self-discovery for other readers.

    Please go:

    http://createwealth8888.blogspot.com/2010/12/my-war-room-4.html

    ReplyDelete
  9. so if A beat me up, i'll take revenge on B, haha. make sense in trading though.

    SMOL your term average up or down only refer to add on to your position. you did not mention about cutting your position in the same manner.

    i use the term scale up or scale down of a position, can be add on or cut back your position.

    if you want to average, you should learn to de-average too, scale up or scale down.

    ReplyDelete
  10. Hi SMOL

    Wow.. didn't know you are into kinky SM stuff... hahaha....

    Averaging up/down needs capital, so it's a challenge to be able to do it until our warchest (capital) is exhausted.

    But your analogy is certainy interesting. :-)

    Be well and prosper.

    ReplyDelete
  11. smol, i'm not sure we had hit the bottom on monday. i probably will not wait for my 2,400 level.

    i'll bring (haha) my position back to about 50%, thats a lot of buying. in this case i'll be able to move either up or down.

    this current market is very difficult to trade even for the ahmm. its difficult to control risk when volatility is too high.

    just for your info.

    ReplyDelete
  12. Hello Panzer,

    Have to sugar-coat my satires with self-deprecating humour mah!

    I don't care whether it's the white or black cat. Just as long it can catch mice, it's a good cat!

    ReplyDelete
  13. Hello Coconut,

    Today up 200 points, tomorrow down 200 points. I am on the sidelines watching the show.

    You think why I so free doing these postings!? I am now 50% cash. Markets can go either direction and I will still make money. I've never been more relaxed and calm.

    4 more months to go! I ROD mood! Coming home soon! Who cares about the market? I can't be free if I am chained to the markets all day :)

    ReplyDelete
  14. Hi SMOL, Hi coconut,
    Quote from coconut.
    "so if A beat me up, i'll take revenge on B, haha. make sense in trading though".

    Ha! Ha!
    You and SMOL both of you can describe investing in stocks in a very funny but fun way.
    Both of you really make it more interesting, more picturesque, more refreshing but at times very cheem leh.

    Your quote above is also true for longer-term investing. Hey, the problem is B may turn out stronger then A. So go and try to pick a fight with A again. Shall we?
    Ha! Ha!

    ReplyDelete
  15. Hi SMOL,

    Quote from SMOL:
    "You think why I so free doing these postings!? I am now 50% cash. Markets can go either direction and I will still make money. I've never been more relaxed and calm."

    Congratulations to you. You have just said above the gist of managing investment.

    Many people don't know how to balance their liquidity to their assets. Most people don't know that in an economic downtown, it's solid liquidity reserves that protect their assets and never, ever the other way round.

    But i still wonder why our GOV every year has so much surplus and still keep on thinking of more surplus taken from the people.

    Only once i think, during 2008/2009 melt down did the GOV "raid" our liquidity reserve.

    i mean Singapore can or should have a surplus every year but not so much that the people feel they are bearing the burden of daily living more and more to contribute to the surplus. The surplus is only really enjoy by very few people in Singapore.

    So is it any surprise that the people of Singapore is more divided now?
    Sad!

    ReplyDelete
  16. Hello Temperament,

    I learnt this trick from my lady friends. Reveal or show a hint of flesh is more erotic than full nudity.

    That's why I prefer to hint my ideas instead of telling it straight - although at times I will flop big time like the Man, Son, Donkey story...

    I thought I was "cute" until Coconut came along. I discover I am actually small "wu" seeing big "WU".

    LOL!

    ReplyDelete

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