Tuesday, 17 March 2020
Average Down Versus Average Up (revisited)
In recent days, its interesting to see quite a few in the community buying on the way down.
These are the buy in tranches people.
You know, they have already planned in advance to buy X% when STI hits 2500, another Y% if STI drops to 2200, and Z% when the index plummets below 1800, etc.
(Please don't ask what happens when STI goes below 1400? That's rude.)
But first, got to give respect and props to those who actually execute their plans they have shared openly to us.
That takes discipline and conviction. Its not for the faint hearted.
As for those sound bites that say say only, well, you know who to discount next time they try to parrot something they have stolen from others, pretending to sound all knowing. Wink.
I've tried averaging down for investing. Nearly destroyed me.
And for trading, I nearly gave it all up at one point - to return to born-again "investor" - when the disgust with myself was that bad...
Yup, I've let a small loss turned gangrenous. Was lucky the market turned and I survived.
Never again. Can't always depend on Lady Luck to bail me out everytime!
I've put in place mechanical stop-loss orders from then onwards.
I prefer to buy on the way up. It just feels better to have tailwind support and positive reinforcements.
And I sleep better too.
I'm not into masochism.
How to find the bottom and start averaging up?
Crash got sound.
When I initiate a position, if it got stopped-out, that's that. The losses won't grow and compound since they can't fester on me anymore.
But if the position is profitable, and I can't find any reason to take profit, then its natural to add to a winning position.
That's how the initial small position may eventually scale into size. Its quite organic.
Long ago when I was youth, it was 100% all-in entries, and 100% all-out exits for me. I know. The hubris!
Winnings were spectacular; losses were even more gargantuan! LOL!
That's youth for you. I didn't know what cannot be done.
Now I know.
Ouch!
Newer readers may want to read this old post to get a better understanding of chosing the right shoes to fit your own feet.
Mind you, there's nothing wrong with averaging down if it suits you better. It could be you have a higher threshold for pain than me.
See?
You win!
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Stop loss didn't work quite well in the current highly volatile US market. Stock prices teleport, they don't take the lift. So they mercilessly bypassed stop limits. *gasp*
ReplyDeletehttps://rainbowcoin.blogspot.com/2019/09/lessons-on-stop-loss.html
On the other hand, setting take profit is useful. Shhh...
Rainbow girl,
DeleteNow you know why I'm on the sidelines on some days ;)
If the intraday or daily swings and fluctuations exceed my usual stop-loss limits, we would I put any positions on?
I'm just begging to be stopped-out ;)
That's my edge.
I'm not trading for a living ;)
I have the "pass" option.
"Please don't ask what happens when STI goes below 1400?"
ReplyDeleteUse CPFIS bullets or take out home equity LOL!!
I rarely average down unless:
(1) available sizeable war chest,
(2) living expenses for 2-3 years catered for (since jobless lorr),
(3) big emotional dislocations in the market (-15% is the minimum),
(4) buy broad market or established sector / factor ETFs or index funds (I'm not smart enough for individual stocks),
(5) no expectations of capital gains in the next 6 mins or 6 months (hence broad markets or global or sector ... not individual stocks).
Those who are averaging in last few days likely to have 2 or more of the above. ;)
If I hadn't been harvesting (e.g. selling multiple 3%-5% positions whenever extreme overbought) my US portions earlier, doubt if I'll have enough war chest to buy ... until markets go below -35%.
Spur,
DeleteThat's why I was smiling when you shared you have been paring your US portfolio into cash before the meltdown ;)
My thesis is simple.
If we are not competent to know when to take profit as in sell, its pretty unlikely we know when to buy too ;)
It makes sense right?
If we don't know when something is overvalued, how can we know when its undervalued?
Hi SMOL,
ReplyDeleteBattles scars are collected from catching falling knives that don't kill us! LOL.
Even before the downturn, I already had one speculative position that bit the dust. I have doubled down on 2 others. Seems like can't tame the gambler in me. :P
Colleagues and friends who are not very experienced in the market ask what blue chips to buy and I just give them the safer bets and ask them go Yahoo Finance to do some homework. It will indeed be interesting to see when they will pull the trigger.
I have scooped up some more in the past 2 sessions. Everyday is like shopping day! But I did make mistake on position sizing for 2-3 counters which I bought a tad too early and too much. As the price went down, I'm reluctant to add more cos I don't want to have more exposure than I already have. I questioned myself, got conviction right, why holding back?
Then I smiled gladly at my realisation, I'm no longer ignorant of what cannot be done. Still got the guts, not afraid to lose but the difference is, now at this age, must play to win. Not much time to catch up already and making pricey mistakes is a one way ticket to working till 80 years old. :(
Hmm, I think the averaging down folks are probably the opportunistic optimists and the averaging up folks are the savvy pessimists. Just my hunch, no scientific backing one hor. LOL!
Endrene,
DeleteThis is the time where all the past mistakes and lessons, paid for with blood, sweat, and tears; return to pay dividends back to us.
If not, what's the point of DIY active investing again?
We might as well outsource this task to professional shepherds, or join those faith-based passive investing sheep (no brains needed what) ;)
Hahaha. This time maybe also got blood, sweat and tears.
DeleteI like what a friend said - Money we lost to the market is just a deposit. Someday you will withdraw it with interest!
So, last time we let people 'withdraw' our deposit, now our turn to do the opposite, hopefully!
The virus impact on the market will die down once news on the vaccine is out but the prolonged disruption to business causing a protracted economic contraction will last longer. So those who predict a year for this to blow over may be too optimistic. Anyhow, just focus on execution of plan and then wait. :)
Now still waiting for the tranche of buying.
Endrene,
DeleteStay safe and pretty pretty as always ;)
Don't forget to live and enjoy life in the present too!
There is more to life than making money ;)
Thankiew for the reminder. I merely switched the products that I do online shopping for. Still got life one! Lol.
DeleteToday telecommuting because of BCP, lunch went to eat dim sum buffet. Friday taking mum go gai gai and meeting my teacher friends. Never 拜金 every day one. No have so pious. :P
You stay safe also and slay the bear! Huat a lot a lot then enjoy life even more, drinking atas coffee at nice nice place. :D
;)
DeleteIf OA rate dropped, youngsters will be very happy. Cos can just use cpf $$ to hoot house without worry. Less accrued int to pay back! :P
ReplyDeletetemperament,
ReplyDeleteHave you considered your US portfolio is "koyak" because you didn't do anything?
Ding!
If averaging down "blind" in the tunnel is your edge over others because you can see better in the dark, if its you... Its you!
temperament,
ReplyDeleteWell, let's revisit your "resilience" thesis when STI breaks 2400.
And at 2200, and maybe at 1800 ;)
Others who bought your 3 stocks when STI was above 3000 probably though the same as you!
temperamrnt,
ReplyDeleteTip. Now you know who to vote for in the next election ;)
LOL!
temperament,
ReplyDeleteYou think why big daddy did a U-turn on speak Mandarin and re-introduced dialects to TV and radio?
Lau kok koks are the bedrock of their base. And as Asians, we drink water will remember the source ;)
Youths are youths all over the world.
Without vested interests (no assets, no family of their own), of course you want change without the responsibilities and knowing the consequences!
Youths of today are no different from youths in the 50s or 60s.
If I were youth in the 50s, I'll likely to be seduced by communism. Being penniless and no education and all...
Lucky I grew up in the 70s when Singapore was developing fast and was able to finish my O' levels!
Now that I'm a nano-landowner, thanks but no thanks communism!
temperament,
ReplyDeleteThinking about it and taking action are oceans apart.
I don't know about your wife and son, but I don't really enjoy hand me downs...
Have you asked your wife and son what they prefer?
Some would prefer cash (like in insurance payouts), most financially not savvy one would prefer property (easier to manage).
If one cannot handle physical property, you think one will do better in equities?
I hope you are not using your wife and son as shields to kick the can down the road...
temperament,
ReplyDeleteJust as long we know when to get out BEFORE the party ends.
Its a bit like that telco that borrows money from banks to pay dividends!?
Like you've said, everyone happy just as long stock price goes up and yield hogs get their dividends.
But deep down EVERYONE knows it doesn't make financial sense.
So when the party ended, can't blame anyone right?
Everyone went in eyes open! No?
We just have to look at neighbouring countries with many zeroes in their currencies.
Cash is king!
But we also need to know which "cash" to keep ;)
temperament,
ReplyDeleteAh! Invest just to survive!
Hey! If it makes you happy :)
temperament,
ReplyDeleteJust verifying.
You know, like aunties poking fishes in the wet markets to see they fresh or not ;)
Now I'm crystal :)
temperament,
ReplyDeleteYour son is well taken care of financially speaking.
Got 2 properties and no need to share with siblings ;)
Your equities, insurance policies, and whatever is left in CPF are just cherries on top!
If you son can think for himself, leave him penniless he still can survive and even thrive one.
You ITE and started with nothing right?
P.S. You might want to share with your son the art of attracting the right girl into marriage ;)
Marry right is half the battle won in your case... You lucky XXXXXXX!
I envy you!
Too bad you don't have daughter...
LOL!
temperament,
ReplyDeleteI've attended quite a few Church weddings to only end in divorce some years later.
How many youths of today will take their marriage "vows" seriously?
Now we practice "stop-loss" when it comes to marriages ;)
In investing?
No.
?
Shh...
ReplyDeletetemperament,
ReplyDeleteExactly.
Since biblical times, there are those who believe and think....
Then there are those that do ;)