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Talking stocks, trading, and investing in general - Page 673

post #10081 of 11161
Quote:
Originally Posted by Piobaire View Post

It's probably just my simplistic view of things but "averaging down" has always struck me as some sort of fallacious thinking. No matter how much you "average down" that tranche that lost its shirt is still that tranche that lost its shirt and the only reason you're buying something on the decline is to convince yourself that you're mitigating loss. Again, just my opinion and I'm sure there's some math that demonstrates it's sound.

Generally agree. I've weighed is on this before, so I won't ramble on too much. But I mean, they're all paper losses and paper gains until you see. Or, looking at it another way, they're all real losses and real gains if you're measuring the current value of your portfolio.

If you believe strongly in the long-term (whatever that may mean to you) value of the security and see interim drops as opportunities to pick up additional shares at nice discount that you believe makes the new purchase an attractive investment, that's rational. To a certain extent, that's at least one of the rationales behind just making steady contributions to an index, which effects some automatic dollar cost averaging.

But what you have to live off in retirement is the total value of your portfolio, not the number of winners or losers as measured against the average purchase price of each security.
post #10082 of 11161
Agreed. And IMO it's a completely different thing to buy into the indexs on a drop vs. a single stock.
post #10083 of 11161
Quote:
Originally Posted by Piobaire View Post

Agreed. And IMO it's a completely different thing to buy into the indexs on a drop vs. a single stock.

Would have hit vintage Courtney Love, though. (And then bathed in bleach. But still.)
post #10084 of 11161
Quote:
Originally Posted by lawyerdad View Post

Would have hit vintage Courtney Love, though. (And then bathed in bleach. But still.)


Lulz.
post #10085 of 11161
Quote:
Originally Posted by MSchapiro View Post

No it is a very real loss. One can continue to invest to make up for it, but it is still a loss. 

The problem is if you are holding the securities when the market begins to price in higher rates. You will take a capital loss. 

Maybe we're being semantic, but I only view a real loss as such when you hit the sell button on a trade. Otherwise I just consider myself down or up on the bet.

I don't trade margin, so the idea of a loss on the value of the portfolio doesn't hold a lot of meaning to me beyond a data point.

Quote:
Originally Posted by lawyerdad View Post

If you believe strongly in the long-term (whatever that may mean to you) value of the security and see interim drops as opportunities to pick up additional shares at nice discount that you believe makes the new purchase an attractive investment, that's rational. To a certain extent, that's at least one of the rationales behind just making steady contributions to an index, which effects some automatic dollar cost averaging.

I don't see a difference between averaging down and dollar cost averaging beyond one taking place when the equity falls below a price or average price you paid for it.

If you hold an asset with conviction, then you should generally welcome an opportunity to lower your average price per share.
post #10086 of 11161
Quote:
Originally Posted by idfnl View Post

Maybe we're being semantic, but I only view a real loss as such when you hit the sell button on a trade. Otherwise I just consider myself down or up on the bet.

I don't trade margin, so the idea of a loss on the value of the portfolio doesn't hold a lot of meaning to me beyond a data point.
I don't see a difference between averaging down and dollar cost averaging beyond one taking place when the equity falls below a price or average price you paid for it.

If you hold an asset with conviction, then you should generally welcome an opportunity to lower your average price per share.

I mostly agree with you on the semantic point. Dollar cost averaging and averaging down are closely related.

It's primarily the "averaging down" terminology I'm uncomfortable with. As Pio noted, that first tranche does what it does regardless of what happens with the second tranche. But yes, if you believe something you own shares of is attractively priced due to a short-term drop, it's reasonable to want to pick up more shares (putting aside concerns about overconcentration or opportunity costs)
post #10087 of 11161
Quote:
Originally Posted by Piobaire View Post

It's probably just my simplistic view of things but "averaging down" has always struck me as some sort of fallacious thinking. No matter how much you "average down" that tranche that lost its shirt is still that tranche that lost its shirt and the only reason you're buying something on the decline is to convince yourself that you're mitigating loss. Again, just my opinion and I'm sure there's some math that demonstrates it's sound.

There is no more math to it. You have always taken a loss on that tranche.

 

Quote:

Originally Posted by lawyerdad View Post

If you believe strongly in the long-term (whatever that may mean to you) value of the security and see interim drops as opportunities to pick up additional shares at nice discount that you believe makes the new purchase an attractive investment, that's rational. To a certain extent, that's at least one of the rationales behind just making steady contributions to an index, which effects some automatic dollar cost averaging.

 

This is the  traditional logic about averaging down.

 

I averaged down CORR and kept buying even as it hit $11. I made a great profit when it went back up to $30, not to mention the dividends.

 

I bought into Intelistat, Ticker I. It went down and I bought some more, sold off 60% of the position on a pop. Then it plummeted and has went down and down and down. Little reason to buy more, there isn't a great case behind it. 

 

Quote:
Originally Posted by idfnl View Post

I don't trade margin, so the idea of a loss on the value of the portfolio doesn't hold a lot of meaning to me beyond a data point.
 
I am also not trading on margin. But I do care how my portfolio as a whole performs. I want a few negatively correlated assets to avoid the risk of capital loss. 
post #10088 of 11161
Quote:
Originally Posted by MSchapiro View Post

There is no more math to it. You have always taken a loss on that tranche.

Quote:
Originally Posted by lawyerdad go_quote.gif



This is the  traditional logic about averaging down.


Yep, thanks. As I replied to idfnl, that makes perfect sense to me in terms of buying something you like at a good price. I just think referring to it as "averaging down" muddles things by leading some people to confuse the investment thesis for purchase #2 with the emotional pull of wanting to offset the disappointment of seeing the market price drop below your purchase price on the initial investment. Outside of trying to manage your tax exposure, what your average cost is across multiple lots or tranches is kind of irrelevant. Whether or not it makes sense to buy CORR at, say, $15 doesn't turn on whether it drops your average purchase price when added to a bunch of shares you bought at $25 three months or three years ago.

Obviously the fact that you scoop up 10,000 shares today at $2 doesn't change the price of the 50 shares you bought last year at $45. From a purely rational viewpoint (again, putting aside any tax or transaction cost considerations), the fact that purchase #1 and purchase #2 involved the same security is an irrelevant red herring.
post #10089 of 11161
Quote:
Originally Posted by lawyerdad View Post

From a purely rational viewpoint (again, putting aside any tax or transaction cost considerations), the fact that purchase #1 and purchase #2 involved the same security is an irrelevant red herring.

That summarizes my thinking on it.
post #10090 of 11161
Quote:
Originally Posted by MSchapiro View Post

There is no more math to it. You have always taken a loss on that tranche.
I bought into Intelistat, Ticker I. It went down and I bought some more, sold off 60% of the position on a pop. Then it plummeted and has went down and down and down. Little reason to buy more, there isn't a great case behind it. 

This raised an eyebrow, as they just built a huge office building near my home. I'm astonished, that chart looks like boulder going downhill. How can a company losing that kind of money spend that way?
post #10091 of 11161
Quote:
Originally Posted by lawyerdad View Post

Obviously the fact that you scoop up 10,000 shares today at $2 doesn't change the price of the 50 shares you bought last year at $45.

I never think of a position this way. Sure, it doesn't change the 50 shares you bought at $45, but why would I care since I hold 10,050 shares that average $2.21? To me, seems like the average is what really matters.

If I buy 100 shares of a stock 4 times at 50, 40, 30, 20 then I consider my basis to be $35 and if the current share price was $37, I'd be up $2. Often, but not always this serves to help me decide whether to average down, so if it dipped to 30 and my conviction remained, I would seek to lower my basis again.
post #10092 of 11161
I guess my underlying point is "averaging down" usually doesn't seem to be done for "conviction" but rather some psychological effect.
post #10093 of 11161
Quote:
Originally Posted by Piobaire View Post

It's probably just my simplistic view of things but "averaging down" has always struck me as some sort of fallacious thinking. No matter how much you "average down" that tranche that lost its shirt is still that tranche that lost its shirt and the only reason you're buying something on the decline is to convince yourself that you're mitigating loss. Again, just my opinion and I'm sure there's some math that demonstrates it's sound.
The other reason it is invoked so often is that everyone still saving has no choice but to do something like that. For those who already have their nest egg, it's a very different set of problems.
post #10094 of 11161
Quote:
Originally Posted by Concordia View Post

The other reason it is invoked so often is that everyone still saving has no choice but to do something like that. For those who already have their nest egg, it's a very different set of problems.

I'm not sure what you're saying here. What does where in your investment lifecycle have to do with it?

If I own 200 shares of AAP purchased at $107 and have a $1000 in new money to invest today, I can buy another ten shares of AAPL at just under $99/share or 30 shares of GM at $32ish (or whatever). Not sure the analysis is particularly different, at least for purposes of this discussion, if I already own 20,000 shares of AAPl purchase at $107 and am trying to decide how to invest my $100,000 bonus.
post #10095 of 11161
For most IRA/401k savers, they are de facto dollar-cost-averaging, which is putting every new dollar to work in their policy portfolio. No harm in having them keep their nerve.

For others already possessing their zillions, you run into a different problem: are the prospective gains to be made by dollar-cost-averaging enough to override the opportunity cost of sitting on cash (which the less affluent saver doesn't have to worry about)?
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