# "averaging down"?



## jargey3000 (Jan 25, 2011)

I'm curious about this business of chasing a declining stock price in the hopes of "averaging-down" your overall cost basis. I've always shied away from it. Does it work? Is it generally a good practice - or just a fool's game? I'd appreciate some comments from the seasoned investors in here.


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## 1980z28 (Mar 4, 2010)

I will always chase it down
I think that a stock is a good deal at 100 and it goes to 50 ,I will keep buying,if it still drops and I run out of cash I will leverage at below prime and keep chasing,,


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## none (Jan 15, 2013)

Average down and 1980z28 is the wrong way to look at it. When you buy stock or not should be an independent decision of whether you bought previously or not.


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## 1980z28 (Mar 4, 2010)

FM was my last chase from 14 plus to 5 plus for a lot of shares in total over 14k shares

Sold 9k over the last few days

Nortel was the one I got killed on


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## CPA Candidate (Dec 15, 2013)

Depends on the reason for the decline. If a company is performing well but the stock has fallen with the overall market, buying more is likely okay. If the stock is declining because of a significant issue specific to the company, you'll need to be more careful. I don't believe in hard and fast rules in these situations, it requires judgment that comes with experience.


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## tkirk62 (Jul 1, 2015)

It's not a matter of averaging down working or not. It is a strategy that can work and fail just like any other. 

When I buy a stock I do some due diligence to determine what I think would be a fair price to buy it for. Then if it trades below that (margin of safety), I will deem it a buy. If the price from there drops further, and there are no changes in the business or the company's prospects, the fair price hasn't changed but the margin of safety has. It is still a buy. To do this you have to like the company and you need to have confidence in your original analysis of the fair price. If you were right then averaging down is great. If you overestimated fair value that is when averaging down is throwing good money after bad.


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## Sampson (Apr 3, 2009)

none said:


> Average down and 1980z28 is the wrong way to look at it. When you buy stock or not should be an independent decision of whether you bought previously or not.


this


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## jargey3000 (Jan 25, 2011)

Thanks. I think I like reply #5, and #6.


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## Oldroe (Sep 18, 2009)

You need to do the math.

What is your avg cost and what effect your dollars will do.

You need to put 300% more into a stock to avg down to current price.


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## Pluto (Sep 12, 2013)

jargey3000 said:


> I'm curious about this business of chasing a declining stock price in the hopes of "averaging-down" your overall cost basis. I've always shied away from it. Does it work? Is it generally a good practice - or just a fool's game? I'd appreciate some comments from the seasoned investors in here.


It depends completely on what kind of stock you bought. A high quality stock with reasonably predicable growth, Yes, average down. The key is to figure out what is a high quality stock. Everyone has a different idea on that. The kind of stock that Buffett and Munger buy are usually high quality and worth averaging down. When they make a mistake, and realize they bought one that didn't posses the quality they thought, they waste no time in getting rid of it. 

But if one is talking a small cap, very high growth rate, so called momentum stock, with very high p/e, no. never average down. only buy when it starts to go up, and sell into strength. If you miss the latter, and it goes into a down trend, get rid of it anyway.


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## andrewf (Mar 1, 2010)

The framing of 'averaging down' is an error. Invest in a stock if it is a good idea today (and you have no better alternatives). Do not invest just because you own it already, at a higher average price.


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## Sampson (Apr 3, 2009)

Ultimately, I suppose a lot of people look to average down (myself included), when they believe in the the future prospects and potential return are strong. If I bought something for $15 yesterday, and now it is $10, yet my assessment still holds that I can benefit from buying at $10, then I 'average down'.

@andrewf - I suppose it is semantics, but one could frame 'averaging down' as re-purchasing a good investment at a different (lower) price. Timing is impossible anyway, so for those who are entering into positions in multiple chunks, then averaging up or down could really just be achieving your full position in an investment.


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## andrewf (Mar 1, 2010)

But are you passing over better investments because you are trying to 'repair' an existing position that is underwater? This is just the sunk cost fallacy.


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## tkirk62 (Jul 1, 2015)

That would be the sunk cost fallacy. I think there are people out there who will average down just so their ACB will be closer to the market price and they'll see less red in their account. 

But if at one time your best idea was, let's say CWB at $25 and you think it's probably worth $31, then three weeks after you bought at $25 it has sunk to $22.50, nothing has changed to your idea or CWB. just now the upside is $8.50 instead of $6. This is recently what happened to me. I looked at other investments, still liked my thesis about CWB, and bought it lower. It had nothing to do with having already bought it, and everything to do with it being a good investment at both prices. I have lots of stocks that are down that I don't average down on because I see other better opportunities to invest.


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## jargey3000 (Jan 25, 2011)

does anyone have any real, concrete examples of when 'averaging down' actually paid off for them? For example, say they got in at say $20, then kept buying so that their 'average' cost became say, $13; then sold the bundle at say $16 - for example?
Do people actually do that - or is it all theory?


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## Spudd (Oct 11, 2011)

I recently did this on COS. It probably wasn't the smartest idea but it did work out in the end. I bought some at around $10 and then it kept sinking. I bought more at $7ish. Then came the news of the SU buyout and I was able to sell the whole lot for $9.10/share which was an overall profit of around 4%.


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## Oldroe (Sep 18, 2009)

I avg down TD and royal in 2009 both are up.


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## Sampson (Apr 3, 2009)

Sure.

Some of my holdings going into the beginning of 2008 included TD, SBUX, WFC, KO and PG.

When I bought later that year and again in 2009, this was technically 'averaging' down. I wish I sold the house to 'average down''.

Sunk cost fallacy exists for sure, but I would say that not all 'averaging down' is done for that reason.


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## andrewf (Mar 1, 2010)

Oldroe said:


> I avg down TD and royal in 2009 both are up.


But you could have bought just about anything...


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## andrewf (Mar 1, 2010)

Sampson said:


> Sure.
> 
> Some of my holdings going into the beginning of 2008 included TD, SBUX, WFC, KO and PG.
> 
> ...


I think what you mean is that sometimes the fact that you are averaging down is an incidental factor and not a motivating factor.


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## Oldroe (Sep 18, 2009)

You are correct 7 years later it's easy to say I could have bought anything.

I put the 300% in TD and Royal to get my avg cost near the current currant price 2009. That was a ton of money for TD and a lot for Royal.

The OP still needs to understand if you have 2K in this stock and it's down 50% you will need to put 6K into this stock to get near the current price. If you put another $500 in you will have ZERO effect on your avg. cost.

So again I'm telling you DO THE MATH. You have your real numbers and you know how much more you can invest.


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## jargey3000 (Jan 25, 2011)

understood


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## Sampson (Apr 3, 2009)

andrewf said:


> But you could have bought just about anything...


That doesn't make the example any less valid.

In fact if one always perceives 'averaging down' as negative, then you would never be able to repurchase during a bear market. Just because your holding has dropped significantly, it also does not mean there are better prospects elsewhere. 

Oils stocks are have been battered, but are long term prospects better or worse than say American banks or American Consumer Staples which have skyrocketed into relatively expensive territory.

It is not more productive to think of 'averaging down' as a negative term as it is to believe that one should just average down to reduce the amount of red in their portfolio.


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## peterk (May 16, 2010)

Sampson said:


> It is not more productive to think of 'averaging down' as a negative term as it is to believe that one should just average down to reduce the amount of red in their portfolio.


I thought that was the motivation behind the term... because it is _HARD_ psychologically to buy more once a stock has gone down. That is usually the correct thing to do though. In the end we justify it because it "reduces the amount of red", but the real reason is because it's the right thing to do for our portfolio growth. It just so happens that the right thing to do is actually the hardest, so someone has come up with this "averaging down" term/trick to try and remove the emotion and to result in you making a good decision instead of a bad one.


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## Sampson (Apr 3, 2009)

peterk said:


> I thought that was the motivation behind the term... because it is _HARD_ psychologically to buy more once a stock has gone down. That is usually the correct thing to do though. In the end we justify it because it "reduces the amount of red", but the real reason is because it's the right thing to do for our portfolio growth. It just so happens that the right thing to do is actually the hardest, so someone has come up with this "averaging down" term/trick to try and remove the emotion and to result in you making a good decision instead of a bad one.


But it is a fine line. I argue against some of what andrewf writes, but I think following this as a rule blindly without reanalyzing the underlying investment is also dangerous. An additional consideration if adopting a standard couch potato portfolio is that rebalancing during bear markets may or most likely will mean 'averaging down' and this is not viewed negatively - and similar to what you are writing.

I do it - I believe in it, but not as an absolute. hpie suggested a while back to start a list of investing mantras and colliquialisms... averaging down would fit in that list.


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## humble_pie (Jun 7, 2009)

sampson i believe that "averaging down" means short-term trading. In my view, this has nothing whatsoever to do with opportunities that may present a couple of times a decade, which is to buy more stock during a deep market correction such as 2008/09.

you've been writing about 08/09 buying as averaging down, but imho that was emphatically *not* averaging down. More like the aphorism Be greedy when others are fearful, Be fearful when others are greedy.

the problem is that risk levels rise dramatically during severe market collapses. Typically there are bankruptcies & opportunistic cheap takeovers on all sides. Risks for investors who bought in 2009 were frightening. Things did indeed work out well for those who had both the cash & the nerves to buy, but exceptionally high risk dogged them all the same.

(btw it never ceases to amaze me how many folks, after the fact, continue to claim that they bought low in 2009)

we have a few prominent bears in cmf forum. They've done very well the last few months. They have charts, reasons, technicals, even the sun & the moon, to back up their predictions. At some point in time, these bears are likely to resume buying, gawd bless em. One would never say that they are "averaging down."


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## Woz (Sep 5, 2013)

I don’t like seeing averaging down recommended as I think it’s so frequently misapplied. If you average down frequently enough and with large enough amounts then you should never have a losing position, but you’re creating tail risk where in the less probable situation that the stock does keep going down and you run out of money to throw at it then you’ll have a huge loss.

If you’re disciplined enough to set maximum amounts you’re willing to invest in a single stock and are able to admit when you’ve actually made a mistake, then it can be a good strategy. Far more often I see people averaging down to try and get their money back.


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## Oldroe (Sep 18, 2009)

I avg. bank stocks down and believe any of the div aristocrats to be good candidates for avg down. As you get further down the food chain the more aware you should be.

If I couldn't point to some over reaction from the markets I likely would sell and move on.


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## humble_pie (Jun 7, 2009)

Woz said:


> I don’t like seeing averaging down recommended as I think it’s so frequently misapplied ... Far more often I see people averaging down to try and get their money back.




yes, exactly. We can see examples in this thread.

me i think that a stock whose price plummets is delivering a challenging lesson, a lesson that a shareholder ought to be willing to try to puzzle out.


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## 1980z28 (Mar 4, 2010)

I have on a personal level made some good trades and some bad over the last 30 years,you get experience from doing

When I make a purchase I believe at the time it is a good stock with a future,so if it drops I can and will purchase more as I need

FM was example that has worked out,Nortel was one that did not,there are more that have not worked out for me personally

I have leveraged a lot over the years to play this game,for me I can take a hit and I will be ok

So for me chasing a good stock in my opinion is ok I am not always right so as I go forward it is all about balance

In the last month I have top up ARE,SNC,BDT,RY and other small positions in other holdings


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## andrewf (Mar 1, 2010)

My argument against averaging down is not that you should do the opposite but that you should ignore previous purchase prices.


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## Oldroe (Sep 18, 2009)

You read with alarming frequency on here people avg. down that are just buying more stock. Do the Math.

Our as AF said do your home work and if you make a good case then do the math.


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## Sampson (Apr 3, 2009)

humble_pie said:


> me i think that a stock whose price plummets is delivering a challenging lesson, a lesson that a shareholder ought to be willing to try to puzzle out.


Ultimately, I think everyone agrees with this statement, and it is clear that everyone use the term different (which I guess is the root purpose of the thread).

Re: 2008/09 - You know as well as I (well probably less so..) that I made equally terrible trades leading up, some that went to 0, but I still like to use the credit crisis period as example. People call it a one off, but it really is these events that seems to shape everything. In fact many O&G purposes during that period are near net 0 so one really should look at the sector...

I believe there are many reasons for and against averaging down, it discussion doesn't have to revolve around black or white, but really the exact scenarios where it does and does not work.

Someone awarded an inheritance has to decide between lump and 'DCA'. Using DCA over a short term will be averaging up/down, and has merits depending on the market conditions, risk tolerance etc. If the fundamentals driving the stock price remain similar over that period, then averaging is not a bad/terrible thing.


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## hboy43 (May 10, 2009)

Hi:

Once upon a time, a long, long time ago (about a year, which is a long time in stock years with the average hold period, what minutes?), I gazed at my portfolio and said to myself, "self, you have not had a mine since Inco got taken out years ago". I looked around and noticed that TCK.B was well off multi year high of about $50 at about $24. Lets take an initial position I thought, thus 1000 at $23.76. With a multi year range of something like $4-$50, it was a lowish number, and one has to start somewhere.

Turns out, starting later would have been better, much better, but there is just no way to know a priori.

The entire sequence ...

1000 @ 23.76
1200 @ 19.41
500 @ 17.79 (these two were same
700 @ 17.41 day in different accounts)
1500 @ 13.17
3000 @ 9.40
3300 @ 6.01

So I now have 12800 @ $12.23 in the aggregate. I am showing a loss, but I am doing much better that folks who bought much higher and then froze in fear. In the multi year range of $4 to $50, $12 is a pretty happy number I think. I have a similar experience in COS, ECA, BTE, LRE, and BBD.B. Only COS is in the black, but every position has an ACB well under multi year highs, and all positions are about 5% of portfolio.

At just over break even the sequence will have 2 winning transactions and 4 losing transactions (considering the two at $17 on the same day as one transaction). Am I an investing loser that day, if and when it comes, because I am wrong twice as often as right at that point, or an investing winner because I made money? So many concentrate on trying to win on every transaction, instead of trying to grow their money. Personally, I don't care if I have a 60% win rate (last I checked it was about that) as long as I get 8 or 10% PA in the long term, which I do. The thing is that you get so many shares near the bottom for about the same dollars invested each time, that this becomes the dominant factor in the whole experience.

This is all really just rebalancing. As my average position size is 4 or 5% of portfolio, as equity disappeared in TCK.B, I brought it back up closer to the average position size. As of close yesterday, it is just under 7%, so it will soon be time to give some shares back.

hboy43


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## 1980z28 (Mar 4, 2010)

^^^^^

Having the cash to keep buying,nice,I do the same,it works out at some point


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## andrewf (Mar 1, 2010)

Unless it's Nortel, Blackberry, etc. sometimes it is a value trap and you keep investing good money after bad.


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## none (Jan 15, 2013)

re:hboy

Not really - if you stopped at the 1st trade you'd only be 10K down - as is you're about 20K down. Not exactly a feel good story about averaging down. Indeed, averaging down has worked out terribly for you until the last 2 trades. Time will tell if TCK goes up another 20% that you need to just break even (and forget the opportunity costs of making zero on ~130K for a year).


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## Sampson (Apr 3, 2009)

andrewf said:


> Unless it's Nortel, Blackberry, etc. sometimes it is a value trap and you keep investing good money after bad.


I guess there is always the conundrum of valuing an investment decision at anytime. I understand that argument and agree to an extent that buying a holding which has gone down should be independent of one another.

However, when constructing and rebalancing a portfolio, regardless of whether you buying individual stocks, or indices, re-buying often happens at lower prices. This might not be an optimal decision, but I believe the value of maintaining the strategy far outweighs the disadvantage. This is the only systematic way I know that can remove some emotion from investing.


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## Woz (Sep 5, 2013)

Averaging down relentlessly is a sure way to lose all your money as it would only take one stock going to zero to wipe out your entire portfolio. If you promote averaging down then I also think you need to talk about how you avoid that one stock that goes to zero from taking out your entire portfolio.

In practice, I think people who average down indiscriminately do apply some other framework to manage the risk. It may be that they only average down with new money, they set a maximum that they’re willing to sink into a company, only average down at a set frequency, reanalyze any stock they rebalance into, or something else.

1980z28 mentions averaging down with Nortel. Did that wipe out your entire portfolio? What stopped you from continuing to average down?

Hboy, you say you’re just rebalancing towards your average position size, but given the trades you’ve listed your position size was steadily increasing.

1000 @ 23.76 (1000 shares at 23.76 = $23,760 total position size)
1200 @ 19.41 (2200 shares at 19.41 = $42,702 total position size)
500 @ 17.79 (2700 shares at 17.79 = $48,033 total position size)
700 @ 17.41 (3400 shares at 17.41 = $59,194 total position size)
1500 @ 13.17 (4900 shares at 13.17 = $64,533 total position size)
3000 @ 9.40 (7900 shares at 9.40 = $74,260 total position size)
3300 @ 6.01 (11200 shares at 6.01 = $67,312 total position size)

Except for the last trade, you increased your position size every time you rebalanced.


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## 1980z28 (Mar 4, 2010)

andrewf said:


> Unless it's Nortel, Blackberry, etc. sometimes it is a value trap and you keep investing good money after bad.


I am very guilty of the above,it cost me lots and lesson learned


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## fatcat (Nov 11, 2009)

i am bad at a lot of things in investing but "averaging down" isn't one of them, i cut my losers fast and ruthlessly unless there is some macro reason that i know and believe the stock is still solid i will ride down ... for awhile ... but usually if a stock goes south of the border down mexico way there is a reason to get the hell out 

not admitting you bought a loser is a big reason people average down


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## lonewolf (Jun 12, 2012)

The truth is your friend, being able to admit when your wrong is a trait of successful investors. Averaging down to be right is not the best approach. Often it is best not to play the market based on trying to be right. For example if everyone is bearish the market & put premiums are sky high & you think the market will move lower the risk/reward might not be favourable to take a position for even if your right the reward might be small & possibly no reward & a loss of money. 

Sometimes the risk/reward will be so favourable that it is best to take the other side of the market then you think the market will do. If everyone is on one side of the market i.e., "long" the put premiums will be so cheap that the reward will be so great it is worth the risk to take the other side of the trade then you think will happen, (Often it will happen because no one is expecting it which is why the risk/reward is so favourable.

Of course the best trade is a high confidence low risk high reward trade.

Trying to play the game to be right is not always the best approach if you want to make a lot of money while adding as little liquidity to the market as possible Risk/Reward must also be calculated into the equation


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## lonewolf (Jun 12, 2012)

The part of the cycle where the retail investor averages down is in the bearish part of the cycle. For example from the 09 lows the corrections became smaller & smaller as investors are programed to buy the dip as it has worked in recent history. When the bear market takes hold the retail investor will keep averaging down as the market declines. The emotion will turn to hope of getting back their money until capitulation near or @ the bottom. (hope is not the best emotion to use to play this game)

E motion energy in motion can not be eliminated from the market for without energy one can not act. There can only be one best of anything & there can only be one emotion that is best to use to play the market. If one is living in a sea of self doubt & confusion on how to proceed playing the market it is not the best emotions either for playing. From my experience the best emotion for playing the market is confidence, though the confidence must be based upon your friend the truth which can only be found through the proper use of reason (judging by information provided by the senses) & the use of logic ( a thing is what it is & can not be something different @ the same time & in the same respect)

If by using numbers, statistics & math your system gives you an edge the more confidence in the system. The better the edge & the higher the odds the more confidence in the system of course money management must be taken into consideration & placing all the eggs on the table will lower confidence that the system will survive long term, Placing small amount on the table will promote more confidence for risk of ruin is lower.


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## londoncalling (Sep 17, 2011)

I would agree that averaging down can be a good/bad method to incorporate. Like most theories, always and never do not apply. I have averaged down on several stocks that I feel are oversold. I would later sell this posotion at a profit. I don't see how this is any different than turning on a DRIP with an underwater position and later selling those shares for a profit. At the end of the day it is about making money. I successfully averaged down on some stocks and I have also averaged down on some losers. Currently most of my energy plays are underwater, but I would have bought/averaged down at these levels whether I held a position in them or were initiating today. Another reason I will average down over initiating a new position is that I don't want to hold more than 30 positions. If selling a loser to add a new position to the portfolio is needed I will do that as well. I have done that both successfully and unsuccessfully also.

Cheers


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## hboy43 (May 10, 2009)

Woz said:


> Averaging down relentlessly is a sure way to lose all your money as it would only take one stock going to zero to wipe out your entire portfolio. If you promote averaging down then I also think you need to talk about how you avoid that one stock that goes to zero from taking out your entire portfolio.


A little common sense goes a long way. This is the largest miner in Canada, not old Moose Pasture Mines. Plus one would probably slow down as the invested equity started to climb over 10% of portfolio. I tend to own companies that have been around decades making a product that was the same as it was 100 years ago, today, and 100 years from now: coal, oil, methanol, OSB. These companies may be rendered irrelevant one day by the march of human progress, but it will likely be a process over decades, not a sudden high tech flame out over a year or two. In the mean time a $4 stock price is almost certainly too low for TCK.B in the long term, as is $50 too high. I am in way closer to $4 than $50.



Woz said:


> Hboy, you say you’re just rebalancing towards your average position size, but given the trades you’ve listed your position size was steadily increasing.
> Except for the last trade, you increased your position size every time you rebalanced.


A fair observation. I usually take 3 buys to get to the 4 to 5 % weighting, so the first 3 get me approximately there, and the next 3 approximately keep me there.

Anyhow, I have no formula, or method or rule set. It is all arbitrary as to when I buy more. The only point I make is that I attempt to buy low. If I miss the first 4 or 5 tries, does not preclude me from trying again, and if I miss the first 4 or 5 times, the gains of the latter buys after are likely to be stunning in the fullness of time. My last buy of Nova Chemicals was at around $1.50 and 4 or 5 weeks later I got $7 for it (much of my buying was at ~$30). Now, my lifetime return on NCX was in the GIC range, but better than taking a massive loss. That is OK, I made out like a bandit on MX which after trading in the mid $30s, I bought more at $19, $17, and $8. Did well on NBD too buying more at $5 to $10 range after starting out at ~$100. Back in the day, I made money on Inco, HBC and others over time frames of years, not months or days buying more shares at lower prices. I also had some bankruptcies, thus I mostly hold large companies now trading in long term stable products.

Note also that I tend to be with companies for years: MX has to be 15 years now, NBD is closing in on 10. I am not the slightest bit concerned that TCK.B in the short run loses for me. This is the nature of equity investing, not any error on my part. I have been with TCK.B a bit over a year, and for my efforts, I have a ~30% loss. This is well in the range of reasonable in the short term for equity investing. Consider say banks, or SNC, they are/were both off ~15% from recent highs. Nobody here will get too excited that I failed to sell the banks and SNC at the recent highs, and have suffered a loss from that point. The decision to not sell, and suffer a loss is entirely equivalent to a decision to buy and suffer a loss. A commodity position at only 30% off my ACB is really quite good in the short term in comparison.

I part ways with almost everyone here when I say my first buy of TCK.B was not an error. I had no mining exposure at the time, TCK.B was half of recent highs, and the initial position was about 1.5% of the portfolio. An entirely reasonable buy that just happened to not work out in the short term. Other similar reasonable buys in the past have worked out. The ones that have worked out dominate the ones that have not, leading to an entirely satisfactory long term record. The error would be in not buying more at lower prices if and when the opportunity comes along. This particular tree is a dud in the short term, but the forest has done quite well in the long term. Concentrate on the forest.

Anyhow, that is what I do, and many of you will consider it nuts. That is OK. If the rest of the world agreed with me, I would not do so well in the long term. I do mean long term. Most everyone here will have done better last year, are doing better this year and likely will do better next year too, but 5 or 10 years out, I like my chances. Unlike most investors, who can parrot the words "stocks are for the long term", I actually believe these words and behave accordingly. It ultimately is my only advantage. I am not smarter than the rest of you, I don't do more research, I don't understand what and why the population buys say an Apple smart phone at double the price of an Android based smart phone.

hboy43


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## Freedom45 (Jan 29, 2011)

I've learned my lesson the hard way in the past. I'll average down on solid long-term positions when/where possible, assuming the fundamentals, and long-term outlook remain unchanged.

On shorter-term positions, I've been burnt, and rarely, if ever average down.


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## Woz (Sep 5, 2013)

I don’t think averaging down is nuts. I just think the risk management part has to be stressed. Following an averaging down strategy increases your risk unless you apply some other strategy to manage that risk. 

You say it’s arbitrary, but from the sounds of it you do have some methods in place to reduce risk. You seem to revaluate the company’s prospects when rebalancing. This would reduce the chance of averaging down all the way to zero. Although, you don’t have a strict max position size, you do seem to have a range in mind.


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## HaroldCrump (Jun 10, 2009)

Very few investors like us will usually have enough cash handy to buy entire planned position in a particular security at one shot.
It is a common strategy to buy 1/3rd of position at a time.
So, we are always either averaging up or averaging down.
Both have pros and cons...

I think as long as position sizing is appropriate, and investor pays attention to make sure fundamental investment thesis is still valid, either way should be fine.
Caution in averaging down/up would be required if stock has recently gapped down or up.

I, personally, average up/down within a +/- 10% - 15% range.
But if stock has moved+/- 20% or more since my last buy, I will normally analyze what is going on before buying/selling any more.


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## andrewf (Mar 1, 2010)

Maybe it comes down to definitions, but to me 'averaging down' means specifically buying a security _because_ you own it at a higher price. If that is not the motivating/deciding factor, it's not really an 'averaging down' strategy.


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## dogcom (May 23, 2009)

fatcat said:


> i am bad at a lot of things in investing but "averaging down" isn't one of them, i cut my losers fast and ruthlessly unless there is some macro reason that i know and believe the stock is still solid i will ride down ... for awhile ... but usually if a stock goes south of the border down mexico way there is a reason to get the hell out
> 
> not admitting you bought a loser is a big reason people average down


I agree if a stock keeps dropping and the other stocks in the sector are not following you have a problem. If you can't find a good explanation for it that you think can overcome the negative then you need to get out.


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## jerryhung (Mar 28, 2011)

dogcom said:


> I agree if a stock keeps dropping and the other stocks in the sector are not following you have a problem. If you can't find a good explanation for it that you think can overcome the negative then you need to get out.


Case of my averaging down don't work = CXR and GPRO
shows you good companies with good ER/PE/whatever ratios can still get beaten down (GPRO)
CXR drops 50% compared to others Biotech or even VRX... I know it's small-cap, growth, biotech company, but oversold is oversold too much...

Time will prove me right, or wrong....


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