# Double Down



## 299889 (Jan 5, 2015)

So you bought a stock for a long haul? it raised a bit after you buy it, youre feeling good. The next week bad news comes out and your stock crashes 20% from the time you bought it
what do you do? Do you hope it goes back up or do you risk it double down and bring your average unit cost down? 

What is your strategy?


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## lightcycle (Mar 24, 2012)

Depends. Did the bad news affect the fundamentals of the company, the reason why you bought it in the first place? If it didn't (for example, bad news for a competitor, or the sector, or unfounded fears, or general market downturn), then I'd pick up some shares on the cheap. I wouldn't necessarily "double" down, but I'd keep an eye on whether the bad news was the tip of the iceberg that might lead to further declines.

However, what I've noticed is that a lot of investors just eyeball the charts and go in with a "what comes down must go up again" mentality. Past winners do not always get up and dust themselves off. Plenty of examples of high fliers that ultimately went bust.

Do your due diligence and keep your eyes open.


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## hboy43 (May 10, 2009)

eeehitscody said:


> The next week bad news comes out and your stock crashes 20% from the time you bought it
> what do you do?


In the short run, I continue eating my lunch.

In the long run, I buy more to work at my diversification and asset allocation. When I buy more, the price might be up from my ACB, it might be down.

I concentrate more on the forest, the portfolio, and less on the trees, the stocks. Some buys are going to lose soon and big. That is the nature of investing. I bought TCK.B I think 5 times between $24 and $13 over a time frame of under a year (half year?). How many investors would have taken that first $24 buy labelled TCK.B a dog and sold it at say $20 a month later? The important thing is what does the portfolio do on average over YEARS. If my weightings are mostly in the ballpark 3 to 5% I don't get too excited if 2 or 3 of them got there by losing 50%. Chances are I bought more of the losers at really good prices and they will have their day in the sun eventually.

As a footnote, TCK.B has worked its way to an ACB of just under $18 and a portfolio weighting of 4.9%, just about where I want it to be. Three of the buys are profitable, and two are under water as of yesterday's close. This is pretty much my lifetime figure, 60% of buys make money, 40% lose, but it all leads to a 8-10% PA average return.

hboy43


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## My Own Advisor (Sep 24, 2012)

Like oil and gas stocks?

I'm buying more.


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## lonewolf (Jun 12, 2012)

Money management should be decided before the stock was bought in the first place. Stock goes to zero & the investor keeps doubling down shirt off back & in max debt the banks would allow is the result.


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## JordoR (Aug 20, 2013)

Just depends... sometime it's a hard pill to swallow (dumping more money into something that's down considerably) but if I can lower my ACB significantly and I still have long term confidence in the stock, all the better. I recently did this with a few stocks with my new TFSA allotment in January, and it allowed me to breath easier with a few "losers"


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## Feruk (Aug 15, 2012)

Agreed with lightcycle; what's the bad news? There's a totally different decision made depending on what's gone wrong.


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## Todd1966 (Feb 23, 2015)

When you go to the grocery store and by an excellent steak for $15 a pound and then discover next week that it is on sale for $10 (same quality) do you complain that you paid too much last week or stock up because it's on sale? Same goes for good stocks!


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## Rusty O'Toole (Feb 1, 2012)

If I bought on spec due to technical action I would be out long before I lost 20%.

If I bought because it was a good company and the stock was selling at a discount I would be delighted to buy more cheaper, provided the outlook for the company had not changed, and they still had assets in excess of the cost of the stock. In other words if the company had $20 in assets per share and was selling for $10, then dropped to $8 I would buy more.


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## Oldroe (Sep 18, 2009)

Always do the math. How much effect will your $ have on your avg. cost.

Did the whole sector get hit or just my stock. And what is the bad news. If it's a pretty solid stock it's big players crushing it. If it's the weed stocks lots of stupid money in them.


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## My Own Advisor (Sep 24, 2012)

Todd1966 said:


> When you go to the grocery store and by an excellent steak for $15 a pound and then discover next week that it is on sale for $10 (same quality) do you complain that you paid too much last week or stock up because it's on sale? Same goes for good stocks!


+1


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## indexxx (Oct 31, 2011)

First off, I would only buy if I felt very sure that the long-term would be worthwhile. Second, I almost always put in a stop-loss at about 10% under my purchase price, so I never lose more than 10% of anything. I don't always do this, as I know Mr. Market likes to take roller coaster rides, but it's part of my overall protection strategy. As a stock climbs, I raise my stop losses accordingly to protect my gains. Some disagree with stops but it's always worked for me. 

As an example, when Aapl was down in the $70s, I bought and put a stop in around 60-65. As the stock rose, I kept raising my stop loss to always be a few dollars below whatever the stock's current value was. That way, I keep upping my guaranteed gain percentage. So when Aapl hit 90, my stop was 85. At 110, it was about 103. It's now hitting over 130, and seems to be falling back a bit, but I'm confident that it has room to run over the next year, so my stop is in at 120, knowing that it has the potential to swing quite a bit. If the stop gets triggered, I buy back in at what I feel is a comfortable level, but I've protected myself from catastrophic crash. Do I sometimes lose a little here and there by triggers and missing the bottom? Of course, but I accept that as part of the strategy, and it's impossible to hit the exact bottom and top anyway. So I know that overall, it should work in the long-term.


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## Toronto.gal (Jan 8, 2010)

As you actually appear to be a short-term investor, before doubling down, my suggestion at this point would be to first learn about risk management techniques, especially when it comes to speculative stocks.

If doubling down is what you'll be doing, you can approach it in various ways. 

*As an example:* [excluding fees]

- 500 sh x $2.50 = $1,250 [initial position]
- 500 sh x $2 = $1,000 [20% price drop - not significant enough to double down]
- 1,000 sh/ACB of $2.25 [reduction of just 10%; the lower the price drop, the lower the ACB]

When shares would recover around 40% to $2.80 from last purchase [12% from initial purchase/25% from new ACB], depending on one's objectives and stock in question [fundamentals, volatility, etc.], one might want to reduce the investment by selling 25% of the shares, as these could pull-back after such a recovery, especially if it was not a gradual one. In that scenario one would have still managed to do the following:

- increased the share position by 50% [500 to 750 sh],
- decreased investment amount by 25% [but still higher than initial]
- booked some capital gains

Taking into account the profits/new ACB, it's like a % of your shares were risk-free [u can figure out the # of shares]

Another scenario would be that you sold the entire lower tranche, in which case all original details would have remained the same for you [500 sh/$2.50 ACB], except that your original investment would have reduced by the profits made [$0.80 x 500 sh], which again, depending on the stock, you could use to top-up the shares on a pull back/use it to pay a debt, etc. 

For CRA purposes though, given the new ACB of $2.25, the capital gains would be lower [$275].

Now you can reverse the figures by replacing it with negative scenarios. As mentioned upthread, you should do the math.

I'm going to take a guess here that you're talking about WEF, which is down about -18% since the earnings release last week, and +13% from the 52 week low. Did you have an entry/exit strategy? Buying shortly before earnings is always risky, no matter the stock.


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## dogcom (May 23, 2009)

As mentioned first of all does the bad news change the reason you were looking at or bought the stock in the first place. If you are looking at the stock and figure it to be a good buy and the bad news doesn't effect that then take a position but not a full position. This way if you are right about the buy you are in the game and if as you suspect the trend is down then pick up more as it drops because no one knows for sure when a trend will change. Sell some as T.Gal says when it goes up and maybe buy back what you sold if it goes back down again. This way if it languishes for some time you will make money as you wait for the value to be realized.

I am currently doing this with silver wheaton I initially bought at 22 dollars sold half at $29.00 bought back at $24.00 and currently sold part again close to $30.00 and waiting to buy the position back again. I am bullish about silver in the long term and I like to play it with silver wheaton because of its business model.


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## lonewolf (Jun 12, 2012)

Never double down if you can not admit when you are wrong. Actually do not even play the market if you can not admit when you are wrong. The market is always right for the market is the market & must act in accordance with its nature.


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## Cal (Jun 17, 2009)

I wouldn't hope for anything. I would rather know I bought a good company, and if bad news created another buying opportunity, I would purchase more. If the company had a structural or something in that sectors landscape dramatically changed I would reposition my funds accordingly.


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## smihaila (Apr 6, 2009)

Todd1966 said:


> When you go to the grocery store and by an excellent steak for $15 a pound and then discover next week that it is on sale for $10 (same quality) do you complain that you paid too much last week or stock up because it's on sale? Same goes for good stocks!


I consider this argumentation a fallacy. Because you are not taking into account also the sale side. Selling your meat back is not applicable with your scenario. Everybody wants to pat on his/her back saying that they will never ever sell their stock. Hmm, when the retirement moment comes and you wish to start withdrawing on a regular basis and without touching your principal, and another 2008-like crisis comes, don't tell me that you will wait longer, for the stock to come back to "normal levels". Oh, and you will also say that you shouldn't be in stocks at all around that date - well, there will be a time when you will have to exchange/balance the allocation and sell some stock. And bang, a 2008 event comes and lasts for 4-5 years let's say. You're gonna wait for it to pass, right??? 

Actually I am *very* interested in learning more about pragmatic EXIT strategies. All the mainstream propaganda BS is focusing only on "buy...buy more", no matter what (or "buy low and sell high" whatever that means -- pure theory).


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## RBull (Jan 20, 2013)

smihaila
Re the exit strategies in retirement: A well designed portfolio can minimize/eliminate the need to withdraw equity at low periods. This is accomplished by selling/redeeming fixed income assets such as bonds or GICS or cash. The balancing needed when equities drop (reducing their % in your portfolio) is to reduce FI so this works to help avoid equity selling at lower prices. 4-5 year bad periods aren't common. Normally if you're prepared to weather 2-3 years you'll do okay.


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