Just like a good poker player, a good investor must know when to hold and when to fold.
In poker, a player should not be emotionally influenced by the amount he has already put into the pot to determine whether to stay or hold. This can be translated into an investing principle: Avoid recouping your losses from a bad investment by averaging down your costs, that is, buying the same shares at lower prices when the price of the shares begins to fall.
Some Poker's axioms:
- "Life isn't fair. You play with the hands you are dealt with."
- "A card player should learn that once the money is in the pot, it isn't his any longer."
- All investments by nature are risky. It may cause you to lose some or all your investing capital. So do help yourself and avoid thinking that you are so great and far better at analyzing companies than the Market that you have found some undiscovered "Market Gems".
- We don't need to win back in the same manner that we have lost it. When you keep averaging down, you are just trying to win back in the same manner that you have lost it. Is averaging down the only way to win back? Think again and think over it seriously. What have you done to your risk control? Most likely, your company may not fail; but if it does a massive private placement and let you sucking your fingers or "LL".
Unless you are buying stock for short-covering; the only reason that you have bought it is either you think that its stock price will not fall further or it will keep going up. If the market happens to let you average down to buy it cheaper and cheaper; obviously you are wrong with your initial stock analysis - either FA , TA or both. Probably, it is your own ego that keeps you going. In stock investing, it is better to hang your ego at the door before you do any stock analysis.
- Read? Investing Made Simple by Uncle8888 (9)
- Read? My War Room (4)
- Read? Why I Don't Average Down?
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Hi,
ReplyDeleteYes we need to hang our ego at the door, but in a Bear Market not only we need to hang our TA at the door but sometimes Fa also. I think one will never buy in a Bear Market if you still stick all the way your FA and TA.