You don't need to win back the same way as you have lost them

Read? Average Down or Pyramid Up? (2)

Eat your vegetables!

No matters how their parents nagged them; some still don't eat their vegetables.

You don't need to win back the same way as you have lost them - CW8888

Alamak!

Still receiving email like this one ..

uncle.

u think i should average down my current stock..then can faster breakeven and sell?


Read? More on Average Down






Real People, Real Thinking on how to recover losses!

Average Down or Pyramid Up? (6)

Read? Average Down or Pyramid Up? (5)


Let China Minzhong be life-long investing lesson for many of us.

Never, never, never Average Down!!!

50% down in two hours is not a myth!

What if you aggressively average down in the first hour.

Nightmare!!!


Read? China Minzhong halts trading as shares plunge 48% on Glaucus report

Average Down or Pyramid Up? (5)

Read? Average Down or Pyramid Up? (4)


When people lost big in the stock market, they may go around asking what wrong with their method?

FA?

TA?

or both FA and TA?


How many people who lost big money in the stock market go around asking?

What wrong with my Mind? What wrong with my Thinking?

What wrong with my Money Management?


Read? Have you spend enough time thinking on your money management strategies?


The Truth is ...


Method, Mind, and Money Management


What are the real key drivers that truly drive us along this long journey to reach our final destination of Financial Independence?


Read more? 3M's

Average Down or Pyramid Up? (4)

Read? Average Down or Pyramid Up? (3)


The Greatest Sin ever committed by newbies in the stock market and get their backside badly burnt!






What do you think it is?


















They keep averaging down their beloved stocks!!!


If you still don't believe, you can go around and visit investment and trading blogs to find out yourself.

Once you have locked in massive losses and negative return, it is extremely difficult to recover unless you have the financial strength to pump in massive investing capital again.


Don't ever attempt it or you regret it for long, long time!

Read? More on Average Down

Average Down or Pyramid Up? (3)

Read? Average Down or Pyramid Up? (2)

” If you have a worry problem, do these three things: 1. Ask yourself: “What is the worst that can possibly happen?” 2. Prepare to accept it if you have to. 3. Then calmly proceed to improve on the worst.” (Carnegie 49)


Average down or pyramid up lies in the understanding the wisdom from Dale Carnegie.

“What is the worst that can possibly happen?”


What is the worst that can possibly happen when we get the stock direction by averaging down or pyramid up???

Pyramid UP


When we finally realise that we are seriously wrong on that stock direction, we can still get out with small or big regret.


Average Down

When we finally realise that we are seriously wrong on that stock direction, we may be in a sorry state for a long time.


The Moral of Story

Do you want to regret or feel sorry?

The choice is yours!

Average Down or Pyramid Up? (2)

Read?   Average Down or Pyramid Up?

Average down???

This is one of those areas in investing that Uncle8888 will has strong opposing view when he is approached for his view.


"A superb intellect is worth little in investing if you have the wrong temperament. Most investors get led astray by emotions. They get excessively care-less and optimistic when they have big profits. They get too cautious and pessimistic when they have big losses.... I've always worked on having more self-control.” - Sir John Templeton


Why???


Retail investors' big losses will not come from their single large position but usually they will lost them over a series of averaging down.

They may keep thinking that the market is wrong. They will be right over long run.

But, the truth is ........

Once they have big losses, they will do what Templeton has said: "They get too cautious and pessimistic when they have big losses...."


By being too cautious and pessimistic, some retail investors may eventually switch to more conservative investing strategies that will hinder or slow down their progress towards their own investing goals.

"A superb intellect is worth little in investing if you have the wrong temperament. Most investors get led astray by emotions." - Sir John Templeton

So don't let your emotions lead you astray by your big losses.


You still want to debate over average down???

Losers Average Losers

Read? Losers Average Losers

Read? Keep averaging down on your favourite stocks???

Createwealth8888 likes ...

Paul Tudor Jones is one of the greatest traders in market history. Why? Because he’s consistently profitable. The best “anything” in the world are the best because they perform at a consistent, superior level for long periods of time. Michael Jordan isn’t considered the best basketball player ever because he scored 30 points ONCE in a game. It’s because he averaged 30 points per game over his ENTIRE career.


Createwealth8888 said ...
Yeah! To be successful we have to be consistent in our performance over a fairly long period of time e.g over 10 years to remove any beginner's luck.

But, when you read this ads in newspaper:

"I made $7,000 in 1 day Trading FX."

"I made $30,000 in 5 days."

Do these testimonials get you thinking that it was easy? Yes, I can!

LOL

Keep averaging down on your favourite stocks???

Read? Will you dump more than 50% of your capital at one go into your investment?

Not the first time and will not be the last time that I am hearing it again from the mouth of a big loser

I came to realise that there two groups of retail investors who are more likely to average down on their losing stocks to build up fairly large positions in their portfolio. They are smart ones or ignorant ones.

The rest of us who thinks that we are not that smart and are still attending lectures and doing tutorials in the University of Stock Market better stay far away from it. It is really very difficult to recover from huge losses in our portfolio without injecting significant new capital into our portfolio. How many of us can keep injecting more and more capital for investment?

Will you dump more than 50% of your capital at one go into your investment?

Read? Average Down or Average Up. Know Your Maths!

Will you dump more than 50% of your capital at one go into you investment?

Generally, what is your expected answer from those retail investors around you?

Investing in one property???

It is likely to be yes for investing in property as most people will agree that property over long term will not crash to zero and people dare to invest a large sum of their capital at one go.

Investing in one stock when it is already low???

Likely the answer is No as nobody is gullible enough to dump more than 50% of their capital into one stock at one go even when they believe the stock price is at its low. It is just too risky to do that. However, when a stock price starts coming down and become cheaper. It can give an illusion of "safety of margin"??? in that one stock. Investors can have no problem in accumulating it to more than 50% by averaging it down.

This is how an investor's mind works? Quite amazing. Right?

Average Down or Average Up. Know Your Maths!

Read? Bear market is here. Let's accumulate more by average down? (2)

Before you decide to average down or average up, know your Maths. It is simple mathematics on risks.

Assuming you have 2-3 batches of $10K each to average down or average up.

When you average up, with the $10K per batch purchase you will be buying less and less quantity of stocks on the way up.

When you average down, with the $10K per batch purchase you will be buying more and more quantity of stocks on the way down.

More quantity of stock means more volatility in any unrealized P/L. Guess who will be losing sleep if the stock price keeps falling?






 

Bear market is here. Let's accumulate more by average down? (2)

Read? Bear market is here. Let's accumulate more by average down?

Let me repeat it again. If you are small retail investor like me; then must learn to know the big difference between Average In and Average Down in term of risks control and portfolio management.

Average down

How do you know you are averaging down and not averaging in?

You must ask yourself these two question:

(1) Did you plan for this level of capital into your beloved stock? e.g. 20 or 30% of your capital

(2) Did you bought more of it due to its falling stock price since it has become cheaper, more attractive and more under-valued?

If your answer is (1); then you are Averaging In.

If your answer is (2); then you are Averaging Down.

When you are averaging down, you are actually taking more risks than initially expected. You are thinking of profits ahead of risks. As small retail investors, most of us may have limited incoming stream of new capital so it is better for us to think of risks first before profits. This sort of thinking will help us to survive in the stock market to fight another day.

Next time, when you seek advice or see your favourite bloggers, chatters, gurus or sifus in cboxes or stock forums who are buying more of the same beloved stock as you.

Don't be fooled by that buying action of your sifu.

Your sifu may be Averaging In; but you may be Averaging Down. Your sifu may be taking reasonable risk due to his portfolio size; but you may be taking too much risks and has ignored the importance of portfolio management for survival in a prolong bear market where there are many more other gems to be found. Diversification is a key survival for not so smart in the stock market.  If you are the smart ones in the stock market then people should be following you. Right?

BTW, one young man whom I know failed to appreciate it when I replied to his email; but has to learn this lesson through a more painful way.

"Think of Risks before Profits" - Createwealth8888

Bear market is here. Let's accumulate more by average down?

Read? Average Down or Pyramid Up? (2)

The Bear market is coming soon. Are you looking to accumulate more by average down strategy?

But, I don't. I am looking forward to diversify my current base into more sectors and stocks. I am more into Noah Ark strategy i.e. a pair of each kind is nice for survival.

Average Down or Pyramid Up? (2)

Read? Average Down or Pyramid Up?

Like it or not. Investing in the stock market is still a Game of Strategy. The ones who have better strategies that are closer to their heart will be most likely to reach their Investing Goals.

Winning the Loser's Game

When the stock market provides you the opportunity to average down; it is telling you that you are on a losing game. What is your strategy in this game plan by Average Down? Are you are trying to Win the Loser's Game?

Winning the Winner's Game


You spotted the opportunity in the market to win it bigger. You pyramid it up and raise the average cost in a winning game. When you are trying to win in the Winner's Game you will have margin of safety to exit when the market has proven you wrong. You may finally choose to leave the game with no loss or some profit.

Conclusion

There is No absolutely right or wrong but Only belief or bias. So what did you believe or bias?

Average Down or Pyramid Up?

Read? Following someone investing idea? (3)

Serious thinking. Respect the market. It is always right; and most likely you are wrong most of the time if your stocks are moving against you.The only problem you have in your mind is that the market is saying you are wrong; but you think they are wrong. Bo pian.

Learn and train your mind harder - Let it GO. Let it BE. But, don't Average Down.

When you Average Down

You are taking on higher and higher risk with a bigger and bigger holding to prove that you are still RIGHT either in your TA, FA or BOTH and the market with lots of smart investors and traders are WRONG.

So what happens now?

If you are RIGHT, you are just trying to break even first with a lower average cost i.e. trying to win back in the same manner that you have lost it.

If you are WRONG again, you have dug a bigger hole for yourself. Where is your risk control management?

When you Pyramid Up

In term of risk management, it is totally different.

If you are still right, you keep making more and more money from the market.

If unfortunately, the market is right and you are proven wrong; you can still exit the entire holding with little or no losses or even at some profit.

Risks before Profit

Always learn to train your investing mind harder to think risks before profit. I have good reason to be BIAS as I have learned the lesson through great pains. If you want to learn it through same way. Just do it lor. LOL

BTW, I have a few other BIAS too. You know. right?
Think risks before profit and sleep soundly.

Investors, learn to play your cards right

small change, invest, May 29, 2011, thesundaytimes

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:

1. "Life isn't fair. You play with the hands you are dealt with."
2. "A card player should learn that once the money is in the pot, it isn't his any longer."

Similarly to what Createwealth8888 used to advocate ...

1. 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".
2. 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".  

When do we buy stock?
 
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.

1. Read? Investing Made Simple by Uncle8888 (9)
2. Read? My War Room (4)
3. Read? Why I Don't Average Down?