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