Forum Archive Index - February 2002

["Craig Hoskin" <craig@infobahnz.co.nz>]

Title: RE: [sharechat] RE TWR

http://www.esignal.com/exchange/v19_01/trading_education.asp

Average down on the position. Averaging down by purchasing more shares at the current lower price is usually the first thing an undisciplined trader will do in an attempt to lower the breakeven on the position. For instance, buying 100 shares of Yahoo at 100, and later buying 100 shares of Yahoo at 50, would adjust the basis of the trade to 75. The problem here is that the risks of averaging down increase as you add to the position. This is true of options traders too, who average down on calls as the price drops. Averaging down only works on a falling stock as long as your bankroll can support it. Most people don't have that kind of luxury.

 

Why do we buy stocks?  For them to go up.

When do we exit stocks?  When they go down.

 

Why then, would it make sense, to buy into something whose price is going down?

 

Where is the bottom of the price movement?  Zero?  You can be a heck of a lot of something at .001 c?

-----Original Message-----
From: sharechat-owner@sharechat.co.nz [mailto:sharechat-owner@sharechat.co.nz]On Behalf Of nick
Sent: Tuesday, 26 February 2002 4:36 p.m.
To: sharechat@sharechat.co.nz
Subject: Re: [sharechat] RE TWR

 

       Hang on while i get my glasses!!    Right that better can see your stunning contribution now.   I would not really consider it averaging down , actually averaging up !! .  How so you say,  because say i the new lot of shares bought would be earning more per share than the previous lot bought. A long term investor should be looking at the earnings he is receiving for his money, rather than worrying constantly what the shareprice is up to. p/e and PEG etc tell you when a stock is cheap moreso than the shareprice

 Nick

|  1. The astute investor would buy more, realising that he is gaining
|fantastic earnings per share bought

Ahhh averaging down :-)

|2.    The company realising its owbn shares were a huge bargain would
|initiate a buyback
|3. Other companies would begin circling
|
|    The effect of all this would be a rise in price back to
|realistic levels