Discussion in 'Shares' started by Tropo, 8th Jan, 2012.
How averaging down works...
Average down could be alive if...
Averaging down could work or fail to work logically. It depends on a lot of factors. If a ship sunk into the ground, zero, you will fail if you are on the board.
However if and only if
1. its engine just had some problems which could be fixed in months or 2 years(very challenging and money is always challenging your wisdom)
2. you are trained to know the problems and know it could be fixed
3. you are disciplined, analytical, and never forget you could be wrong
4. you buy when the ship flat in time average intentionally with affordable capital(meaning if you lose all you are still OK)
5. you put 30% what you want to put in first when you believe it would sink down anymore.
6. you put another 30% when the price drops another 30%(corresponding to what you paid last time)
7. you put 40% in for another 30% dropping off
What if the ship would sink far more than your expectation? The above is what you would like to lose and you just stop to average down anymore. Why? You have done enough and given you and the ship the chances. You just need to forget it and hold what you have got. Why don't you jump into the cold water? If you do so you may die before the ship loses its life. Don't forget there are black swans and this ships may jump up with some reasons you could not understand.
If this troubled ship is not just only one for your destination, the time average and diversification of your ships will filter out most of risks. Your portfolio will win out. Too many market players have no sense and just want to hold on in one ship for their future.
This picture is very impressive but definitely not from a wise market player. One ship down doesn't mean everything wrong. Every great ideas has its own catches. A idea fails in one time and one place doesn't mean it would fail everywhere.
What's meaning of discipline? What's meaning of analysis? What's meaning of self-reliance? We have to be selective for what we do based on self- and environment-awareness.
In the life and market, it is always easy to accept any words without checking the application conditions of yourselves and environment. It always happens some said something which sound too good to be true or too bad to be true. There is always thin air between false and truth. If you go one step further all of truths become false.
Could you say IT is not a tool to change the world? Yes it changes the world but also drag millions into the hell. Could you say Google is not good to find the information we want? Yes, it makes the internet becomes a great database but also kill the time for the clever to twist the words! All of us now know everything bad in second and the market crashes all down, but is the world worse than the time when two super powers could hit each other with atomic bomb and then destroyed the whole world.
It is the world all are too clever knowing the winding and jumping over fences to know the basic of the life and market. When most of the market is very clever the wisdom would make the future and accumulate the fortune.
I'm a great one for dollar averaging down. I've done it to MQG. Thought it was cheap at $49.40. Quantity 700.
No brains,forgeting to have a stop-loss at $48.40.
Next buy, $36.90. But only 200 quantity.
And again $25.00 by 200.
If MQG drops to $22.00 i'll buy 1,000.
This way I can make up my breakeven at a much cheaper price and even jump into some profits.
BUT beware. Did the same thing with BNB. Ended up loosing nearly every penny in that trade. Lost $64,000.00. walked away with just over $2,000.00.
You must know your stock.
I'm now into penny-dreadful mining shares. LOVE THEM !!!!!!!
CTP ARU BLR TOE BPL BCC to name some.
Buy 100,000. If they jump a dollar, your rich. If they jump $10. your very rich.
Separate names with a comma.