“When To Average Down”

[Anonymous]

#16794

I have to say I am still learning. And seeing as how we won’t see one of these crazy selloffs for another few years then I am learning on this one. So when I reach my average down mark I should be patient because it is a whole lot better to buy my 3rd chunk on a stock, at $9.00 then to get it at the $10.00 3rd average in mark. It’s true that in most cases I risk losing the 10 mark waiting for the 9 to come. But this really isn’t most cases is it.

[Sean Hyman]

#16795

When a stock gets to one of our averaging down zones, its better to just take it, because you’ll have no foreknowledge if the stock goes lower than that ahead of time. You only know the price you have before you at the moment.

Averaging down isn’t about timing or trying to catch the bottom. That will never happen. Averagings are to get us closer to whatever the real bottom would be, than if we’d gone “all in” at one price point. It’s how the downtrend becomes our friend. So, don’t get too hairsplitting with it or you’ll miss opportunities by trying to get too greedy.

[Scott Pearcy]

#16800

In most cases, the averaging down points will be a fairly narrow range of stock prices…based on a percentage drop from our initial purchase price. For me, I put in a limit order to buy the stock as soon as the stock falls within the averaging-down range. Once the 2nd tranche is purchased, I put in another limit order to purchase the 3rd tranche of the stock. This way, I do not have to be constantly checking the price of a stock to ensure that I buy once the target price is reached.

[Sean Hyman]

#16803

Right now, with stocks falling so quickly..it’s good to have them all in at once. That way any spike downs might tag them.

[Scott Pearcy]

#16808

The ranges are identified in the far right column of the portfolio spreadsheet within the monthly newsletter….

[Anonymous]

#16824

I guess I have to get more comfortable with the “limit order” tool.

[Sean Hyman]

#16826

Yes, your broker should be willing to give a demo of that. Give them a call. Make them earn their keep.

[Leslie Harvath]

#16836

Bob, I also learned that when you place a limit order, it goes into a queue, so those who place first get first dibs when shares become available. So (if you have the cash to back them) it really behooves you to place all 3 tranches at once even if the current share cost is high above our designated buy points.

[Sean Hyman]

#16844

Correct. Picture people standing in line. The limit orders are the ones that have already been waiting in line for the doors to open (order to be filled) and the market order comes up behind the limit orders and is just now getting in that line. And…since there’s only so many shares available at each price point, you help to ensure you get yours filled over others. So, Leslie is correct.

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