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To average or not to average?
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winston
#1 Posted : Thursday, May 20, 2010 3:26:42 PM
Rank: Member

Joined: 4/14/2010
Posts: 806
Location: Nairobi
This is quote from Jesse Livermore - on averaging:

"I have warned against averaging losses. That is a most common practice. Great numbers of people will buy a stock, let us say at 50, and two or three days later if they can buy it at 47 they are seized with the urge to average down by buying another hundred shares, making a price of 48.5 on all. Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the double worry when the price hits 44? At that point there would be a $600 loss on the first hundred shares and a $300 loss on the second shares. If one is to apply such an unsound principle, he should keep on averaging by buying two hundred shares at 44, then four hundred at 41, eight hundred at 38, sixteen hundred at 35, thirty-two hundred at 32, sixty-four hundred at 29 and so on. How many speculators could stand such pressure? So, at the risk of repetition and preaching, let me urge you to avoid averaging down".

Wazuans: Whats you take? Am kind of undecided.
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2012
#2 Posted : Thursday, May 20, 2010 3:44:14 PM
Rank: Elder

Joined: 12/9/2009
Posts: 6,592
Location: Nairobi
@winston,
Gosh! is that what people do? I honestly had no idea people trade that dangerously. You only add more if you fully understand why the counter is heading south and if it's artificial (at least that's what I do). Like I would not 'average' on AK, would you?

BBI will solve it :)
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sheep
#3 Posted : Thursday, May 20, 2010 4:02:52 PM
Rank: Veteran

Joined: 7/24/2008
Posts: 781
Right now averaging up is what sounds ludacris,the market conditions have drastically changed.Buy at your own risk.
The utimate goal of investing is to buy low sell high;if we re-write this core equation in psychology terms it becomes buy fear sell greed.
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MaichBlack
#4 Posted : Thursday, May 20, 2010 4:38:02 PM
Rank: Elder

Joined: 7/22/2009
Posts: 7,839
@ Winston - You don't average down (or up for that matter) just for the sake. You look at fundamentals. What's the true worth of the stock/company? Then you make a decision. For example, I'd buy KK at 100/= because I think it is worth it. If the price drops to 90/= and I have the money you bet I'll "average down". When it hits 80/=, 70/=... I'll repeat the same process so long as what made me buy at 100/= in the first place has not changed. It will be a discount to me. At the same time, I might have bought AK at 20/= and bail at 18/= because at that point I might have new information which might suggest an AK share is actually worth 14/=!

The opposite also applies. If I buy a stock at 10/= knowing that it is actually worth 50/=, I'll buy it again at 15/=, 20/=, 25/=,... depending on my cash flow - Otherwise I would have bought as much as I can at 10/=.

Whatever you do, don't buy a rotten mango at 50/= just because you had bought another one at 100/= are you are trying to "average down"! Laughing out loudly Laughing out loudly Laughing out loudly

Na kwa hayo machache....
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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  | | Edit by user: Thursday, May 20, 2010 4:41 PM | Reason: Not specified
obiero
#5 Posted : Thursday, May 20, 2010 4:39:04 PM
Rank: Elder

Joined: 6/23/2009
Posts: 14,221
Location: nairobi
@ twenty twelve. that is v true. if u can see that it is a market misjudgement, then and only then can u average down

KQ ABP 4.26
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  | | Edit by user: Thursday, May 20, 2010 4:41 PM | Reason: Not specified
Wa_ithaka
#6 Posted : Thursday, May 20, 2010 4:43:24 PM
Rank: Veteran

Joined: 1/7/2010
Posts: 1,279
Location: nbi
Turns good money into bad money.

Only if fundamentals warrant it.
The Governor of Nyeri - 2017
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kyt
#7 Posted : Thursday, May 20, 2010 9:08:21 PM
Rank: Elder

Joined: 11/7/2007
Posts: 2,182
indeed
LOVE WHAT YOU DO, DO WHAT YOU LOVE.
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Wondergirl
#8 Posted : Friday, May 21, 2010 7:45:44 AM
Rank: Member

Joined: 9/12/2009
Posts: 312
Thanks guys for bring up this issue.I was just about to ask the same about my holding on Kenya re whose average price is 14.50. I was thinking of adding a few shares so that I get to dispose them. Will that be a case of throwing good money after bad? Averaging has waorked for me befor. Just that I'm not very confident with Kenya re any more, I really want too get rid of it. Help out a sister here, do'nt beat her up......
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2012
#9 Posted : Friday, May 21, 2010 7:58:11 AM
Rank: Elder

Joined: 12/9/2009
Posts: 6,592
Location: Nairobi
Wondergirl wrote:
Thanks guys for bring up this issue.I was just about to ask the same about my holding on Kenya re whose average price is 14.50. I was thinking of adding a few shares so that I get to dispose them. Will that be a case of throwing good money after bad? Averaging has waorked for me befor. Just that I'm not very confident with Kenya re any more, I really want too get rid of it. Help out a sister here, do'nt beat her up......


Why not 'average' with another counter eg Equity or SCOM? I thought the reasoning behind this theory is to take your investment out of the negative?

BBI will solve it :)
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winston
#10 Posted : Friday, May 21, 2010 8:05:38 AM
Rank: Member

Joined: 4/14/2010
Posts: 806
Location: Nairobi
Thanks guys- I have been agonising on my holdings in Paka(which wazuans have termed as junk in a different thread) 54% down and Centum 28% down. Am happy to average down on centum (when funds are available) but have been at a loss on paka.

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