1/5 Thread: When to average down in your stocks
So you bought this stock. And, it starts going down. Like a LOT.
What do you do now? double down? or cut your losses and leave?
I have three quotes for you from the investing legends.
So you bought this stock. And, it starts going down. Like a LOT.
What do you do now? double down? or cut your losses and leave?
I have three quotes for you from the investing legends.
2/5 "Losers average losers"-Paul Tudor Jones
"Lowest average cost wins"-Bill Miller
“What do you call a stock that's down 90%? A stock that was down 80% and then got cut in half.”-David Einhorn
Okay, kinda conflicting messages. What to do now?
"Lowest average cost wins"-Bill Miller
“What do you call a stock that's down 90%? A stock that was down 80% and then got cut in half.”-David Einhorn
Okay, kinda conflicting messages. What to do now?
3/5 General rule of thumb is avoid averaging down
1. financially levered companies
2. operationally levered companies
3. companies potentially facing technical obsolescence
1. financially levered companies
2. operationally levered companies
3. companies potentially facing technical obsolescence
4/5 Rules I have borrowed for averaging down:
1. Have an ex-ante description of what circumstances and how much I would avg down the stock
2. If I avg down, I wait another 6 months before adding more to it
3. If no new info emerges, I can add max 1-2% more to the position
1. Have an ex-ante description of what circumstances and how much I would avg down the stock
2. If I avg down, I wait another 6 months before adding more to it
3. If no new info emerges, I can add max 1-2% more to the position
End/ I read this excellent post by @John_Hempton literally every time before averaging down on any stock:
brontecapital.blogspot.com/2017/01/when-d…
brontecapital.blogspot.com/2017/01/when-d…
