Why do people average?

Investor99 wrote:In my opinion most investors average their portfolios and if you can hold shares for the medium to long term averaging should work in your favour. But one point to keep in mind is that this method would work best for fundamentally strong counters.

LankanBusiness wrote:I noticed that some people buy more shares of a stock in their portfolio whose price has fallen drastically This process is called “averaging” – on the face of it this may look like a foolish thing to do...

LankanBusiness wrote:I noticed that some people buy more shares of a stock in their portfolio whose price has fallen drastically This process is called “averaging” – on the face of it this may look like a foolish thing to do

This process has been adopted by many “professional” portfolio managers to reduce the true impact of loses by reducing the average cost per share shown in the portfolio.
Averaging should only be resorted to where you are 100% sure that the share price will climb higher than the average cost within a short term and also yield a significant profit per share.

Why you shouldn’t average:
1. Any steep decline in price usually indicates a permanent drop in value of the stock - don’t invest any more money in a losing stock
2. High risk – shares that you will need to average are typically high risk shares with a mediocre return even in the best of situations
3. It is always better to absorb loses immediately and go onto high ROE shares with good risk profiles – the sooner you divest and re-invest your portfolio ROE will improve

Remember that even if you achieve breakeven on averaging - your personal ROE on sale of those shares will still be 0%

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

watch dog wrote:

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

yes bro avarage is the term use by lossers to make up their mind!!!!!

nkalansu wrote:

watch dog wrote:

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

yes bro avarage is the term use by lossers to make up their mind!!!!!

A comment from an intelligent one. All the others are losers..........................

nkalansu wrote:

watch dog wrote:

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

yes bro avarage is the term use by lossers to make up their mind!!!!!

A comment from an intelligent one. All the others are losers..........................

Investor99 wrote:

nkalansu wrote:

watch dog wrote:

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

yes bro avarage is the term use by lossers to make up their mind!!!!!

A comment from an intelligent one. All the others are losers..........................

I do not agree as averaging has bought me lots of profits. Averaging does not make you a loser. There are times that you need to average.

Investor99 wrote:

nkalansu wrote:

watch dog wrote:

zen wrote:It's just book keeping to fool yourself. If you buy 100@10, and another 100@8 your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

yes bro avarage is the term use by lossers to make up their mind!!!!!

A comment from an intelligent one. All the others are losers..........................

I do not agree as averaging has bought me lots of profits

zen wrote:It's just book keeping to fool yourself. If you buy 100@10 and another 100@8, your average will be 9. If you sell at 9.50, you make 100@.50 loss and a 100@1.50 profit.
Calling it a Rs.100 profit is wrong. It's just one wrong purchase which results in 50 loss which you don't like to admit and a correct purcase which made a 150 profit, which you use to cover the loss.

zen wrote:Let me put it this way. Averaging is ok as long as you can make a profit. However you have to realise that your first purchase was a wrong decision and learn a lesson from it. As per my example, purchasing @10 is a mistake and you have to accpet that and find out why it happend, instead of thinking that you are always correct.