股神 Investment 101: Tip #2
*Guidelines for getting out of unfavourable positions*
It has been a really tough few weeks and many have been stuck in the stocks - they have bought in at reasonable prices, but unfortunately, the stocks get hammered. Many are unwilling to let go of the stocks and take the uncomfortable loss. Here's my 2 cents and guidelines for getting out of unfavourable positions.
When the stocks fall, average down, then get out when prices rise to minimise losses and even profit. I will provide an example to illustrate:
You buy 1 unit of a stock for $100. The stock price then falls to $50.
1. Now you buy another unit for $50. The average price, which is also your breakeven price, is now $75 [(100+50)/2]. When the stock price rises to $75, you can get out at no loss (ignoring transaction fees). Thus, instead of waiting for the stock price to rise to $100 to breakeven and get out, the breakeven price is now lowered by $25, which is pretty significant.
2. Now let's say in the above scenario, instead of buying 1 unit at $50, you buy 2 units at $50. Your breakeven price is even lower, to merely $66 [(100+50+50)/2]. You can get out as soon as the stock price rises to $66.
I hope this helps for those who are stuck with their stocks purchased at sky high prices and hoping for a miracle for the stocks to return to their sky high prices to get out.
Cheers.
Disclaimer: I currently have no positions in both of the stocks mentioned. Just trying to help out some lost souls.
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FCC-bull : This strategy works if it is a bad company which you have invested in and wanted to get out of it. When it is a good one a different strategy may be required.
KongWeePeh : never play all in.
Love Durian : This strategy work when you have less than 20-30 shares. If you have 1000 shares costing at $80k and you need another 160 k to average out. Total cost now at 240k. If drop further do you think is wise to pump another k into this stock. Definitely not. This strategy definitely doesn’t work.
Dragony : this strategy is like u go casino bet 10 dollar, if lose, next round bet 20 dollar, if still lose, bet another 40 until u win. but like someone mentioned, if your initial cost is high like 80K, do you think you can afford to avg down with another 160K? imagine those bought at high price. how many time must they avg down if the stock keep going touch new low? how do you time when to avg down? u never know cos it may reach new low everytime.I don't think this strategy really work.
LaLa21 : Well said . All of us here please read it .![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
百年难得一见的股神 OP FCC-bull : This strategy is regardless of stock.
百年难得一见的股神 OP : If you can pump 80k into a stock, then 160k is peanuts to you. Unless you went all in into a stock, which is not a wise thing to do and this will be addressed in a future 股神 Investment 101 Tip.
百年难得一见的股神 OP : Anyway, this is not the same as going to the casino and doubling down. At the casino, yours odd are the same. In this case, you are doubling down at better odds.
BearlBee : For stocks like this, the price will only go up.
Jas1616 : This strategy works if you are doing investing aNd if company fundamentals doesn’t change.
However if fundamental is changed. This strategy shouldn’t deployed because you are maximizing your losses. For example, China crackdown on education business. This is fundamental change permanently. So don’t average down.
Whereas Alibaba fundamental are still intact. You can average down.
So do not apply the strategy for every stock. Do your part aNalysiNg the stock fundamentals. Else you will be bag holder for decades. Losing opportunities Cost.
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