Just a Sunday morning HC read through the SPT comments and given the nature of the comments.....thought I'd share some thinking....
Averaging down is misnomer. All it does is make your shares (meaning your 'losses') appear a little bit better in your commsec summary (in % terms, but not in dollar terms). Averaging down hides the underperformance of earlier financial decisions. Every single time you make a purchase of shares, you should be making the decision based on the merits at that point in time for the company you are buying in to - not your previous buys in that company - they have zero relationship.
You should be asking yourself, is this the best place to put more of my money, or are there other investments that have the potential to provide me greater returns - not "this will make my average buy in look not quite so embarrassing". When it comes time to sell, you have to deal with multiple sets of buys - not some mythical average figure.
Final comment on averaging down. If the shares continue to drop in price, averaging down has simply exacerbated your financial losses in real terms - ie. dollars. It hasn't made you a better investor, it's actually just cost you even more money. Promoting "averaging down" is a dangerous thing to do.
Remember there are thousands of companies to invest in - do you really want to keep pouring money in to a company that is losing money and where your investment continues to be eroded - most people would say no to that. Think about that carefully if someone convinces you that 'averaging down' is a good thing to do.
If you actually do think a company, whose share price has been tanking for a significant time, is worth investing in, you need to recognise it is a massive risk. When is the tanking actually going to end ? The more people that leave, the less the price, the less the price, the lower the Market Cap, the lower the MC the less the ability of the company to raise more money in the future - which is critical when a company is not actually making money - they are relying on people to continually pop their hands in their pockets to hand over hard earned cash to prop the business up.
Simple maths. In percentage terms, a fall in share price needs to be countered by a greater rise in share price just to recoup losses. For example and using a fictional stock, should a share price be $1.50 and fall to 42c - that would equate to a 72% fall. To recoup that 72% drop, your stock would now have to increase 257%. That is an enormous run - and needs to be backed by significant announcements and financial performance. Do you still believe those announcements are coming ?
It is OK to take a loss on something if you no longer believe or you believe you can make money elsewhere or you can't afford to hold a loss making business any longer or even if you want to offset a capital gain - it is called taking an active interest in your finances. There are no awards for holding a stock for the longest timeframe, you get no kudos for saying I held for ten years to make my money back (side note - did that factor in inflation and opportunity cost ?). Don't listen to the bullies that label you a 'shorter' because you have done your own evaluation of the business and your financial status and you have come to the conclusion that you are better off out. Normally the bullying and name calling is because those people are desperately trying to hold on/prop up/justify their own financial position. If you are confident in your own personal investment decisions, you don't need to name call someone who has an alternate view.
Take with a grain of salt any comment in public forums - there are nuggets of gold - but they are outweighed by a lot of noise and in-fighting. No one person in these forums is the expert - unless they are inside a company, with access to information and illegally passing that information on. Without naming names, there is a profile operating in this forum that pops up sporadically that people treat as some kind of Inca god and talk about 'what xyz said', 'xyz will have more news for us' - these types of profiles are like the modern day psychic or prophet - vague statements that can be applied to any outcome.
Forums are a great place to share information - good and bad. Anyone criticising someone that provides a counter view, whether they hold the stock or not, tends to get labelled. Question anyone that does this name calling. What are they actually worried about that they feel the need to bully/name call someone ? Worry as much about those name callers as the people that make false facts up and post them as truth (positive or negative).
Buying and selling stocks - or any investment for that matter, should not be done on emotion. I see way too much emotion in Hot Copper specifically.
Final comment - deal in facts, take comments in forums as triggers to do your own research - don't just blindly believe them as you have no idea who is sitting behind the keyboard, don't throw good money after bad in blind faith that things must get better at some point - treat every single order on the ASX as an independent order that has no relationship to any earlier order.
...and in regards to SPT....when is this current trend going to end, how long do you want to hold for, can your money do more somewhere else, or is this really the greatest bargain on the ASX that deserves to be bought more... ?.....your call.......
Enjoy the read - or bring on the name calling
