fantastic market reaction, page-110

Quackie, You bring up an interesting question to Vendor about those who picked up a bargain in 08, 09.

Since we know people much prefer to average down and generally don't like to average up, this is a likely scenario.

Let's say you got tipped SLR in 09 and bought for 50c (not at it's lows but close enough). You take a small position because it is a semi speculative stock and have just watched it rise from 25c, so you are a bit worried about it dropping after doubling.

Then over the course of the next year, the stock climbs on upgrades and some great potential for the company. You start to fall in love with the story and your research tells you this is a company of the future. It hits $1 with brokers research saying this stock is a $2 stock. SLR is now one of your favourite companies because, well the stock has doubled. However, you are a little bit annoyed because you only took a small position. You would love to increase your position, but 1. Human psyche hates paying more for something than we originally purchased & 2. You can't stand the thought of averaging up and having your average price go from 50c to 70c. So instead, since you prefer to average down, you buy more of one of your other stocks which has fallen sharply.

Then you watch SLR surge to $2. You are stoked, but at the same time you are kicking yourself because you only initially took a small position. You love this stock, go to AGM's and post the most on hotcopper because it looks like it could be anything. Meanwhile your other stock which is trending downwards, continues to trend downwards.

A year later, 2012, the stock goes above $3.50. You are thinking , I always knew it. You are happy, but at the same time, you have regrets from all of the missed opportunities along the way. The $1 you wouldn't pay because you couldn't stand the thought of having a 70c average all of a sudden looks very trivial, especially considering you were always very confident with this company's story. Gee, even if you picked some up at $1.50 would have been good. Meanwhile the other stock you averaged down on is still yet to get to break even.


So, because you don't believe in averaging up, only down, you have missed on holding a decent position at 70c instead of having a small position at 50c. Also, that money you would have used to average up has basically done nothing because you averaged down on the other stock. Therefore, you missed out on $X going from $1 to $3.50. I

Ok, we know what happens after 2012. And there can be a million arguments and scenarios.

My way of thinking is that a person who averages up, is well aware of stocks trending. There may be arguments for him taking his profit on SLR at $1.80, but in saying that, the stock broke out again at $2 and didn't create a series of lower lows or possibly taking profits at $3

I am not a TA trader. I am not knowledgeable and good enough. I like the fundamentals of a company, but I try to incorporate a little TA when making my decision to buy. I average up and down when i think it suits. It is not always perfect. If a stock has already had a long, clear distinct trend and i buy in, I am very cautious (probably never) average up. ON the other hand, if a stock has an ugly looking downtrend, like SLR at $2, I am inclined not to take an initial position until i can see it play out.

I also think in the above case, there could be the scenario where a person bought SLR at its lows at 50c, failed to average up because they don't believe it. Then fell in love with the stock, knew all about it, looked at brokers reports, went to AGM's and believed the whole China, Gold etc story. So when the stock started falling, they may have bought more at $2.50 ($1 from its highs). They may have bought at $2 because directors bought. Then they may have averaged down on their above purchase at $1 again because directors bought again.

Therefore, it is conceivable that an investor who doesn't believe in averaging up, may have ended up buying at the beginning of the trend, then started purchasing big amounts (since it is not a speculative co) on the way down, possibly creating a big hole for themselves.

I know there are many possible scenarios which could contradict this. But, as i said, someone who employs a little TA when making investment decisions can take advantage of trends playing out.

TLS is another example of where averaging up early in the trend could have made a lot of money up till today.