Is this a good investment strategy?

[booooo]

Hello everyone,,
I own several good stocks such as gilead, disney, altria, hewlett packard, etc. some are down 10% now since i purchased but i havent done anything. is it a good strategy to buy more shares in a stock when they drop a minimum of 15%? or is it better to wait until they go lower? what do you guys do? thanks

 

[NVP]

hey there ......

I used to trade stocks a lot in the 1980s and 1990s .........ive been exclusively trading Forex since early 2000s

for me it depends entirely on the Sector and stock concerned ........I used to adopt a strategy of trading Stocks which took a short term knock from detrimental news events but still had strong fundamentals ....it was then just assessing True market value and buying them back up towards it .......

if you have a stock and you believe it is below true market value then I would perhaps slowly buy back in smaller tranches vs price levels .............so perhap if -15% is the low (who knows)....use 25% of your capital allocated to buy a tranche........then add more if it starts to rise .................

alternatively if price falls more buy another tranche at -20% fall ............

this is an art form however and as i said you have to assess the whole market and also the sector to decide on how much the market value is of the stock...........its hard to catch a falling knife so you will never buy it at the bottom .........

N

 

[tomorton]

I actually went on a share trading course in the late 90's. The teaching was very conventional - to always exit a position at -10%. With a 10% loss, you only need to make an 11% gain and you are back to break-even. however, if the share drops all the way to -50%, you would need a 100% gain to get back to zero on this share and there is no credible share trading strategy that pays +100%. Buying at lower prices of course reduces the gain required to break even.

Suppose you actually do sell the share at -10% and it then drops to -15%. But then it goes straight up to +20%. Obviously you've missed the 20% profit on your original purchase but you couldn't know it would stop at 15% and you certainly couldn't know it would go up to +20%. Even when you do buy back in at -15%, you can still keep adding at -12% and -11% and -7% etc. Getting out and buying back in even once will cost money of course, but, what are your spread, fees and duty, 1%? 2% tops surely. Why try to save the exit and re-entry costs when its insignificant next to the risk attached to the full position?

 

[NVP]

all good points T.........i'll stick to forex ....hahahahaha

 

[tomorton]

Well, as I say, it was all very conventional...................... and I don't trade shares any more.................. Draw your own conclusions N..............

 

[malaguti]

it is said that a 10% fall is a retracement, whereas 20% is a bear market. for the indices this is certainly very true. for the S&P for example anytime the index has fallen from its high by 20% its gone into a bear market for over a year..for a stock however, this really is going to be on a case by case example
if i was going to suggest anything regard to stocks, i'd look at this thread which is by far the best "technical" method on how to trade stocks, ETFs etc
I would absolutely swear by it, as i use its methods
https://www.trade2win.com/threads/stan-weinsteins-stage-analysis.134944/

in a more general answer to your question, no. you dont buy when its going down, because there is no knowing whether something will rise again, just because it was at that height in the past, wait for it to confirm its going back in the right direction
that method is all described in the thread.
feel free to contact me and i can take you through its methods, and how it may be applied to any stock you might be thinking of

 

[J_C_Anderson]

It all depends on the period you are going to hold them. If it is a mid-term investment, it is not a good idea to hold them. In fact, in such case you have to sell them even before.
At the same time, if you are long-term investor, and these stocks are your own "retirement fund", you can buy more to make your average better and then hold them longer. Anyway, it is extremely important to know as much, as possible about the companies you are holding to be able to sell if something is going wrong.

You can also look for some high-risk biotech stocks or ETF to balance your portfolio.

 

[malaguti]

It all depends on the period you are going to hold them. If it is a mid-term investment, it is not a good idea to hold them. In fact, in such case you have to sell them even before.
At the same time, if you are long-term investor, and these stocks are your own "retirement fund", you can buy more to make your average better and then hold them longer. Anyway, it is extremely important to know as much, as possible about the companies you are holding to be able to sell if something is going wrong.

You can also look for some high-risk biotech stocks or ETF to balance your portfolio.

very bad advice, you're saying buy when its going down, so if a stock was at £8 per share and its now 50p you're still buying are you?
you should try doing that for a living, see how far that approach gets you

 

[tomorton]

very bad advice, you're saying buy when its going down, so if a stock was at £8 per share and its now 50p you're still buying are you?
you should try doing that for a living, see how far that approach gets you

I agree in principle but that's because I have come round to a hard-line view of equity investing. Which is to buy shares for dividend income only and put them in your Will to go to your children, with a strict admonition that the never sell them either. Under this view, a fall in the price of the share wouldn't mean either start buying or start selling, the investment decision is based on long-term dividend potential.

But if you want to trade, your means of access to the market must allow you to go either long or short, and this excludes share trading, which is a long-only process.

 

[barjon]

.......But if you want to trade, your means of access to the market must allow you to go either long or short, and this excludes share trading, which is a long-only process.......

Unless you use CFDs or spreadbetting. Ftse 100 shares still my main bread and butter stuff.

 

[malaguti]

I agree in principle but that's because I have come round to a hard-line view of equity investing. Which is to buy shares for dividend income only and put them in your Will to go to your children, with a strict admonition that the never sell them either. Under this view, a fall in the price of the share wouldn't mean either start buying or start selling, the investment decision is based on long-term dividend potential.

But if you want to trade, your means of access to the market must allow you to go either long or short, and this excludes share trading, which is a long-only process.

paying a dividend is discretionary for a company, they can quite happily decide not to leaving you (or in the case of JCAnderson) holding shares worth £8, £7, £6 etc which is now 50p with no long term growth and no dividend income with the mindset of thinking "i'll average down"
by the time you've decided to ditch the shares, based on long term dividend potential, or lack thereof, the value would have dived anyway. by all means rotate your holdings, but if value doesnt play a part you will have nothing to leave the kids.
you can still get dividend income in a stock that is trending...in the right direction

 

[tomorton]

paying a dividend is discretionary for a company, they can quite happily decide not to leaving you (or in the case of JCAnderson) holding shares worth £8, £7, £6 etc which is now 50p with no long term growth and no dividend income with the mindset of thinking "i'll average down"
by the time you've decided to ditch the shares, based on long term dividend potential, or lack thereof, the value would have dived anyway. by all means rotate your holdings, but if value doesnt play a part you will have nothing to leave the kids.
you can still get dividend income in a stock that is trending...in the right direction

Granted this is true, and clearly I'd have to stipulate ditching the shares as soon as the company cancels the dividend, whatever the share price.

In the first instance though, there are only so many companies with a worthwhile and consistent dividend stream, and if the holding period is measured in terms of at least two generations going forward, the choice of which shares to hold narrows considerably.

NB: I don't invest like this either (I have no children).

 

[J_C_Anderson]

very bad advice, you're saying buy when its going down, so if a stock was at £8 per share and its now 50p you're still buying are you?
you should try doing that for a living, see how far that approach gets you

No-no it was about that situations, of course. It is about the situations when everithing is OK, but stock falls together with the market. It happens like price moves down with the broad market and than turns back (because it is fundamentally is fine).

If the stock just falling and falling again, of course you should get out.