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The main lesson to be learned is:
Just because a stock drops is no reason to be a buyer,
especially if, the market cap of said stock (MSFT for example) is in the
stratosphere ($500 Billion). The dip buyers of America got burned en masse
on Thursday & Friday, and this is just the first of many very expensive
lessons to come, IMHO.
James
----- Original Message -----
From: wong <whs@xxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, April 15, 2000 11:33 PM
Subject: [RT] Re: Dollar Cost Averaging-Lesson learned
> Hi Bob:
>
> The point about averaging down is it's an alternative to another way of
> trading, which is:
>
> To buy the stock you have in mind ALL AT ONCE.
>
>
> In averaging down, you just don't go ad lib. You have to evaluate the
> fundamentals of the stock in mind. It's unfortunate that SUPC turned out
> to be the way it was - fraud ? (maybe or maybe not)
>
>
> If you intend to spend $10,000 to buy SUPC, you can either:
>
> 1. buy all at once, using up all your $10,000, or
> 2. buy by parcels of your total $10,000 (e.g., 3,5000; 3,500; 3,500) -
> i.e., averaging down.
>
>
> If the stock goes up after your 1st purchase, you will not make so much
> money in # 2.
>
> If the stock goes a long way down, you'll probably have bought all 3 (or 4
> or 5, depending) times per # 2.
>
> If the stock continues to go down afte you've used up all your money per #
> 2, you lose.
>
> On the other hand, if the stock goes up somewhat after you've used up all
> your money per # 2, you maky be break-even.
>
> If the stock goes back to your 1st purchase price after you've used up all
> your money per # 2, you may make double.
>
> If the stock goes up very, very high after you've used up all your money
> per # 2, you make a lot more than buying per # 1.
>
>
>
> Ultimately, the choice of stock is of the upmost importance.
> Unfortunately, there may be cases like SUPC.
>
>
> After all, averaging down is only one component of a "workable" (if the
> term "successful" is not your first choice) trading strategy, which at
> least includes these:
>
> 1. a friendly (bullish) environment)
> 2 choice of fundamentally-sound stock
> 3. adequate timing for your 1st purchase, preferrably after a good
> retracement from recent highs, and
> after the stock has reached an oversold area, and showing signs of
> bottoming out
> 4. buying in successive parcels, rather than just one lump sum one time
only
> 5. reasonable "down" intervals (i.e., not just any 2 cents down or
0.00002%
> down) for averaging down
> 6. patience (could be a very long-term waiting game)
> 7. luck (yes, luck plays a significant element sometimes - for example, if
> you've evaluated 10 good
> stocks and you've filtered out 8, and you've money for only one, it may
> happen that the one you
> finally pick goes belly up, whereas the one you don't choose goes way
up...)
> 8. if you can, diversify into more than 3 or 4 different stocks, hopefully
> of different sectors
>
>
> Regards,
>
> Wong
> ==============================================
> At 01:42 PM 04/15/2000 -0400, BobsKC wrote:
> >I averaged down on SUPC last year .. It had fallen about $10 to the high
> >30's when I entered.. fell to 30 so I bought another K and then to 20
where
> >I added another K. This company had great earnings and was in the
business
> >of hospital management which to me, was a growing field and was
desperately
> >needed in America. Two days later, the company reported irregularities
in
> >their books before the open and it opened at $10 as I recall. Just a
note
> >about an averaging down nightmare. The company knew, the employees, (to
> >some degree), knew and who knows how many employee friends and relatives
> >knew? I'm not saying that all averaging down is a bad thing but one
needs
> >to clearly understand the reason for a fall in price and if you don't,
stay
> >clear. (At least that's my new motto)
>
>
>
>
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