So, you bought your first stock and see a Red portfolio. Don’t panic, it’s normal for most first time investors. Allow me to share a very interesting strategy called How To Average Down.
First, let us define few terms:
Portfolio % = If you own 1 stock it appears 100% ownership on your portfolio. If you own 2 or more stocks, the portfolio % ownership will be equally divided depending on the amount of capital for each stock.
Market Price = The actual stock prices of the stocks you own.
Average Price = This is computed in relation to the stock prices and amount of money for each stock. This is the most important part of this article. And this is where we will focus today.
Total Shares = Your ownership of the company. You have to believe that you are a part-owner of the company once you own a share of their stock, even if you only have the minimum share.
Uncommitted shares = On the event that you sell your share and nobody accept your offer, the shares become uncommitted for the meantime.
Market Value = The total money on each stock plus your gain or minus your loss is your market value.
Gain/Loss = The money you gain or loss as per your capital on each stock.
%Gain/Loss = The percentage equivalent in relation to your capital on each stock.
Now that we know the basic terms, let’s go direct to our topic How To Average Down.
Buy the same stock with at least the same shares and at least the same price.
Okay, here’s a clearer view:
Buy No. 1 = 2000 shares at 8.00 pesos per share, average price 8.02
Buy No. 2 = 1000 shares at 7.50 pesos per share, average price 7.85
Buy No. 3 = 500 shares at 7.04 pesos per share, average price 7.74
Buy No. 4 = 500 shares at 7.10 pesos per share, average price 7.67
***The example above is from my personal and actual transaction for CHP.
Important Notes about this Average Down strategy:
- You need to set aside a small amount of capital to average down.
- You need to be vigilant of the stocks price after your first purchase.
- There is no exact time gap on when to execute your next purchase. When the price goes down, buy!
- The lower your average price, the higher your GAIN!
- Don’t listen too much on facebook comments instead focus on your own portfolio.
- This strategy needs time and experience to execute.