Hi Lunny,
If I know the share price is going to go down tomorrow, it is clear I wouldn’t buy the stock at the first place. But from my own experience, we will never know how low the price could go (or rather you will never know how mad a person can be)? Short-term prices are usually mixed with sentiments. If news are good, market is happy. For bad news, market is depressed.
So long the Investment Quadrant is checked and the stock offers me a good bargain and margin of safety, I will usually make my call. At times, I’m right. At other times, I may be wrong. But then over the long term, if my analysis is proven right, this strategy has work well for me as the stock generally doesn’t stay cheap forever.
To answer your next question, let me offer you an analogy. If my favourite burger at McDonald is selling cheaper tomorrow by 20%, I would be more than happy to buy it even more. I wouldn’t stay away simply because nobody is buying or queueing. But if it is rotten burger, then stay away (sell) would be a good alternative.
You may consider divide your capital into few tranches. For example, say a stock you’re planning to own 10% of your total portfolio, you could deploy the first 3% of portfolio when you think it is already a bargain. The next subsequent drop of 20%, another 3% of your portfolio and if it should drop further by 40%, you could trigger one last shot of 4%. Oh yes, always re-visit if your analysis is right before averaging down. Nevertheless, I definitely wouldn’t recommend buying the same stock with all your money simply because the stock keeps on plunging.