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Averaging down

Questions › Category: Portfolio Management › Averaging down
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Jieren Zheng asked 4 years ago

Hi guys,
Do you have a rule of thumb/rough gauge for averaging down in terms of percentage?
Say like how many percent a drop in prices warrant an addition, assuming the business is hit by short term headwinds (resulting in large negativity of prices) but in the long term it is still doing well.
I’m thinking 10% is rather near, but not sure if 20% or 30% is too far.
Of course, capping total weightage of the portfolio is important to ensure that we do not overexpose ourselves to risk.

2 Answers
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Victor Chng answered 4 years ago

Hi Jieren,
 
Our averaging down percentage is between 10-20%. Personally, I will wait to at least 15% then I will average it.

Jieren Zheng replied 4 years ago

Hi Victor, thanks for answering.

Do you vary with different kind of counters of your portfolio?

I would think for stable mature dividend growers, value growth and deep value, the averaging % will vary quite a bit.

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Victor Chng answered 4 years ago

Hi Jieren,
 
So far, our averaging down is a standard of at least 15%. We do not vary with different stocks. Personally, I think the averaging down must have a impact to the stock when it recovered. For instance, if it is only 5%, i think there is no impact.

Jieren Zheng replied 4 years ago

Ah, make sense, by introducing a pseudo mechanical one, easier to remove emotions/uncertainty.

Yea, need to be significantly lower and a sizeable amount to create a lower average price per share.

Thanks for your insights :)

Victor Chng replied 4 years ago

welcome :)