Average or add more stocks-Which is the best strategy?

Whenever there is a sharp correction in market, it seems that lot of stocks are available at attractive prices. In such a case what should a young investor do? Should he add more quantity to his existing stock or should he buy few other different stocks? I am in a dilemma as to how many stocks should we have in a portfolio?Kindly advise.

Example : I purchased stock A at 100 rs and now due to market correction it has come down to 55. Then at this point whether i should go for adding more quantity of A OR should i opt for entirely new stock B, stock C and stock D because they are available at cheap rates?

Buying 'cheap' is a bad strategy. Do not add to a losing position

Dear Nilesh

Now the question is not averaging or buying new stocks.
Now the question is to review your trading style ?
What kind of trader you are ?
The question is what were you doing when the stock moving from 100 to 55 rs ? why there was no stop loss to your position.

DLF came down from 1300 rs to 120 rs.
TATA STEEL FROM 800+ to 195 rs
I am giving some examples of prices falling down of so called good stocks and attractive valuation.
How many of them would have purchased when TATA steel came down to 600,500,400,300 rs thinking attractive,attractive in case of TATA steel.
Like wise how many would have exited the stock when the stock again rallied from 195 to 580 levels now down again to 313 levels from 580.

When SAIL moved from 4 rs to 240 rs and now back to 60 - 70 rs.

I am just giving examples of classic valuation trap given by the TV analysts.
There is nothing called attractive valuation of stock price.
When you invest in stock markets your money is at risk.

Below is the chart which will tell you
http://www.biznews.com/wealth-build...stment-loss-returns-must-make-easy-use-table/

So if you ask blindly if I should average or buy some other stock.No one can answer.

Those old stories of warrent beuffet - value investing or Infy/Wipro stocks zooming from 100 rs to 20000 rs etc are just 1 out 10,000 stocks.
Those days are gone nor you will find such stocks.

Don't believe in valuation/fundamental stories.After every bull run such stories will be spoken for years to fool the people.And stocks will be offloaded to them at highly ridiculous prices.

The story is going to continue but better realize now Review yourself - correct your mistakes.Be a trader not a investor.

As it is already pointed out to you by others, it is not a great strategy but it is certainly a worthwhile strategy if you do it right and get it done at the right-time.

Look up Martingale Strategy on Google

adding good stock is better idea than averaging, in future some of them perform well , next 5 to10 yrs is only for investment, u cud see many sucessful investors.

i'm former intrady, swing trader, after selling my porfolio 5 yrs back some of my stocks r now 5+ bagger which i sold years back

Hello,

Sir, i respect u lot, pls don't suggest martingale strategy to Amateurs...no matter how good ur.... one or the other time you gonna loose with martingale strategy.... and i can tell u that,u don't know when its right time or wrong time when it comes to markets...sorry if i hurt you..


Regards,

Ok here is what you need to decide first :-

The stock you are purchasing for 100, what is the target and how long you want to hold ??

Now, don't answer like till the time it goes in profit and I will trail. If this is what you want then you shouldn't be holding till it becomes half.

Here are some food for thought -

1st Scenarios to consider - If you are investing based on fundamentals and you want to hold a 100 RS share for 5-10 years. Then doesn't matter where the prices goes, you have to hold on till you believe in the companies business and fundamentals. You can average it if comes down but be aware that in the worst case scenario your capital can be gone after 5-10 years (incase of companies didn't perform the way you initial analysed)

2nd Scneario - If you are a trader and your holding period is just about few days, few weeks etc. Then what you doing is absolutely wrong. A stock bought @ 100 must have SL of max 5-10% (worst case). So if it came down to 55, you should have gotten out long long ago. After it comes and gives sign of strenght @ 55, then re-enter. But NEVER EVER average. Just imagine, you keep averaging at every downfall and it contiues to still go down. What happens, one day you will give up and then the amount of money you lose will give you immense pain. You will lose the confidence in trading.


Trading is not about averaging and trying to get something out of the stocks. Losing is ok and un-avoidable. Don't resist it by averaging, praying, not getting out despite seeing clearly price going against. It doesn't matter whether you lose or win. What matters is HOW MUCH you lose when you lose and HOW MUCH you win when you win and this will make a very big difference in your account as well as mind.

Hope I made some sense. All the best

Which of the following is better?
Averaging up or Averaging down. Anyone can see that