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Buying shares in same company for a lower price

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ViN

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Hello ladies and gentleman,
Example on my papper trading i bourgth IDC share for 0.068 on 03/032014 due to bad management and announcement the share price went down to 0.029.
let say 10000/0.068 = 14,7058 share and now if i want to buy at 0.030 10000/0.030 = 333,333.
Do i get the price of 0.030 or 0.068.

Someone can please explain me on details how this work.
Kind regards
 
Re: Buying share in same company for a low price

ViN said:
Hello ladies and gentleman,
Example on my papper trading i bourgth IDC share for 0.068 on 03/032014 due to bad management and announcement the share price went down to 0.029.
let say 10000/0.068 = 14,7058 share and now if i want to buy at 0.030 10000/0.030 = 333,333.
Do i get the price of 0.030 or 0.068.

Someone can please explain me on details how this work.
Kind regards
Click to expand...

.030c
Your averaging down
Your average price will be .049c
 
Thank for your replied but how do you calculate ? or if anyone has any good examples, and is willing to share, I would greatly appreciate it.

Thank you in advance.
 
ViN said:
Hello ladies and gentleman,
Example on my papper trading i bourgth IDC share for 0.068 on 03/032014 due to bad management and announcement the share price went down to 0.029.
let say 10000/0.068 = 14,7058 share and now if i want to buy at 0.030 10000/0.030 = 333,333.
Do i get the price of 0.030 or 0.068.

Someone can please explain me on details how this work.
Kind regards
Click to expand...
Hi ViN,
The price you "get" when you sell your shares is independent of what you paid; it only depends on the Market's bid and offer, which determine every transaction - just like an Auction.

But I assume you know that; therefore I suppose your question is really about the average price of your total share holding, which is also called the cost base.
For averaging your cost base, you don't need the share price for each individual position. All you need is the total number of shares and the total money you paid for all your positions - including brokerage and whatever sundry costs that apply.

In your example, you bought two lots: 147,058 and 333,333 shares; so you have now 480,391 shares.
Each time, you paid $10,000; so your total cost is $20,000.
Divide one by the other, and your average price is 4.1633c per share. That becomes your break-even sp.
If you want to sell, the market price that you receive will determine the size of your loss or profit: Sell for 4.2c or higher, and you're in profit. Sell for 4.1c or less, and you've lost.
 
This is the very crux of my present investing strategy, dollar cost averaging.

Each week, I punch in $2,000 into my worst performing share (total negative %) to lower its average cost. I only manage 9 shares. I receive all dividends in cash and also use this to average down the price as above. So far it is working for me, giving a decent spread among the shares $$$ wise. Another year or so of this and I should have a reasonably healthy/robust portfolio.

Boring, simple, effective.


pinkboy
 
pinkboy said:
This is the very crux of my present investing strategy, dollar cost averaging.

Each week, I punch in $2,000 into my worst performing share (total negative %) to lower its average cost. I only manage 9 shares. I receive all dividends in cash and also use this to average down the price as above. So far it is working for me, giving a decent spread among the shares $$$ wise. Another year or so of this and I should have a reasonably healthy/robust portfolio.

Boring, simple, effective.


pinkboy
Click to expand...

Now think how many more shares your "robust portfolio" could hold, paying you even higher dividends and Franking Credits, if you were to start buying those shares at the lowest possible price!

In the OP's example, had he sold those first 147,000-odd shares as they dropped through 6c, the same (initial) $20,000 would have bought him over 600,000 shares: 147,000 more than his "averaging-down" got him, at a cost base of 3.3cps.
 
pixel said:
Now think how many more shares your "robust portfolio" could hold, paying you even higher dividends and Franking Credits, if you were to start buying those shares at the lowest possible price!

In the OP's example, had he sold those first 147,000-odd shares as they dropped through 6c, the same (initial) $20,000 would have bought him over 600,000 shares: 147,000 more than his "averaging-down" got him, at a cost base of 3.3cps.
Click to expand...

But what if ... what if he sold as they dropped through 6c, and then ... and then they went up! :p:

Just saying it, because some of yous were thinking it.
As you were!
 
pixel said:
Now think how many more shares your "robust portfolio" could hold, paying you even higher dividends and Franking Credits, if you were to start buying those shares at the lowest possible price!

In the OP's example, had he sold those first 147,000-odd shares as they dropped through 6c, the same (initial) $20,000 would have bought him over 600,000 shares: 147,000 more than his "averaging-down" got him, at a cost base of 3.3cps.
Click to expand...

Noted and correct.

Only 2x shares are in the red at present so over the past month been alternating between those. The other 7 are in the green due to this averaging down process. I just wait for a decent dip and purchase a parcel.

Eventually (in theory) they will all be in positive territory. From here I'll need to decide weather to 'average up' the 'worst' positive, or to branch out other income producing shares outside of my trading parameters.

Time will tell.

pinkboy
 
Thank you all for your very useful information and sharing your knowledge, I really much appreciated.
 
Interesting strategy pinkboy, are you primarily looking at fundamentals to make initial share selections? This strategy has crossed my mind but I haven't had the time lately to really look at it.
 
rb250660 said:
Interesting strategy pinkboy, are you primarily looking at fundamentals to make initial share selections? This strategy has crossed my mind but I haven't had the time lately to really look at it.
Click to expand...

My strategy is basic and boring. I know it will not make me rich nor make huge gains short/mid term. All 9 shares are ASX Top 50, all FF >5% yield (except 1 slightly lower, but included for diversification). Why? These will eventually be my main income source in a couple of years.

For the moment, it is working. Perhaps when I learn a little more, I may make a move into further speculative markets than what my parameters are set at. Even to me, top 200 shares are just too many to cover. I am rather conservative to tell the truth. I am after recurring income as part of my overall (radical) retirement strategy.

pinkboy
 
rb250660 said:
Interesting strategy pinkboy, are you primarily looking at fundamentals to make initial share selections? This strategy has crossed my mind but I haven't had the time lately to really look at it.
Click to expand...

That is the whole point .... you don't need "to really look at it."
And if you randomly select from the ASX200, even less so.

I've been offensive all day.
Hope this hasn't offended pinkboy or your good self! :)
 
pixel said:
Now think how many more shares your "robust portfolio" could hold, paying you even higher dividends and Franking Credits, if you were to start buying those shares at the lowest possible price!

In the OP's example, had he sold those first 147,000-odd shares as they dropped through 6c, the same (initial) $20,000 would have bought him over 600,000 shares: 147,000 more than his "averaging-down" got him, at a cost base of 3.3cps.
Click to expand...

I re-read this at my computer, and easier for me to think about it and reply.

To sell at the 6c mark would have been a drop of around 15% before pulling the eject button. With my strategy, ive seen nothing fall past 4%. I see no alarm bells here yet. Granted it is a small drop in capital, but it isnt all lost due to the fact that they are 5% yielding shares, so the divs at least cover their capital shortcoming. Also, by dollar cost averaging, Im buying in at cheaper cost than what initially thought was an ok price to purchase at. Over time, as dividends and SP increase, I wont have to worry (in theory).

Remember both sellers and buyers thing they're smart in the very same transaction! ;)


pinkboy
 
pinkboy said:
I re-read this at my computer, and easier for me to think about it and reply.

To sell at the 6c mark would have been a drop of around 15% before pulling the eject button. With my strategy, ive seen nothing fall past 4%. I see no alarm bells here yet. Granted it is a small drop in capital, but it isnt all lost due to the fact that they are 5% yielding shares, so the divs at least cover their capital shortcoming. Also, by dollar cost averaging, Im buying in at cheaper cost than what initially thought was an ok price to purchase at. Over time, as dividends and SP increase, I wont have to worry (in theory).

Remember both sellers and buyers thing they're smart in the very same transaction! ;)


pinkboy
Click to expand...

Hey pb,

in that case I wouldn't talk about "averaging down"; in fact, you're accumulating a portfolio of dividend-paying shares that you keep building up as funds become available. Nothing wrong with that - especially when you've done your homework and watch where you buy.

The term "Averaging down" is more commonly used in cases like the OP laid out, where one bought at the High and held stubbornly through a drop - in spite of Blind Freddy's dog seeing the trapdoor open.
In the context of such failure to stop-loss, you often hear arguments like -
"I haven't sold, so I haven't lost anything"
"A paper loss isn't a real loss"
"It will come good eventually"
"I just buy more at a lower price, so I'll break even much lower."
​
And it's follies like those that are - to me and many others who can do the Math - like a red rag to a bull. Well, not quite as bad; I simply feel motivated to point out the fallacy of it...
 
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