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Do NOT double down on a stock

Discussion in 'TIFU' started by JerryM, Apr 26, 2016.

  1. surfsup

    surfsup Active Member

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    If you're just starting out. Invest conservatively in the index: SPY, QQQ, QID, etc. You won't be subject to the effects of a single company's news, if a CEO retires, or dies, or a bad earnings, you can lose 10-20% overnight. If you stick with an index fund or ETF and trade that you can learn TA and minimize risk. Return won't be as high as a "FANG" stock but it's safer.
     
    Syynik likes this.
  2. Zaysev

    Zaysev Member

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    A valuable advice, agreed. Besides, seeing how this stuff works on minimal profits, you'll be able to make realistic comparisons and targets - for example, earn 2% more than with SPY. And if you fail to - this will be a strong signal how unprepared you are.
     
  3. SomeDudeAtHome

    SomeDudeAtHome New Member

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    Thanks for the advice. I'm soaking all this in and making some notes for myself.
     
  4. Zaysev

    Zaysev Member

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    Well, another small piece - it's completely fine to take notes, but they will most likely not help you until you try some real trading, so don't bother to learn them by rote. You're not a student, and most forum users are not teachers :)
     
  5. JerryM

    JerryM Active Member

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    Hmm, I consider myself a student of the market. I've also studied it for 4 years so have learned a few things. I might not know it all but when we can impart some of what we learned to others it helps re-enforce what we have learned. I also still pick up new stuff here everyday and have several pages in my OneNote notebook with information from Stockaholics. Considering the source is something we must all evaluate when we pull information from the Internet and apply our own perception of value to each piece of info. Methods of learning differ for many people. Some of us are note takers. I did not take offense to what you say but had to say we have different opinions. :D
     
  6. Zaysev

    Zaysev Member

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    Perhaps I've put it wrong. What I was trying is to warn SDAH from digging into theory without really practicing it. I doubt you'd argue that any trading knowledge is as good as much you are able to put it to work ;)
     
  7. JerryM

    JerryM Active Member

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    You are right I would not argue that. It must get put to work. That's why I am a proponent of paper trading as one learns. Some with just small amounts in their portfolio can not apply what they need to know because they do not have the active funds to hold 10 to 20 positions. So as they work on building up their real money they can learn and paper trade various strategies. One must take paper trading seriously for it to work as a learning tool though, not just willy nilly buying and selling but by learning rules for the different growth, value and income strategies and seeing how the entry and exit rules they learn are working for them. Of course the one downside to paper trading when going to real money is the emotion aspect but if they practice their strategy and have the discipline to follow the same rules they established when moving to real money it will work out fine for them.

    BTW, paper trading the impacts of doubling down would help prove or disprove this thread. :D
     
  8. Zaysev

    Zaysev Member

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    I guess everyone will have they're own opinion about this based on their own experience. There's no objective study on which way is statistically more profitable after all.
     
  9. khuya

    khuya New Member

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    Ever seen I saw this post I have double down twice and lost. There will be a third time before I learn.
     
  10. justanotherpointlessname

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    Do not double down on stocks? That is the worst advice I have heard in a while. Dollar cost averaging is one of the most effective tools an investor / trader has in there arsenal of risk aversion and profit maximization. In my opinion, provided you have done sufficient due diligence then you should pretty much always dollar cost average. If you are new to trading the problem is not with "doubling down" it is worth your dd of the actual stock. I think if your due diligence was accurate you would have not incurred that problem when you doubled down.

    Very simply, if you think that an asset price is worth more than it is trading at, why shouldn't you buy more when it is trading at even less?

    If Warren Buffett hadn't have "doubled down" then he wouldn't be the warren buffett with a $70bn net worth.

    I welcome any discussion against or for this opinion.

    EDIT: if you don't believe what I have to say, then listen to these people:
    http://www.fscomeau.com/worlds-dumbest-guide-trading/
    Seth A. Klarman - Margin of Safety
    Benjamin Graham and David Dodd
    Pretty much all the great value investors of all time.
     
    #30 justanotherpointlessname, Jan 1, 2017
    Last edited: Jan 1, 2017
  11. JerryM

    JerryM Active Member

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    To each his own. I have had bad experiences with it and so have others in this thread. Don't mind the second opinion but to say it is the worst advice you've heard seems a little rough to me. Let people see both sides but have some empathy for the other side as well. Thanks.
     
  12. justanotherpointlessname

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    That statement may be considered harsh, but I don't think it is right at all to take this opinion. People should understand asset allocation is one of the most (if not arguably the most) important tools for a good investor to utilize. I think the investments you took failed because of your lack of adequate due diligence rather than "doubling down". A dividend with such a high yield should ring alarm bells.

    I am sorry if I have hurt you feelings but I just think you are coming to the wrong conclusion based on false assumptions.
     
  13. JerryM

    JerryM Active Member

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    No, you are not right and I am not wrong, we have different opinions and experience. And yes I am upset now. You should not be coming out with a statement that implies I don't understand asset allocation and am unable to do due adequate due diligence. You are assuming all traders trade like you. You sound like a long term trader. I am talking about short to intermediate growth trend trades. In those trades you are depending on the uptrend to continue and sometimes it does not. The trend shifts and starts down. At some point one should exit the trade at a pre-determined loss tolerance and avoid the emotional temptation to double down. It does not work out for the best for shorter term trend traders. The dangers of doubling down is a legitimate point to get across to those investors who do not do things the same way you do. But thanks for your side of the coin.
     
  14. justanotherpointlessname

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    @JerryM my take entirely on this is from a long term perspective. I do not believe that you can actually make a reasonable profit long term with short term trading but thats a different discussion entirely. Sure this was your experience of the market and I have my experiences. But I want you to understand that from the experiences of the greatest people in this field of study, all of them have at some point "doubled down" and done fine because of their great prodigious due diligence.

    From a long term perspective, which I think you have, everyone makes mistakes on a couple of assets from time to time. BUT provided you have done adaquete DD when you double down you should be able to make an even greater profit?

    Like I said before, I think you did not do adaquete DD on that stock.

    I am not saying your a bad investor or you can't do proper DD. Everyone gets 1 or 2 trades wrong. But the way great investors improve is by analysing their mistakes by looking at what they did wrong and not doing it again. I think once you look back and find out where you went wrong in analysing the company itself you will be able to significantly improve your investing ability.

    I make mistakes all the time as an investor. I review the bad trades and look for what I should have seen as a signal in the noise. These missed signals are key.

    The asset allocation is merely a means of reducing risk and maximizing profits. The true genius comes in security selection and market timing.

    I am sorry if you have taken offence to this but I want to encourage people, value investors especially, to look at securities based on the fundamentals.

    HERE IS MY MESSAGE simply: I think that Asset Allocation is not the reason for your losses in that trade and I don't think you should be discouraging "doubling down" on forums. It seems self-defeating to me as you even admit you didn't evaluate the trade properly as the price was falling.

    So it isn't an opinion as were both in agreement somewhat? You seem to think the asset allocation was the reason your made losses but if you had evaluated the price of the stock properly you would have most likely cut it out of your portfolio.
     
    #34 justanotherpointlessname, Jan 2, 2017
    Last edited: Jan 2, 2017
    JerryM likes this.
  15. JerryM

    JerryM Active Member

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    OK, point taken. And yes I know I made a mistake on the stock that started this thread. That is why I put it in a forum call Trades I F**ked Up. But again for the record, doubling down on a short term trend trade when the trend shifts IS A MISTAKE on that type of trade.

    My portfolio is comprised of a percentage of long term dividend/income stocks, a percentage of growth stocks that I trend trade and a percentage of value stocks. I have a set of trading rules I use for each type of trade that are greatly different from each other. I have a complete set of screen requirements/entry/position size/ exit rules for the 4 styles I use, income, growth, value, and blended growth/value.

    I do buy my dividend stocks as they go down and try to take advantage of cost averaging on long term. Would do the same on value stocks for long term. But not for growth or blended growth/value that I do sometimes for short/intermediate trades. I don't use the same entry criteria for shorter term trades as they are based a lot on growth ratios and current technical studies while longer term value and dividend stocks get much more attention on fundamentals concerning moats, financial strength and dividend growth consistency on the income trades.

    This trade, ARLP was an early trade that I made a mistake on because you don't know what you don't know :D So let's either agree to disagree or try to understand the shorter term technical trend trade perspective in which doubling down is a bad idea.
     
  16. shellybear

    shellybear Member

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    I lost my shorts doubling down on penny stocks so i understand totally where you were going with the thread. I moved to bigger ,safer dividend stocks and adding on dips works out good. Not necessarily doubling down tho, just adding to an existing position when there is available capital.
     
  17. bigwin1234

    bigwin1234 New Member

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    I am trying to jack this thread, But i did some thing similar and it cost me big time... how can one tell if it is a pull back or a real decline?
     
  18. JerryM

    JerryM Active Member

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    I'm mostly talking about a specific strategy that double down's are bad. That would be a growth strategy where you are trying to ride an uptrend and instead of going up it starts down and you hang on too long without selling and figure the trend will return to an uptrend so you double down. That usually does not work. Pull backs normally will not drop enough to change the trend. A real decline breaks support levels enough to change the 30/50 day moving average pointing down.
     
    bigwin1234 and T0rm3nted like this.
  19. bigwin1234

    bigwin1234 New Member

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    after reading the quote you used, i tried to back and edit my post. I meant to say i am NOT trying to jack this forum, thank you for understanding and answering my question your response made a lot of sense.
     
  20. Syynik

    Syynik New Member

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    I hereby proclaim we shall call this the "CostanzTrarian" move. All who agree, say "word-up!"
     
    bigwin1234 likes this.

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