Cost Averaging and the Stock Market - Do's and Don'ts

Cost Averaging and the Stock Market - Do's and Don'ts

(If you can't READ this stuff, no point... skip)

One of the most common problems that 

many investors face is whether to sell or 

to resort to cost averaging when the price 

of a stock, or the NAV of a mutual fund, 

drops just after a purchase is made.

A typical question I face goes something like this: 

"I bought a stock at 80, and when it dropped to 40 I bought some more to bring my average cost price down to 60. Now the stock has dropped below 30.Should I sell to reduce further losses, or buy some more to bring the average cost down further, or just hold on till I get back my average cost price of 60?"

There are no easy answers to such a question. The answers will depend on the type of stock, the investor's risk tolerance and holding period. So, instead of providing answers, let me try to list out some do's and don'ts that can better prepare investors to face a similar situation.

 Do's about Cost Averaging

1. Before you pick any stock or fund, do a due-diligence. Find out as much as you can about the track record of the promoter or fund manager and the performance of the stock or fund through bull and bear periods

2. Learn the rudiments of reading a price chart, or at the very least find out about the 52 week high and low values of the stock/fund; try to buy at, or near, a 52 week low

3. Decide whether you will indulge in short-term trading or long-term investing

4. Accordingly, set either a tight stop-loss or a wider stop-loss

5. If the stop-loss is hit, be ruthless about selling the stock/fund

6. If steps 4 and 5 are followed, the need for cost averaging won't arise if the price falls after purchase

7. If the price rises after purchase and you are convinced about the future of the stock/fund, buy more. In other words, average your cost upwards.

Don'ts about Cost Averaging

1. Don't ever buy a stock/fund just because a friend or colleague or TV analyst has suggested a 'buy'; learn to take responsibility and decide for yourself

2. Don't buy a stock/fund trading at or near a 52 week high

3. Don't be overconfident of your stock-picking skills just because you've tasted a few successes; always remember to set a stop-loss -whether you wish to trade or invest

4. Don't become a long-term investor by default because your trade failed and the loss became too large, and you hesitated about selling at your stop-loss

5. Never cost average downwards, as a general rule and particularly for mid-cap/small-cap stocks/funds (which tend to fall the most during bear markets)

Please remember that your cost price is known only to you. The market doesn't care two hoots about whether you are making a loss or a profit. So you need to develop an investment style that can minimize loss and maximise profit.

A related problem, though not quite as nerve-wracking, is when the price of a stock (or the NAV of a mutual fund) which hardly moves up or down for a prolonged period starts to move up as soon as an investor gets rid of it!

This problem is quite easily solved if you learn the art of partial profit booking.

Thought for the Day

Give whatever you are doing and

whoever you are with the gift of

your attention.

Jim Rohn

Thought for the day

It doesn't matter which side of the fence

you get off on sometimes.  What matters

most is getting off. You cannot make

progress without making decisions.

Jim Rohn

The Passing of a Legend : Jim Rohn

============================================

December 23, 2009

As some of you may know, business philosopher and
legendary author, speaker, and coach passed away
earlier this month.

In honor of Mr. Rohn, I thought we would exit 2009
with a few of his thoughts on life.

Take it away, Jim...

'Character isn't something you were

born with and can't change, like your fingerprints.

It is something you weren't born with and

must take responsibility for forming.'

'Failure is not a single cataclysmic event. You
don't fail overnight. Instead, failure is a few
errors in judgment, repeated every day.'

'Whoever renders service to many puts himself in
line for greatness--great wealth, great return,
great satisfaction, great reputation and great joy.'

'Learning is the beginning of wealth.

Learning is the beginning of health.

Learning is the beginning of spirituality.

Searching and learning
is where the miracle process all begins.'

'If you are not willing to risk

the unusual, you will have to

settle for the ordinary.'

'Don't wish it were easier,

wish you were better.'
=======================================================
Jim Rohn

=======================================================

My best to you and yours this holiday season.

 

Thought for the Day

Learning is the beginning of wealth.

Learning is the beginning of health.

Learning is the beginning of spirituality.

Searching and learning is where

the miracle process all begins.

Jim Rohn

A THOUGHT FOR TODAY

The real index of civilization is when

people are kinder than they need to be.

-Louis de Berniere, novelist (b. 1954)

Thought for the Day

The major value in life is not what you get.

The major value in life is what you become.

Jim Rohn

A THOUGHT FOR TODAY

Not far from the invention of fire must

rank the invention of doubt.

-Thomas Henry Huxley, biologist (1825-1895)

A THOUGHT FOR TODAY

Great thoughts

reduced to practice

become great acts.

-William Hazlitt, essayist (1778-1830)

Thought for Today

"If you can't be a pencil

to write anyone's happiness,

try atleast to be a nice rubber

to erase everyone's sorrows."

CHARACTER

Quotes on CHARACTER

"Leadership is the capacity and will to rally men and women

to a commonpurpose and the character which inspires confidence."

— Bernard Montgomery, British Field Marshall

 

 

A THOUGHT FOR TODAY

 

A great book should leave you with

many experiences, and slightly

exhausted at the end.

You live several lives while reading it.

-William Styron, novelist (1925-2006)

A THOUGHT FOR TODAY

 

Commandment Number One

for any truly civilized society is this:

Let people be different.

 -David Grayson

[pen name of Ray Stannard Baker],

journalist, author (1870-1946)

 

A THOUGHT FOR TODAY

Every one is a moon,

and has a dark side

which (s)he never shows

to anybody.

-Mark Twain, author and humorist (1835-1910)

A THOUGHT FOR TODAY

Men become civilized,

not in proportion to their

willingness to believe,

but in proportion to their

readiness to doubt.

-H.L. Mencken, writer, editor, and critic (1880-1956)

Thought for the Day

Quotes on CHANGE

Unless you are prepared to give up

something valuable you will never be

able to truly change at all, because

you'll be forever in the control of things

you can't give up."
— Andy Law,  Creative Company

"Only the wisest and stupidest of men never change."

— Confucius

"One key to successful leadership is continuous personal change. Personal
change is a reflection of our inner growth and empowerment." — Robert E. Quinn

"Change is hard because people overestimate the value of what they have—and
underestimate the value of what they may gain by giving that up."
— James Belasco and Ralph Stayer
Flight of the Buffalo (1994)

"There is nothing more difficult to take in hand, more perilous to conduct, or more
uncertain in its success, than to take the lead in the introduction of a new order of
things."
— Niccolo Machiavelli
The Prince (1532)

"The rate of change is not going to

slow down anytime soon. If anything,
competition in most industries will

probably speed up even more in the

next few decades."
— John P. Kotter
Leading Change

"There is a certain relief in change, even though it be from bad to worse; as I
have found in traveling in a stagecoach, that it often a
comfort to shift one's position and be bruised in a new place."
— Washington Irving
Tales of a Traveler (1824)

"We are chameleons, and our partialities and prejudices change place with an
easy and blesses facility, and we are soon wonted to the change and happy in it."
— Mark Twain
 
"Whosoever desires constant success must

change his conduct with the times."
— Niccolo Machiavelli
 
"People don't resist change.

They resist being changed!"
— Peter Senge
 
"Even those who fancy themselves the most progressive will fight against other
kinds of progress, for each of us is convinced that our way is the best way."
— Louis L'Amour   The Lonely Men

"All is connected ... no one thing can change by itself."
— Paul Hawken
"Natural Capitalism, Yoga Journal October 1994

We would rather be ruined than changed,
We would rather die in our dread
Than climb the cross of the moment
And let our illusions die.
— W. H. Auden

"Your success in life isn't based on your ability to simply change. It is based on
your ability to change faster than your competition, customers and business."
— Mark Sanborn

"When a mature and able manager feels bored, he should seriously consider
changing jobs, changing companies—or simply retiring. It is not fair to anyone for
half a leader to hold a full-time leadership job."
— James L. Hayes

"Change has a bad reputation in our society. But it isn't all bad — not by any
means. In fact, change is necessary in life — to keep us moving ... to keep us
growing ... to keep us interested . ... Imagine life without change. It would be
static ... boring ... dull."
— Dr. Dennis O'Grady
in Bottom Line - Personal

"Everybody has accepted by now that change is unavoidable. But that still
implies that change is like death and taxes — it should be postponed as long as
possible and no change would be vastly preferable. But in a period of upheaval,
such as the one we are living in, change is the norm."
— Peter Drucker
Management Challenges for the 21st Century (1999)

"Culture does not change because we desire to change it. Culture changes when
the organization is transformed; the culture reflects the realities of people working
together every day."
— Frances Hesselbein
The Key to Cultural Transformation, Leader to Leader (Spring 1999)

 "It is a bad plan that admits of no modification."
— Publilius Syrus
First Century BC

"The most successful businessman is the man who holds onto the old just as
long as it is good, and grabs the new just as soon as it is better."
— Robert P. Vanderpoel
 
"As the births of living creatures are at first ill-shapen, so are all innovations,
which are the births of time."
— Francis Bacon
Essays, II, On Innovation 

"Every generation needs a new revolution."
— Thomas Jefferson

"Never doubt that a small group of thoughtful, concerned citizens can change the
world. Indeed it is the only thing that ever has."
— Margaret Mead

"I'll go anywhere as long as it's forward."
— David Livingstone

"An important scientific innovation rarely makes its way rapidly winning over and
converting its opponents; it rarely happens that Saul becomes Paul. What does
happen is that its opponents gradually die out and that the growing generation is
familiarized with the idea from the beginning."
—Max Planck
The Philosophy of Physics, 1936

"Change is the law of life and

those who look only to the past

or present are
certain to miss the future."
—John F. Kennedy

"Ten years ago, Peter Senge introduced the idea of the 'learning organization'
Now he says that for big companies to change, we need to stop thinking like
mechanics and to start acting like gardeners."
— Alan M. Webber
Learning for a Change

"Company cultures are like country cultures.

Never try to change one.

Try, instead, to work with what you've got. "
— Peter Drucker

"He that will not apply new remedies

must expect new evils; for time is the
greatest innovator."
— Francis Bacon
Essays, II, On Innovation

"Everything is in a process of change,

nothing endures;

we do not seek permanence."
— Masatoshi Naito

"Most of our assumptions have outlived their uselessness."
— Marshall McLuhan 

"Keep in mind that you cannot control your own future. Your destiny is not in your
hands; it is in the hands of the irrational consumer and society. The changes in
their needs, desires, and demands will tell you where you must go. All this means
that managers must themselves feel the pulse of change on a daily, continuous
basis.... They should have intense curiosity, observe events, analyze trends,
seek the clues of change, and translate those clues into opportunities."
— Michael J. Kami 

"When we see the need for deep change,

we usually see it as something that
needs to take place in someone else.

In our roles of authority, such as parent,
teacher, or boss, we are particularly quick

to direct others to change. Such directives

often fail, and we respond to the resistance

by increasing our efforts. The power struggle

that follows seldom results in change or brings

about excellence. One of the most important insights

about the need to bring about deep change in others

has to do with where deep change actually starts."
— Robert E. Quinn

A THOUGHT FOR TODAY

Forgive him, for he believes that

the customs of his tribe are the

laws of nature.

-George Bernard Shaw,

writer, Nobel laureate (1856-1950)

Thought for Today

Everything
in your ife is there
as a vehicle
for your transformation. 
Use it!
-Ram Dass


Faith and doubt both are needed,
not as antagonists, but
working side by side
to take us around the unknown curve.
-Lillian Smith

Thought for Today

If you want happiness for an hour - take a nap.

If you want happiness for a day - go fishing.

If you want happiness for a month - get married.

If you want happiness for a year - inherit a fortune.

If you want happiness for a lifetime - help someone else.

Chinese Proverb

Thought for Today

We can throw stones,

complain about them,

stumble on them,

climb over them,

or build with them.

-William Arthur Ward

Thought for Today

Great opportunities

to help others seldom come,

but small ones surround us

every day.

Sally Koch

Thought for Today

Believe that

problems do have answers,

that they can be overcome,

and that we can solve them.

Norman Vincent Peale

Thought for Today

It doesn't take a hero to order men into battle.

It takes a hero to be one of those men

who goes into battle.

General Norman Schwarzkopf

Colin Powell's Rules

General Colin Powell's Rules:

1. It ain't as bad as you think.

    It will look better in the morning.

2. Get mad, then get over it.

3. Avoid having your ego so close to your position

    that when your position falls, your ego goes with it.

4. It can be done!

5. Be careful what you choose. You may get it.

6. Don't let adverse facts stand in the way of a good decision.

7. You can't make someone else's choices.

    You shouldn't let someone else make yours.

8. Check small things.

9. Share credit.

10. Remain calm. Be kind.

11. Have a vision. Be demanding.

12. Don't take counsel of your fears or naysayers.

13. Perpetual optimism is a force multiplier

ATTITUDE

Quotes on ATTITUDE

"The greatest discovery of my generation is

that human beings can alter their

lives by altering their attitude of mind."

— William James, Psychologist

"The most positive men are the most credulous."

— Alexander Pope

"No one ever finds life worth living

 (s)he has to make it worth living."

— Unknown

"Pity is one of the noblest emotions

available to human beings; self-pity is

possibly the most ignoble . . . .

[It] is an incapacity, a crippling emotional disease

that severely distorts our perception of reality . . .

a narcotic that leaves its

addicts wasted and derelict."

— Eugene H. Peterson, Author of Earth and Altar

 

"Nothing can stop the man with

the right mental attitude from achieving his goal;

noting on earth can help the man with

the wrong mental attitude."

— W. W. Ziege

"A successful man is one who

can lay a firm foundation with

the bricks others have thrown at him."

— David Brinkley, Television Journalist

"We can not tell what may happen to you

in the strange medley of life. But we can decide

what happens to us—how we take it,

what we do with it—and that is

what really counts in the end."

— Joseph F. Newton

"You can not always control circumstances,

but you can control your own thoughts."

— Charles Popplestown

"If we did all the things we were

capable of doing, we would literally

astound ourselves."

— Thomas Edison

"Whatever is true,

whatever is honorable,

whatever is just,

whatever is pure,

whatever is lovely,

whatever is gracious ...

think about these things."

— Philippians 4:8

 

"Everything can be taken from a man

or a woman but one thing: the last of

human freedoms —to choose one's

attitude in any given set of circumstances,

to choose one's own way."  

— Victor Frankl, Man's Search For Meaning

"If you will call your troubles experiences,

and remember that every experience

develops some latent force within you,

you will grow vigorous and happy,

however adverse your circumstances

may seem to be."

— John R. Miller

"Cultivate optimism by committing

yourself to a cause, a plan or a value system.

You'll feel that you are growing in a meaningful

direction which will help you rise

above day-to-day setbacks."

— Dr. Robert Conroy in Bottom Line-Personal

"The winner's edge is not in a gifted birth,

a high IQ, or in talent.

The winner's edge is all in the attitude,

not aptitude. Attitude is the criterion for success."

— Dennis Waitley

"Let your Discourse with Men of Business be

Short and Comprehensive."

— George Washington

Rules of Civility

"If a man be gloomy let him keep to himself.

No one has the right to go croaking about society,

or what is worse, looking as if he stifled grief."

— Benjamin Disraeli

"What you think means

more than anything else in your life.

More than what you earn,

more than where you live,

more than your social position,

and more than

what anyone else may think about you."

— George Matthew Adams

Author

"[Sprezzatura ("unstudied nonchalance"):]

Employ in everything a certain casualness

which conceals art and creates the impression

that what is done and said is accomplished

without effort and without its being thought about.

It is from this, in my opinion,

that grace largely derives."

— Baldassare Castiglione

The Book of the Courtier, 1528

"Change your thoughts and

you change the world."

— Norman Vincent Peale

"Whether you think you can or think you can't, you are right."

— Henry Ford

"Up is never where you are now."

— Belasco & Stayer

"A positive attitude may not solve

all your problems, but it will annoy enough

people to make it worth the effort."

— Herm Albright  

 

A THOUGHT FOR TODAY

In the struggle between

yourself and the world

second the world.

-Franz Kafka, novelist (1883-1924)

A THOUGHT FOR TODAY

I have ever hated all nations,

professions, and communities,

and all my love is

toward individuals.

-Jonathan Swift, satirist (1667-1745)

A THOUGHT FOR TODAY

We've all got both light and dark inside us.

What matters is the part we choose to act on.

That's who we really are.

-J.K. Rowling, author (b. 1965)

A THOUGHT FOR TODAY

 

It is impossible to defeat

an ignorant man

in an argument.

-William G. McAdoo, lawyer and politician (1863-1941)

 

 

Never fear shadows.

They simply mean there's a light

somewhere nearby.
-Ruth E. Renkee

Thought for Today

As long as we are persistence,

we will continue to grow.

We cannot choose the day or

time when we will fully bloom.

It happens when you're in business.

Keep up the phase.

A THOUGHT FOR TODAY

A man who uses a great many words to express

his meaning is like a bad marksman who,

instead of aiming a single stone at an object,

takes up a handful and throws at it in hopes

he may hit.

-Samuel Johnson, lexicographer (1709-1784)

A THOUGHT FOR TODAY

In one and the same fire,

clay grows hard

and wax melts.

-Francis Bacon, essayist, philosopher,

and statesman (1561-1626)

A THOUGHT FOR TODAY

Never, never be afraid to do what's right,

especially if the well-being of a person or

animal is at stake. Society's punishments

are small compared to the wounds we inflict

on our soul when we look the other way.

-Martin Luther King Jr., civil-rights leader (1929-1968)

Thought for Today

Etiquette means

behaving yourself

a little better than

is absolutely essential.

Thought for Today

True friendship

is

like

sound health;

the value

of it is

seldom known

until

it be lost.
 

A THOUGHT FOR TODAY

Without deviation from the norm,

progress is not possible.

-Frank Zappa, composer, musician,

film director (1940-1993)
 

Tips for the Week ahead

• Do the thing you are resisting first today.
  
• Let go of one self limiting belief.
  
• Improve one system in your life
  
• Ask yourself how an optimist would look at one of your current situations.
  
• Eat your dinner slowly.

I like to put the tips into my calendar to remind me throughout the week.

A THOUGHT FOR TODAY

The weak can never forgive.

Forgiveness is the attribute of the strong.

-Mohandas Karamchand Gandhi (1869-1948)

A THOUGHT FOR TODAY

Life isn't about finding yourself.

Life is about creating yourself.

-George Bernard Shaw, writer,

Nobel laureate (1856-1950)

Thought for Today

Easily....

Put off for one day,

and ten days will pass.

Korean Proverb

Thought for Today

Let no man pull you

low enough

to

hate him.

-Martin Luther King, Jr.,

civil-rights leader (1929-1968)

Thought for Today

Make it a rule of life

never to regret and

never to look back. 

Regret is an appalling waste of energy;

you can't build on it,

it's only good for wallowing in.

Thought for Today

Work Your Plans Until

You Succeed or

Find a Better Way...

K. P. A. (Keep Plunging Ahead?)

 
Three words: Know. Plan. Act.

Know what you want to do.

Plan how to do it.

Act on your plan until you achieve the results you want.

 

Thought for Today

"Understand that you, yourself,

are no more than the composite

picture of all your thoughts and actions.

In your relationships with others, remember

the basic and critically important rule: If you want

to be loved, be lovable. If you want respect,

set a respectable example!"

~ Denis Waitley

Thought for Today

"First thing every morning before you arise

say out loud, "I believe," three times."

~ Norman Vincent Peale

 

Focus on Solutions - Do NOT Remain Absorbed in the Problems.

Thought for Today

Say "NO" to Some Things to Have
More Time for the RIGHT Things...

No Piling On! Avoid unproductive or less importance ones.

Thought for Today

"I've got a great ambition to die of exhaustion

rather than boredom."

~ Angus Grossart

Thought for Today

I have always grown from my problems and

challenges, from the things that didn't work out. 

That's when I've really learned.

Carol Burnett

Thought for Today

"So many worlds,

so much to do,

so little done,

such things to be."

~ Lord Alfred Tennyson

Thought for Today

"I want to work with the top people,

because only they have the courage and

the confidence and the risk-seeking profile

that you need."

 

A THOUGHT FOR TODAY

I speak to everyone in the same way, 

whether he is the garbage man or

 the president of the university.

 -Albert Einstein, physicist, Nobel laureate (1879-1955) 

Thought for Today

God gave you 

a gift 

of 86,400 seconds today. 

Have you used one 

to say 

"thank you?

-William Arthur Ward

Thought for Today

One can never consent to creep 

when one

feels an impulse to soar.

 

It takes courage to live a life, any life.

—Erica Jong

 

The door of opportunity won't open 

unless you do some pushing.

 

The road to happiness lies in two simple principles: 

Find what it is that interests you and that you can do well,

and put your whole soul into it—every bit of energy and

ambition and natural ability that you have.

—John D. Rockefeller

 

Each of us has some unique capability, 

waiting for realization.

 

Great works are performed not by strength, 

but by perseverance.

—Samuel Johnson

 

I am seeking.

I am striving.

I am in it with all of my heart.

—Vincent Van Gogh

 

The world is like a mirror;

 frown at it, and it frowns at you.

Smile, and it smiles too.

—Herbert Samuels

 

Nothing splendid was ever achieved 

except by those who dared believe that 

something inside them was superior to

circumstances.

 

If you have to support yourself, 

you had bloody well better

find yourself some way t

hat is going to be interesting.

—Katherine Hepburn

 

Let me tell you the secret 

that has led me to my goal: 

my strength lies solely in my tenacity.

—Louis Pasteur

 

You don't get to choose 

how you're going to die. Or when.

You can only decide how you're going to live.

—Joan Baez

 

Perhaps I am stronger than I think!

—Thomas Merton

 

To have that sense of one's intrinsic worth, 

which constitutes self-respect, 

is to potentially have everything.

—Joan Didion

If colleagues lose their mobile...

Now days each one of us to carry Hi Fi Mobile devices and always fear that it may be stolen. Each mobile carries a unique IMEI i.e International Mobile Identity No which can be used to track your mobile anywhere in the world. This is how it works: 1. Dial *#06# from your mobile. 2. Your mobile shows a unique 15 digit. 3. Note down this no anywhere but except your mobile as this is the no which will help trace your mobile in case of a theft. 4. Once stolen you just have to mail this 15 digit IMEI no. to cop@vsnl.net 5. No need to go to police. 6. Your Mobile will be traced within next 24 hrs via a complex system of GPRS and internet. 7. You will find where your hand set is being operated even in case your no is being changed.   If u lost your mobile, send an e-mail to cop@vsnl.net with the following info: Your name: Address: Phone model: Make: Last used No.: E-mail for communication: Missed date: IMEI No.: Keep this stored for emergency use.

Thought for Today

Life isn't about finding yourself.

Life is about creating yourself.

George Bernard Shaw

A THOUGHT FOR TODAY

Do not fear to be eccentric in opinion,

for every opinion now accepted was

once eccentric.

-Bertrand Russell, philosopher, mathematician,

author, Nobel laureate (1872-1970)

A THOUGHT FOR TODAY

Words, like nature, half reveal and

half conceal the soul within.

-Alfred, Lord Tennyson, poet (1809-1892)

A THOUGHT FOR TODAY

Humans think they are smarter than dolphins

because we build cars and buildings and start

wars etc., and all that dolphins do is swim in the

water, eat fish and play around.

Dolphins believe that they are smarter for

exactly the same reasons.

-Douglas Adams, writer, dramatist,

and musician (1952-2001)

Thought for Today

Finish each day and be done with it. 

You have done what you could;

some blunders and absurdities have crept in;

forget them as soon as you can. 

Tomorrow is a new day; you shall

begin it serenely and with too high a spirit

to be encumbered with your old nonsense.