AVERAGE DOWN

Nagbenta ka nung umakyat si MAXS sa halagang 34 pesos per share meaning ang 30,000 shares mo ay 1,020,000 pesos na ang halaga. Yung investment mo was 540,000 pesos. Kumita ka ng 480,000 pesos.

Kunyare naman bumili ka ng 1000 shares ng MAXS na stock noong September 1, 2016 sa halagang 32.5 pesos. You averaged down until May 18, 2017. You now have 30,000 shares ng Maxs with an average of 25 pesos. That’s 750,000 (no tax or fees ang calculation para madali.) Nasa 18.46 pesos si MAXS noong May 18 meaning your 30,000 shares is only 553,800 pesos which is may 196,200 pesos na paper gain. Malaki loss mo. If you stopped buying MAXS at naghold ka lang until today, you now have 372,000 pesos worth of maxs shares with 378,000 pesos paper loss.

Kapag bumili ka ng stock you are anticipating or expecting na tataas ito. Wala naman siguro bumibili ng stock sa market para malugi. When things don’t go as you expected some cut their losses quick. They admit na things did not go as they wanted. They admit na nagkamali sila . They sell their shares and they move on. Meron naman na bumili ng stock and things did not go as they expect it pero instead na aminin na nagkamali sila ay bumibili pa sila ng mas maraming stock para dumami hawak nila at bumaba average. People do not like to admit that they were wrong about a choice once they have made it. Therefore, rather than conclude that they made a bad choice, they convince themselves that the choice was right and that since the stock has declined it is a better deal now than it was originally. In a state of denial, they buy more of the stock that declined. Averaging down sa isang stock na tumuloy sa pag bagsak is the worst idea. Averaging down sa isang stock na nag rebound at umangat pa sa dating all time high is a good idea. Cutting your losses on a stock na bumaba at nagrebound sa mas mataas pa sa all time high is a bad idea. Cutting your losses sa stock na tumuloy sa pagbaba is a good idea. Choose ka lang ng lesser evil diba?Both are poison choose ka lang which one ang gusto mo. Tama ba? Nope! There is a third option pero bago nun i will make one thing very very clear. Real investors don’t average down losers. I know you will hit me with Warren Buffet quotes. I will take that but please know that I love Warren Buffet. I never did and never will disrespect him. I don’t appreciate some traders making fun of Warren buffet or any value investor. If a person is richer than you or doing better than you in life, you don’t really have the right to disrespect them plus I just really admire Warren Buffet. Going back sa topic, you will probably hit me with this quote “If you liked it at $10 you should love it at $6 if it goes down.” A few years ago, back when my mom was still head of a certain investment firm, we would always have this little cute arguments. She would often quote Warren saying “If you liked it at $10 you should love it at $6 if it goes down” Then I would often say ” if you loved something at $10 and you were wrong, you might love it more at $5 and you almost as likely to be wrong, and like it more still at $2 and could equally be wrong.” When some people use Buffet’s quotes to justify why they average down they tend to forget a fact that Warren buffet started as a trader not as an investor as you know him now. A-huh. That’s right! Way before pa niya na meet si Benjamin Graham. Nasa 11 years of age siya nung nagtrade sila ni Dorris yung sister niya and I’m not sure if most of you know this but yes they bought six shares of Cities Service, an oil service company, at $38 a share. The stock fell hard after a few weeks at nag away sila ng kapatid niya. Wala siyang choice but to hold the stock. It went back up. He sold at $40 per share. The stock went to as high as $200 per share eventually. There are a lot of information and understanding na nalolost sa mga bagong traders/investors ngayon. Let me tackle it a bit kasi I really love Warren Buffet plus gusto ko din alisin ang mga ignorant ideas at statements na lagi ko nakikita sa mga long term investors or sa mga day traders. How did Buffet become rich? Saan galing pera niya? Paano niya napalobo ang wealth niya? He owned insurance companies within his conglomerate and could invest their “float”—the premiums they take in but don’t have to pay out in claims right away. Insurance float is the bread and butter of his wealth. He has used these money to create his vast empire and allow him to invest in or buy outright great companies like Geico, American Express, Coca-Cola, Wells Fargo and recently, Apple.

I think most of you don’t know what float is so explain ko muna. In the insurance industry, “other people’s money” is known as float.  We are all familiar with the terms premiums and claims, they are both the money that we pay every year for an insurance policy, and the money paid back to us when we have an accident, medical, or other circumstances. Saan ba napupunta ang pera na binibigay or hinuhulog niny sa insurances? (Dali ask your insurance agent/financial advisor) Insurers don’t pay out all the money right away. Instead, an insurance company will collect money in premiums, invest that money, and pay out claims as needed in the future. The difference between premiums collected and claims paid out is the insurance float. It is very similar to how a bank will collect deposits, invest that money (through loans), and then will repay that money in the future with a withdrawal . You don’t believe me? Here is what Warren had to say about it: