Hi Guys, welcome back to another episode of SingaporeanTalksMoney. Do hit the like button and subscribe to my channel for updates on my investing journey. Let's start with today's topic, do you have a fear of averaging up your stocks, I do.
Recently, I released an article/video on my Tesla stocks journey and how it became 30% of my stock portfolio as I slowly added more shares. Of course, as I added more Tesla shares as it's price went up, it also brought my average price up. I was actually originally against adding more shares as the price was increasing because it would raise my average price substantially. But I realised eventually that if you believe the company will do well in the future, what's stopping you from getting more of it as it grows?
For me, it definitely worked well in the beginning stages as Tesla stock price ran up due to lots of positive news surrounding it and averaging up seems to be a good decision as the stock prices goes higher even after I average up.
Recently though, with lots of FUD surrounding Tesla and Elon Musk himself being very active on Twitter regarding cryptocurrencies, although that might not be the main causes but the stock price have been hovering between $500 - $600 plus and having some difficulty breaking $700. However, I still find Tesla a company that is innovating and putting a lot of effort into the production of their EVs. Stock price does not always reflect the performance of the business.
Why you should not be afraid to average up
There are other stocks where I regretted not averaging up more like SGX and OCBC where I averaged up 2 or 3 times mainly due to a lack of funds or just being too cautious. For my RSP, I have been averaging up on Vanguard Total World Stock Index Fund ETF (VT) mainly through DCA, I started a few months after the pandemic and started buying in at prices of USD60 then 70, 80, 90 and now it is at about $100. Of course, when I first started the RSP, the amount I put in was low but I absolutely do not regret averaging up although it is through dollar cost averaging as you can see from the image.
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It might be an attractive strategy to keep track and get in a rising momentum or when you believe the stock price will rise in the long term although your average price increases. Many companies have done well over the past year as seen in the growth of S&P 500. If you are averaging up, it means the stock price is going up, which is good. For me, to average down is also an equally difficult task, of course if you have done your research and know that the downward trend is due to FUD (Fear, uncertainty and doubt) or due to short term news/environment then it's easy to average down. Averaging up or averaging down does not always turn out good and definitely do carry some risks with it like if the share price continues to drop suddenly or sharply after the uptrend and does not recover.
Average up and average down
In contrast to averaging up, averaging down is something that more people talk about. When you "like" a company and it's stock price drops, will you grab more? For me, yes if I have sufficient cash on hand as I have so for Tesla in the past 2 months. To be honest, I might not always have the courage to average down and it really depends on what company you are talking about. Overall, I think it is difficult to time the market and as they always say, "Time in market beats timing the market." I am also definitely holding my portfolio for the long term although I am sure we are going to be expecting lots of volatility and exciting news in the coming months and years.
Whether it is to average up or average down your position in a certain stock requires a certain amount of conviction but in the long term, time in the market beats timing the market so stay invested and hold a long term view. Hope you guys enjoy today's video/article and give me some support by following, subscribing and like my videos! Next up will be my mid year portfolio update.
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References:
https://www.investopedia.com/terms/a/averageup.asp
https://www.investopedia.com/terms/a/averagedown.asp
https://insideevs.com/news/516187/tesla-model3-modely-sold-q3/
https://www.reuters.com/business/autos-transportation/tesla-launch-high-end-model-s-plaid-fend-off-mercedes-porsche-2021-06-10/
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