Double Down on Cost Averaging

Just do cost averaging they say... you won't lose they say... you will be rich one day if you do it constantly they say... but when I checked my result after years of cost averaging... WHY IS MY PERFORMANCE AVERAGE? This is another common advice given to newbies. While it does work, it reduces your potential gains. It ensures one thing... "your gains are average as well". So for those who do not know yet, Cost Averaging is setting  a discipline of buying on certain days (ex: your payday) on particular stocks religiously. This is not bad for people who are not truly active or want to really mess with market fluctuations and market timings.

The chart below will show 6 months worth of trends from month #0 and assume they sold their shares on month 6 (July Peak).

MONTH	NEW SHARES	PRICE	TOTAL COST	TOTAL SHARES	TOTAL COST	TOTAL PORT VALUE PRICExSHARES
JAN	100	50	5000	100	5000	5,000
FEB	100	45	4500	200	9500	9,000
MAR	100	40	4000	300	13500	12,000
APR	100	45	4500	400	18000	18,000
MAY	100	50	5000	500	23000	25,000
JUNE	100	55	5500	600	28500	33,000
JULY	0	60		600	28500	36,000 SOLD

So you see, using such method, you get a somewhat average gain of 7,500 pesos if you decided to sell on July(at 60 pesos)... It is not that bad, however you could've increased the earnings rate further by not buying into the bull and have focused while the market is lower.

 A better use of cost averaging which I use is what I call "Double Down Cost Averaging" to start cost averaging on stocks you know to have potential upswing but are hammered. For example, buying into a stock that seems to be losing downtrend momentum and about to go up. Did It fell off by 10-15% or more in value?  Instead of exiting, inject double of the original stake. You can see this in your COL or FMS accounts as % change. Then once it starts kicking up, STOP your cost averaging... 

Lets say the market happened similar to the previous sample. on Feb and Mar, the stock was still being hammered. so instead of buying the normal 100 per month, double down. I buy if I entered and the market is still falling but if its rising, I do not dilute my potential gains and would rather focus the money on a different prospect.

MONTH	NEW  SHARES	PRICE	TOTAL COST	TOTAL SHARES	TOTAL COST	TOTAL PORT VALUE PRICExSHARES
JAN	100	50	5000	100	5,000	5,000
FEB	200	45	9000	300	14,000	13,500
MAR	400	40	16000	700	30,000	28,000
APR	0	45	0	700	30,000	31,500
MAY	0	50	0	700	30,000	35,000
JUNE	0	55	0	700	30,000	38,500
JULY	0	60		700	30,000	42,000 SOLD

So if you decided to sell on July, you will earn 12,000 pesos compared to above (60% more). I am not saying this always works though and its just how I play. Also if the stock you are playing is wrong, then you have just amplified your loss. So the goal of this strategy is that once it is green and continues to go up, the only concern on your mind should be exit strategies (where and when to put your sell positions).