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Averaging down and don't invest in this stock!

Thursday, May 31, 2018

Reader says...
... Singtel, average down from entry at $3.62 till $3.33, average cost is about 3.44.

I only started buying stock about 6 months ago, and having using this approach.

I decided an entry price, normally at 52 weeks low so I got a margin of safety, then average down if the stock keep dropping and stop when the stock moving up.

What is your opinion of this average down approach?

One down side I learnt so far is if the stock run up after my entry price, then I will not be able to accumulate much as only nibble small amount (3k-4k) at the start.

It happened with my ST Engineering, Sheng Siong and First Reit.

The stock took off after my entry and have no chance to buy since then as I tried to chase.

Also, what do you think about stock with low transaction volume?

Should we avoid those as it might not be easy to sell with low daily volume ?

AK says...

If the price on a good investment goes lower, it is better value. ;)

As for less liquid counters, I don't see a problem if we are investing for income. :)

See what a CFA and investment guru told me about Old Chang Kee when I blogged about investing in it in 2011?

"I love eating Old Chang Kee. However, the stock is quite illiquid and has very little volume. One look at the bid ask spread tells me a lot about the counter.

"So as much as I love Old Chang Kee, it is somewhat considered close to a penny stock to me. Therefore I can't invest in it."

See full comment and also my reply in the comments section of:

Have a plan.

Everything remaining equal, stick to the plan.

Ignore the noise. :)


Unknown said...

Good stock: SingTel
Bad stock: Hyflux

It's good to average down for good stock. Good luck.

AK71 said...

Hi Jimmy,

Cheap could get cheaper, of course. :)

csky said...

Hi Ak,

Will you be picking up more of Singtel at the recent price of $3.23?

It is a bit unnerving to see it fall from $4 to $3.6 to $3.4 and now almost $3.2. The dividend payout for FY18 is about 82% of underlying profit due to lower profit from Bharti. But Singtel has committed to sustaining dividend for at least the next two years since they have the cash buffer from the sale of Netlink Trust.

Just not sure how long will Bharti take to recover to their past profit levels, if more than 3 years, would that means Singtel will have to cut dividends to keep to the max 75% payout policy? On the other hand, if Bharti does well, India and Africa are huge markets for the future.

Is it time to keep calm and buy more :p

Would your bowling ball be able to share some insights TA-wise :P My rudimentary bowling ball with Fibo retracement show support at $3.13 and then $2.8.

AK71 said...

Hi csky,

To me, SingTel is getting cheaper and cheaper as its share price goes lower and lower.

The logical thing for me to do is to add to my investment and I have been doing exactly that.

I think we have to ask if we are OK with a DPS of 16c instead of 17.5c to be on the safe side.

If we are, buying more at $3.20 a share, we would still be getting a 5% yield.

I don't know where prices would go in future but if it should hit $3.10, all else remaining equal, I know I am buying again.

csky said...

Thanks AK.

Got limited bullets, so I think I need to sit tight in case $3.10 or $3 comes round :/

AK71 said...

Hi csky,

That sounds like a plan to me. ;)

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