I'm interested in those who buy tracking or partial positions in a value stock.
After you've established such a position, when does it become attractive to fill it out to a full position?
If the stock goes down more, but the fundamentals look even more attractive?
Yes.
If it starts to go up and breaks thru overhead resistance?
I don't use TA and usually I don't like to average up. However, sometimes I do, usually though when I have held the position for a long time and the price becomes attractive again to add to it. I don't usually add if stock runs up from my buy price in couple weeks or months.
If they release an earnings report that seems to herald further good news?
Yes, if there is no runup.
Any specific percentages that come into play?
I used to average down at 10-20% drops, but recently I have not been doing that so much. IMHO, it is more important what new things I learn about the company than what percentage it drops. If the company continues executing - even in adverse circumstances - I would continue buying. If there are negative changes in business outlook, income or balance sheet - and usually there always are when price drops - I would try to evaluate whether the negatives are temporary and how deep and bad they are. Two examples from very different ends of spectrum are ASFI and HOG. HOG is a superbrand that has some trouble with current economy, with high gas prices and perhaps with greying of its customer base. Great balance sheet, great margins even in downturn. So there the decision is whether the brand is still viable long term. No risk of company going BK or something like that. ASFI on the other side is a company which has some risk of going BK, the balance sheet is weak, but on the other hand the company is trading way below book, which is composed practically from receivables that they could turn into cash. There the questions are very different: how big is the BK risk? Are they overvaluing the book or can they unwind it into the cash at current valuation? Will they dilute to hell via debt or equity or both? All these things need to be answered to decide whether to buy on drop... In these concrete situations, I was adding HOG as it dropped to new lows, but I was not adding ASFI. Just my choice, someone else could do the opposite.
Overall, I like to get into positions by steps. I don't think I ever bought a big position with a single buy. I have sold some in a single sell when I decided that I don't believe the company anymore. Though mostly, I sell in steps too. |
