Avg. down and pyramid up: I generally decide before I make an initial buy which way I will go, or if I won't add at all.
Since being mostly a value investor I am buying stocks when they are down and often when they are dropping, I tend to want to lag in (average down) on my buys. If I were investing in themes - for example believing commodities will increase - for example your bets that silver will continue to rise and/or mines developed, or my bets that oil shale properties will continue to be in demand and be developed -- then as those themes seem to come to fruition and provide confidence, then I will want to increase positions.
To me it seems there are many more companies that revert to mean values with changing management or business cycle, than there are companies that fail to do this and go bankrupt, so it's an overall profitable strategy to average down, even assuming I'll get the occasional terrible clunker. As far as "working out better", I'd guess averaging up has worked out better, because there's profits all the way up on every addition purchased. Plus sometimes, since I just seem to have more confidence and enthusiasm with such stocks, so the buys are bigger (than with avg. down buys of downtrodden stocks), and so the gains seem to be bigger too. And faster.
Of course, all this jmo based on my memory of what my experience seems to have been. |
