Having been introduced to POG recently after watching it from afar and after looking briefly at the fundamentals, I took the plunge with a small holding at the start of October 2012.
The weekly slow stochastic wasn’t overbought and the price was still under a weekly cloud so I knew that it was going to be a long term (6-12 month+) investment. Although the price continued upwards for a few weeks after I bought, it is currently in a steady decline, but I thought I would take this opportunity to trial a new (but simple!) calculation which helps me to decide how much I want to purchase after an initial stake – further buys ideally need to bring down the price at which I need to break even. Here’s the calculation:
N = C / (B – (1.005 X A))
N = minimum number of shares (rounded up) to buy at A to equal or reduce previous break even
C = commission (pence)
B = break even price (pence)
A = current ask price (pence)
1.005 is the multiplier to represent stamp duty – some shares pay more or less stamp duty than others so this will change, but I use 1.005 to keep it simple
Here are the following buys I have made and I have incorporated the above for further buys:
1. 2 October 2012 BUY 20 @ 426.99p total = £91.08
Break even after (1): (9108 + 525)/20 = 481.65p
Second buying opportunity came with an ask of 433.21p:
N = 525 / (481.65 – (1.005 x 433.21)) = 12 shares
I decided to purchase 15 shares instead as follows:
2. 10 October 2012 BUY 15 @ 433.21p total = £70.55
Total number of shares = 35, with a total cost of £161.63
Break even after (2): (16163 + 525)/35 = 476.8p
Third buying opportunity came with an ask of 356.77p:
N = 525 / (476.8 – (1.005 x 356.77)) = 5 shares
I bought 12 shares as follows:
3. 20 November 2012 BUY 12 @ 356.77p total = £48.27
Total number of shares = 47, with a total cost of £209.90
Break even after (3): (20990 +525)/47 = 457.77p
Fourth buying opportunity came with an ask of 362.8p:
N = 525 / (457.77 – (1.005 x 362.8)) = 6 shares
The latest purchase was increased to 8 shares:
4. 23 November 2012 BUY 8 @ 362.8p total = £34.42
Total number of shares = 55, with a total cost of £244.32
Break even after (4): (24432 + 525)/55 = 453.77p
This week’s example in POG is ongoing and not a success (yet?!), but it has been an important exercise with respect to having control over how much I invest during a downfall and to make sure that any purchases I do choose to make are going to result in averaging down rather than averaging up. There may be a point in time when the value of N becomes so large (as A approaches B) that I may consider it too risky to buy more shares at that particular price so in that event I would decline a further buy and be happy with the purchases I have made and to wait for the gain after that. Each subsequent purchase has averaged down the break even price from 481.65p to 476.8p to 457.77p, and finally to 453.77p.
The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.
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