Moosh's Blog

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))

Where

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.