Averaging-up

Friday, 10th September 2010 08:03 - by Boredmum

I want to talk about ‘averaging-up’ in a company share. I have to say that it’s a fairly new concept for me, but one that worked tremendously well recently. I have previously talked of ‘averaging-down’ and used it many times to get out of a trade successfully. In averaging-down, it means that I haven’t picked a good entry point in the first place and that is something I should be looking at more closely. When you have a share that is going up, and if you think it has much further to go and it is in an upwards motion, then by all means average-up. My problem before was that psychologically I found it hard to pay more than my original purchase but if you think there was much more room for an increase then it would of course make sense to buy more at a higher price. A recent example was Northacre (TIDM code: NTA). Now, I urge you all to look at a chart for NTA and you will see where I am coming from. I bought originally around 35p, but only a tiny amount as, although I felt that there was incredible value to be had, I didn’t feel it would be seen for a while. The share price started to move and I bought more at 55p. At 55p I hesitated, but the share was in an upward movement and I had my lower purchase to protect me in the event of a fall. I purchased again when the share price was in the 70’s. Now, you may wonder why I didn’t just buy more at 35p. I didn’t quite expect the movement so quickly and the whole point of this exercise in averaging-up is to do it on an upward trend. If you have a share that is going well, do not make the mistake that I did previously. There is certainly no shame in averaging-up and it is a strategy that could pay off nicely.