Then again it took us just about September 08, when bearish dark clouds were forming as a result of some politically motivated negative rhetoric that brought about market changes in stocks held by foreign investors. That caught up with lower stock market prices measured by the PSEI and a further weakening of the Philippines Peso.
Nevertheless, main street investors and/or retail traders in general who are mostly stock pickers may find it difficult to a certain degree to fund "cost averaging' of individual stocks as the market is in a declining trend direction. Improving one's prices is alright 'ONLY' if the recovery of certain price range are attainable with a considerable volume to support it. If not then that will certainly be a huge negative effect on their balance sheet.
Cost Averaging in a major down trend is ineffective
A Balance of Information: Transparency on Cost Average Strategy Part 2
The PSE exchange intentions the next 5 year plans in expanding the PSE operations in the south would be indeed a welcome treat for investors alike. If these plans hold true, it would likewise be nice to see some real serious improvements on 'Transparency' and a world-class upgrade for trading stocks options' to be provided to main street investors too. For now I guess this is wishful thinking.
ReplyDeleteA true 'Financial Literacy' program would sight the advantages and disadvantages of 'Cost Averaging' strategies applied in trading varies instruments in the market. This would enable investors the sense of having the right information as to what applicable strategies would suit their goals and objectives.
ReplyDeleteIn a summary, trading stocks, foreign exchange and other related financial instruments should carry a degree of 'Transparency' so investor/traders alike are well informed of the risk involved. That is why it is important that the two sides of the coin should well be defined.
Note: Buying more into a declining market would improve the original entry price of a trade position. And the relative break-even exit price would be executed at an earlier point of recovery. But the problem is; what if the
ReplyDeleteprices fails to do what is expected and continued its decline.
In this case, Cost Averaging in a major declining market condition would simply aggravate both positions. And if these trade positions were made from leverage, knowing at what price point would the position hold before getting a margin call.
An important consideration where investors would have to add more funds to maintain these positions otherwise the broker would be forced to liquidate / settle at a designated date and time.