Reverse Averaging

After coining my first Acronym (PRISM) - am at it again. I invented the concept of "Reverse Averaging".

Reverse Averaging:
Over the past 11.5 months - I have build a decent portfolio of mostly SENSEX shares. When I started with 1Lakh Rupees and invested in a set of scrips - some of these tumbled - that is when I discovered Averaging - Keep buying the same scrips at lower price to bring the average down. I did that with a couple of scrips and booked profits over the average price. That means lost money on first investment but made good on second investment in same script.

I kept the Averaging going with a SIP into Stock Market every month - Luckily for me the price of the scrips that I was holding fell to very low levels - I did not lose heart and kept buying and felt happy by bringing my notional losses down - every month.

Beginning of 2009 - I got bored of this and added a new tactic -while continuing the above - I started buying new scrips in SENSEX and try to sell them within a month or so with profit booking. This money was then ploughed back into the original holding.

In May 09 when the market started looking good - I noticed that the LTP (Last Trade Price) was more than my Average. I had an opportunity to sell all the stocks of that script and book some profits but instead - I sold few shares in each script and book profit against the lowest buy price within that Script. That meant my Average price went up. When the LTP went above my new average - I Sold again - booked profits and got the average to go up.

I call this Reverse Averaging.

What would I have done if the LTP went below the Average - I would have bought again to bring the average down.