What is a add on dips strategy?

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by Nileshs, Jul 8, 2016.

  1. Nileshs

    Nileshs New Member

    Joined:
    Jun 1, 2016
    Messages:
    26
    Likes Received:
    5
    What is exactly add on dips strategy?

    Does this mean that if the stock price goes below your purchase price then buy more?

    OR

    Is this an average up strategy.

    Kindly explain.

    Regards.
     
  2. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Joined:
    Jun 26, 2016
    Messages:
    108
    Likes Received:
    20
    It could be both. Essentially if you are convinced about a stock and you feel that the stock is properly valued, a dip provides the opportunity to add more at lower prices.

    What is 'Buy The Dips'
    "Buy the dips" is a slang phrase referring to the practice of purchasing stocks following a decline in prices. After a significant dip in the price of a security or stock index, investors should increase positions or purchase different stocks to capitalize on what is seen as an eventual upswing.


    Read more: Buy The Dips Definition | Investopedia https://www.investopedia.com/terms/b/buy-the-dips.asp#ixzz4DnHmYXX4
     
    Farhan Ghumra likes this.
  3. Nileshs

    Nileshs New Member

    Joined:
    Jun 1, 2016
    Messages:
    26
    Likes Received:
    5
    But what is the stock is way above our purchase price and we are in profit then how to add more? It will increase average cost price?
     
  4. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Joined:
    Jun 26, 2016
    Messages:
    108
    Likes Received:
    20
    The purchase price of the stock is really an irrelevant concept. Whether you bought it at Rs. x or Rs. y has no bearing on how the stock will perform in the future. This is called "price anchoring". You are basing your buy and sell decisions on the irrelevant factor of what your purchase price is.

    Anchoring is the use of irrelevant information as a reference for evaluating or estimating some unknown value or information. When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value.

    Read more: Anchoring Definition | Investopedia https://www.investopedia.com/terms/a/anchoring.asp#ixzz4DnMxgiXp
     
  5. Nileshs

    Nileshs New Member

    Joined:
    Jun 1, 2016
    Messages:
    26
    Likes Received:
    5
    Just let me know whether should add stocks above his purchase price assuming the stock has still lot of upside to come OR he should book profits and buy again on declines.
     
  6. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Joined:
    Jun 26, 2016
    Messages:
    108
    Likes Received:
    20
    If there is a lot of upside to come the investor should obviously add more irrespective of what the original purchase price is.
     
  7. Feroz

    Feroz Member

    Joined:
    May 20, 2016
    Messages:
    46
    Likes Received:
    8
    Add on dips can be done if price goes down at least between 7% to 10% provided the stock purchased has good fundamentals. Likewise if price goes up and you are well convinced that it has great potential to go up then addition can be done. Hope this is clear.
     
Loading...